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.