The IRS has issued Announcement 2021-10 (the “Announcement”) in response to public questions regarding the potential effect the 2020 Census results may have on the boundaries of previously designated Opportunity Zones.
As part of the Tax Cuts and Jobs Act, Congress added sections 1400Z-1 and 1400Z-2 to the Internal Revenue Code. These sections created tax incentives for investment in low income census tracts. As part of the statute, chief executives of each state and territory designated specific qualifying low-income census tracts as Opportunity Zones. The census tracts were based on the 2010 Census. The Department of Treasury then reviewed the submissions, and, if approved, designated these census tracts as Qualified Opportunity Zones. Investment of capital gains in Qualified Opportunity Zones through an investment vehicle known as a Qualified Opportunity Fund allowed investors to reduce and defer tax on their investment, and ultimately receive any appreciation in the value of the interest in the Qualified Opportunity Fund tax-free if the investment is held for at least 10 years.
When the 2020 Census results were released, questions arose as to whether the boundaries of Qualified Opportunity Zones would be altered based on the updated Census results. The Announcement clearly states that there will be no changes to the boundaries of Qualified Opportunity Zones. The IRS said emphatically and clearly that "the boundaries of the designated Qualified Opportunity Zones were established at the time they were designated and are not subject to change."