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Portfolio > Mutual Funds > Equity Funds

Opportunity Zone Reporting: Recommendations From an Investors Group

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A coalition of nearly 70 community development, private equity, venture capital and investment firms led by the Economic Innovation Group (EIG) has submitted its recommendations to the Treasury Department detailing what a reporting framework for investments in Qualified Opportunity Zones should look like.

The letter was a response to a request for information issued by the Treasury Department on May 1, which acknowledged that the current version of Form 8996, which opportunity zone funds must file annually, “lacks sufficient granularity for the Treasury Department to determine the amount and type of investment that flows into an individual qualified opportunity zone through a QOF.”

“The Opportunity Zones incentive has unlocked critical new sources of capital for low-income communities across the country, but measuring the full impact of this policy requires the adoption of a thoughtful data collection framework,” said EIG President and CEO John Lettieri, in a statement. “This letter underscores the widespread support for such a framework among leading private sector and philanthropic stakeholders.” EIG is credited with developing the concept of opportunity zones along with Napster founder and Facebook early investor Sean Parker.

Opportunity zone funds provide several tax benefits, including the deferral of capital gains from a previous investment and a stepped-up basis for the opportunity zone investment, but they are not required currently to provide much documentation to support the funds’ other primary purpose: to promote economic development in low-income neighborhoods.

That could change after the IRS reviews the responses to its request for information including the recommendations sent by the EIG-led coalition. In addition, a bipartisan group of senators and House members including Sen. Cory Booker, D-N.J., and Rep. Tom Reed, R-N.Y., have introduced legislation in both houses that would require the Treasury to collect data on the number of opportunity funds, their assets (size and composition of investments by asset class), percentage of designated communities receiving investments and the impacts and outcomes of job creation, poverty reduction and business starts in designated communities. Much of the information would be made public on an annual basis.

The coalition letter to the IRS recommends that the Treasury implement the information report and data collection framework put forward in the Senate (S.1344) and House (H.R. 2593) bill even if the legislation is not enacted.

“A robust data collections and provision regime would fall squarely” under the regulatory authority that Congress granted the Treasury when it passed the 2017 tax cut legislation that essentially created opportunity zone funds through a new section of the tax code.

In addition to the reporting requirements contained in the recently introduced House and Senate bills, the coalition would also like opportunity zone data collection to include the number of investors and transactions and the composition of investments across asset classes for each opportunity fund “to the extent that privacy laws allow.”  Fund managers would be the most appropriate source for collecting the data.

To measure the long-term impact of opportunity zone funds on the communities in which they invest, the coalition recommends data collection on:

  • Population gain or loss
  • Changes in the poverty rate and number of poor people
  • Changes in employment and unemployment rates and total number of people who are employed and unemployed
  • Positive and negative spillover effects
  • Entrepreneurship
  • Job quality
  • Community amenities
  • Brownfield redevelopment
  • Displacement and migration

“Treasury should consider announcing now that it will commission a report utilizing confidential IRS information on linked individual tax records to track the earnings and migration of opportunity zone residents (or a subset of them) over time (along with a control group).

“Treasury could send perhaps no greater signal about its commitment to transparency and impact than soliciting an evaluation such as this.”

Among the letter signatories are Novogradac & Co., a national CPA firm; Mayer Brown, a national law firm; Blueprint Local, whose partners include Brown Advisory and Admiral Capital; KPMG; and Calvert Impact Capital.

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