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Sen. Tim Scott Leads Bipartisan Effort Encouraging Treasury To Deliver On Opportunity Zone Rules Clarification

Sen. Tim Scott

The members of Congress who drafted the influential opportunity zones provision of 2017's Tax Cuts and Jobs Act have weighed in on its clarification process.

Republican Sen. Tim Scott of South Carolina authored an open letter to Treasury Secretary Steven Mnuchin with five questions or comments about the opportunity zone guidance the Department of the Treasury issued in October. The department, along with the IRS, has yet to reschedule the January hearing that was scuttled due to the government shutdown that ended Jan. 25.

Here are the five items, summed up:

  • The drafters of the letter praised Treasury for its initial guidance, especially the requirement that at least 70% of an operating business' property must be within an opportunity zone to be eligible for capital gains tax benefits.
  • Scott et al. implored Treasury to remove the requirement that opportunity zone businesses derive at least 50% of their gross income from within an OZ to be eligible for the program, citing the difficulty in attaching a specific location for many businesses' incomes. The letter requested that instead, at least 50% of a business' income must be from "the active conduct of its trade or business."
  • The drafters requested additional timing flexibility and clarification on timing for initial investments and reinvestments in property and businesses in opportunity zones. More flexibility, the letter argued, would more easily allow opportunity funds with more than one investment to distribute and redistribute capital among their investments, especially operating businesses. 
  • The redistribution of capital within an opportunity fund was also the focus of the fourth question, which requests a window of time between a fund receiving a return on an opportunity zone investment and reinvesting that capital somewhere else. All such transactions should remain eligible for the tax break, the letter argues, provided that investors don't "take distribution from the fund or sell their interest prior to meeting the 10-year hold requirement."
  • Finally, Scott and his fellow members of Congress implored the Treasury to include reasonable reporting requirements at regular intervals for both opportunity funds themselves and the investments they make. Such reporting, and the publicizing of such information, would both reduce abuse of the program and move capital off the sidelines by informing potential investors and communities of potential partners.

After the October release of opportunity zone clarifications, the IRS and Treasury solicited questions and suggestions in an open comments period that was to end on the day of the hearing. Many investors have hesitated to make serious moves until the hearings ended with finalized regulations. With the federal government reopened for at least the next three weeks, Scott and his colleagues wasted little time in adding their collective voice to the calls for clarity.

Among the other signatories to the letter were Cory Booker, the Democratic senator who co-sponsored the initial legislation with Scott; Sens. Rob Portman, Todd Young, Joni Ernst and Cory Gardner; and Reps. Mike Kelly, Ron Kind, Suzan DelBene and Derek Kilmer.