On December 12, 2018, President Donald Trump signed an executive order establishing the White House Opportunity and Revitalization Council (the Council). The Council is designed to encourage public and private investment in Opportunity Zones and other urban and economically distressed areas. Created pursuant to the Tax Cuts and Jobs Act of 2017 (the Act), Opportunity Zones are specially designated low-income communities and adjacent areas.
The Council will be chaired by the Secretary of Housing and Urban Development and will comprise representatives from the White House and at least 16 federal agencies or executive departments. The Council will assess opportunities and recommend policies for federal agencies to prioritize urban and economically distressed communities, including Opportunity Zones, and minimize the regulatory burden on public and private investment in Opportunity Zones and other urban and economically distressed communities. The Council will submit its initial findings to the President within 90 days. Within 210 days, the Council will present to the President recommended legislative, regulatory and policy changes to promote investment in urban and economically distressed communities. Within a year, the Council will present to the President recommended legislative, regulatory and policy changes to assist state, local and tribal governments with accessing federal resources to use in urban and economically distressed communities. Also within one year, the Council will present the President with a report on best practices to promote public and private investment in Opportunity Zones and other urban and economically distressed communities.
The Council’s findings and recommendations will make investing in Opportunity Zones more accessible to taxpayers. Pursuant to the Act, the benefits to taxpayers making eligible investments in Opportunity Zones are (1) temporary deferral of taxes on gains from a sale or exchange to an unrelated party until the earlier of December 31, 2026, or the date the subsequent investment is sold or exchanged, if the capital gains are invested in a “qualified opportunity fund” (a Qualified Fund) within 180 days of the sale or exchange that generates the gains to be deferred; (2) partial forgiveness of deferred taxes on the earlier of December 31, 2026, or the date the subsequent investment is sold, if at such time the investment has been held for at least five years; and (3) forgiveness of any capital gains taxes generated by the sale or exchange of the investment in the Qualified Fund, if the investment in the Qualified Fund has been held for at least ten years.
The executive order follows a spate of Opportunity Zone-related activity in Washington, D.C. On December 10, 2018, Rep. Mark Meadows (R-N.C.) introduced the Disaster Recovery and Opportunity Act, which would allow governors to designate up to 5% of federally declared disaster areas as Opportunity Zones in order to aid recovery efforts. On November 15, Sens. Richard Burr (R-N.C.), Thom Tillis (R-N.C.), Lindsay Graham (R-S.C.), Marco Rubio (R-Fla.), Bill Nelson (D-Fla.), Dianne Feinstein (D-Calif.) and Kamala Harris (D-Calif.) introduced a bill to designate Hurricane Florence, Hurricane Michael and California wildfire disaster areas as Opportunity Zones. On October 19, 2018, the Internal Revenue Service released proposed guidance addressing questions about investing in Opportunity Zones. Another round of Opportunity Zone guidance is expected to be released in January. We will update this client alert once further guidance is released.
We expect to see clients move toward forming and investing in Qualified Funds, and to see investors feeling more confident about making investments in Opportunity Zones. Manatt has been actively involved in the Opportunity Zones program since its inception, and we can help you take advantage of the benefits of Opportunity Zones.