Recent IRS Guidelines Remove Hurdles to Investing in Opportunity Zones

The IRS published its second round of proposed guidelines for regulating Opportunity Zones (IRS, 2019). In so doing, they removed some of the barriers to investing in Wyoming’s Opportunity Zones. With several rounds of proposed regulations, this additional clarity has been needed by many investors who were sitting on the sidelines.

Investors were waiting to see what the IRS would do in relation to specific clauses that could impact the success of their investments. “This set of proposed regulations removes many of the impediments that have kept capital on the sidelines instead of flowing into communities and supporting local growth,” said John Lettieri, President and CEO of the Economic Innovation Group (Economic Innovation Group, 2019). Now that the IRS has cleared up the confusion, investors are eager to make their investments in 2019, if possible, to capture the maximum benefits offered by the legislation. 

Updates to IRS Guidelines Provide Clarity on Opportunity Zone Investments

The substance of the IRS guidelines remains the same.  Clarity has been given around the IRS’s initial language requiring 90 percent of QO Fund assets to be invested in an Opportunity Zone. The 90 percent asset test indicated that investments had to be made quickly after capital had been raised. This would make it difficult or impossible for investors to conduct true due diligence. Now, when determining if a QO Fund meets the 90 percent test, investments secured within the past six months are not included in the calculations. QO Funds can invest at a reasonable pace now, which is good for Wyoming. It gives our communities the opportunity to reach investors who may have otherwise only invested in their own backyard due to time constraints. 

Safe harbors have also been created to help businesses meet the income test. Rather than requiring a Qualified Opportunity Zone business to make 50 percent of their income within the opportunity zone, businesses can now qualify by performing at least 50 percent of their services, paying for 50 percent of services performed by employees, or having 50 percent of their property located within an opportunity zone. This change is significant and opens the door for more Wyoming businesses to qualify for investment.

Investors looking at development opportunities in Wyoming will benefit from additional clarity on what is defined as qualified opportunity zone business property. The IRS stated the following:

• Qualified opportunity zone business property is tangible property used in a trade or business of the QO Fund if the property was purchased after Dec. 31, 2017.
• For use of the property, at least 70 percent of the property must be used in a qualified opportunity zone.
• For the holding period of the property, tangible property must be qualified opportunity zone business property for at least 90 percent of the QO Fund’s or qualified opportunity zone business’s holding period.
• The partnership or corporation must be a qualified opportunity zone business for at least 90 percent of the QO Fund’s holding period.

Download a pdf of IRS proposed Opportunity Zone regulations here.

Learn How to Market Opportunity Zones

The clarity offered by the IRS is giving many investors the green light to direct funds into Opportunity Zones. Capturing their interest will require a comprehensive marketing effort. For tips on how to market Opportunity Zones, read “How to Market Your Opportunity Zone.”

For more information on Opportunity Zones, visit the Wyoming Business Council’s website. You can also email Brittany Ashby at bashby@thealignteam.org.