On December 6, 2019, the Treasury announced that the final regulations had been issued and sent to OMB for approval. On December 19, 2019, the final regulations package, totaling over 500 pages, was officially published. Separate blogs will be posted after we digest the contents of the final regulations.

“Opportunity Zones are helping to revitalize communities and create jobs for hardworking Americans,” said Secretary Steven T. Mnuchin. “These regulations provide clarity and certainty for investors, which will enhance the flow of capital to new and expanding businesses, and create sustained economic growth in communities that have been left behind.”

The final rules provide clarity for Opportunity Funds and their eligible susidiaries in determining qualification and levels of new investment in Opportunity Zones. They also provide guidance regarding the types of gains that qualify for Opportunity Zone investments, as well as gains that may be excluded from tax after a 10-year holding period.

The final regulations provide a much better guideline as to what works and what doesn’t work in connection with OZ qualification.

New legislation has also been proposed that would now create a concept of active reporting that was left out of the initial OZ bill, as otherwise proposed by the Treasury as part of the prior proposed regulations published in April of 2019 regarding accountability for OZ projects. This legislation, in and of itself, does not change the Program; rather, it would require a reporting by OZ funds as to the nature of investments and what benefits have been provided to the community as a result of the OZ project. In this manner, the government will be able to better calculate whether the intended consequences of the OZ Program are being met and/or what modifications may otherwise be necessary or appropriate in order to better meet the initial intentions of the legislation.

From a marketing standpoint, we are observing that the OZ Program has mostly been pursued by developers for their own projects that are directly raising funds from investors. Large institutions have been successful in raising significant capital through their marketing channels. However, we have not seen any significant active role of independent funds in sponsoring and raising capital for projects on an ongoing basis, although with the final regulations being published, this may change.