A group of Republican Senators have introduced the IMPACT Act, a bill to reinstate and expand reporting requirements to determine the impact of opportunity zone investing.
Opportunity zones were created as part of the Tax Cuts and Jobs Act of 2017 to incentivize investment in certain low-income communities designated as opportunity zones. Investors may be able to defer capital gains through 2026 and receive up to a 15 percent tax reduction on current gain, as well as eliminate capital gains taxes on any returns generated by the opportunity zone investment, if it is held for at least 10 years.
Senator Tim Scott (R-SC), along with Senate Finance Committee Chairman Chuck Grassley (R-IA), Senators Marco Rubio (R-FL), Shelley Moore Capito (R-WV), Todd Young (R-IN), Joni Ernst (R-IA), Bill Cassidy (R-LA), and Cory Gardner (R-CO) introduced IMPACT Act, or improving and reinstating the monitoring, prevention, accountability, certification, and transparency provisions of opportunity zones.
Opportunity zones were initially proposed by Sen. Scott’s Investing in Opportunity Act more than four years ago and included reporting requirements, however, procedural rules stripped the requirements out of the opportunity zones provisions when they were added into the 2017 tax reform package.
“Opportunity zones provide thousands of low-income communities, both urban and rural, across the country with the potential to transform the future for generations to come,” said Sen. Scott. “The IMPACT Act’s reporting requirements will help show communities and investors that the initiative is working, as well as help root out any fraud or abuse. This is an important piece of the puzzle to help the more than 31 million Americans living in opportunity zones experience a brighter future.”
Specifically, the IMPACT Act codifies requirements for qualified opportunity funds to report information on the value of total assets held by the fund, the location and value of opportunity zone property held by the fund, whether the property is owned or leased, information on disposed investments during the tax year, information on the location and industry classification codes of businesses receiving equity investments as well as the value of those investments.
The legislation also requires reporting on the number of people employed through opportunity zone investments, what funds are receiving investments, investment and disposition dates, and other measurements that allow the IRS to track both the deferral and recognition of gains, the trajectory of the investments over time.
The bill also includes penalties for both individuals and funds that fail to accurately and appropriately file the required returns or statements and penalizes anyone who attempts to take advantage of the tax incentive for fraudulent purposes.
The Treasury Department must also make certain information public including the total number of funds, the total assets of all funds, the distribution of opportunity zone investments across different industry classification codes, the percentage of all opportunity zones that have received investment through the incentive, the total amount of opportunity fund investments made in each census tract, the distribution of investments in real property and active businesses, data deciphering the sizes of businesses receiving investment, and numbers of jobs created or sustained by those businesses in light of the investments.
In addition to the annual reporting Treasury is required to produce, in five years and again five years later, Treasury is required to work with relevant agencies to provide a comprehensive report to list economic and demographic data points to provide a view on the impact to each census tract over time.
This includes the unemployment rate of the zone, education levels of zone residents, the availability of affordable housing and percentage of income used for rent, impacts to median family income, the presence of specific industries and new business starts that create jobs, home equity impacts for residents, and more.