New Guidance on Opportunity Zones: Incentives for Investments in Low-Income Communities

by Holland & Knight LLP

Holland & Knight LLP

  • Holland & Knight previously published a three-part series describing the powerful new tax incentive contained in the Tax Cuts and Jobs Act for investments in low-income communities designated as "Opportunity Zones."
  • In Part 1 of that series, we discussed the new tax incentive generally and explained the process for designation of Opportunity Zones for the 10-year period. In Part 2, we discussed the requirements for formation and certification of a Qualified Opportunity Fund and the rules governing its operations. Finally, in Part 3, we discussed the benefits for investing taxpayers, namely the deferral or partial exclusion of gain from the sale or exchange of an asset by a taxpayer who invests in a Qualified Opportunity Fund, as well as the potential exclusion of gain from disposition of an investment in a Qualified Opportunity Fund.
  • In this alert, we highlight the clarifications provided by the U.S. Department of the Treasury and the IRS on Oct. 19, 2018, through issuance of guidance and a draft tax form.

There is a great deal of excitement about the new tax incentive for investments in low-income communities designated as "Opportunity Zones." This enthusiasm is being expressed by investors, those who want to attract investment, and the state, local and tribal governments that have high hopes for the economic development it can spur in the low-income communities they serve.

The new tax incentive, found in the Internal Revenue Code at 26 U.S.C. §§1400Z-1 and 1400Z-2, was created by the Tax Cuts and Jobs Act, signed into law in December 2017. While many began planning for the new tax incentive by raising capital, establishing Qualified Opportunity Funds and laying the groundwork for starting a Qualified Opportunity Zone Business, some plans were stymied by the lack of guidance from the U.S. Department of the Treasury and the IRS. On Oct. 19, 2018, the Treasury Department and IRS released much anticipated Opportunity Zones guidance, clearing the way for the success of the new tax incentive.

Specifically, on Oct. 19, 2018, the Treasury Department and the IRS issued proposed regulations1, Revenue Ruling 2018-29 and draft IRS Form 8996. In addition, the IRS updated on its website the frequently answered questions regarding Opportunity Zones. On the whole, these developments are welcomed by stakeholders who are pleased to see the new tax provisions interpreted in a manner designed to spur economic growth and investment. The guidance still leaves many questions unanswered but with a promise that additional answers are forthcoming.

For a general background on the new Opportunity Zone incentive, please refer to Holland & Knight's prior three-part series (see Highlights above). Below, we focus solely on the developments of Oct. 19, 2018 – specifically the proposed regulations, Revenue Ruling 2018-29 and draft IRS Form 8996 – and assume the reader's general familiarity with the incentive.

Tax Benefits for Taxpayer Investors

  • Clarification was provided that only gains from the sale or exchange of capital assets are eligible for deferral and the benefits that flow from such deferral.
  • Clarification was provided on which taxpayers can defer gain. In the case of a partnership, the partnership can elect to defer gain, and if it does not so elect, each partner can elect to defer gain. The proposed regulations provide for how the gain deferral is treated under partnership allocation and distribution rules in each case.
  • The timing of the commencement of the 180-day period for investment of deferred gain in the case of a partner in a partnership is clarified. The proposed regulations provide a default rule, namely that the 180-day period begins on the last day of the partnership tax year in which the sale or exchange generating the gain occurs. As an alternative, the proposed regulations allow the partner to elect to start the 180-day period on the day on which the sale or exchange occurred.
  • Helpfully, the proposed regulations clarify that if a taxpayer disposes of its investment in a Qualified Opportunity Fund and recognizes gain, the taxpayer can reinvest that gain in a Qualified Opportunity Fund within 180 days and the tax benefits are available for that reinvestment.
  • One ambiguity in the law is whether taxpayers who invest in a Qualified Opportunity Fund can reap the benefits allowed for investments held for 10 years – namely, whether an election can be made to increase basis in the investment to fair market value – after the designation of Opportunity Zones expires in 2028. The proposed regulations clarify that a taxpayer can make such election upon sale of the investment as late as Dec. 31, 2047, even if the designation has expired.
  • The proposed regulations clarify that a taxpayer can make the election to step up basis in an investment in a Qualified Opportunity Fund that was held for 10 years or more only if a proper gain deferral election was made for the investment.
  • The proposed regulations clarify that a deemed capital contribution of partnership debt under Code Section 752(a) – which results in an increase in the investor's basis in his interest – is not treated as a separate investment in a Qualified Opportunity Fund under the mixed investment rules. Accordingly, debt does not dilute the benefit of deferral.

Qualified Opportunity Funds

  • Clarification was provided that a Qualified Opportunity Fund can be a limited liability company (LLC) so long as it is taxed as a partnership or a corporation for federal income tax purposes.
  • The IRS draft Form 8996 allows a Qualified Opportunity Fund to self-certify to the IRS by filing such form as an attachment to the Fund's annual income tax return.
  • Clarification was provided that pre-existing entities can be Qualified Opportunity Funds so long as they satisfy the qualification requirements at the time they choose to be treated as a Qualified Opportunity Fund, including that interests in "qualified opportunity zone property" included in the calculation of the 90 percent test were acquired after Dec. 31, 2017.
  • The proposed regulations provide some flexibility on the testing dates that a Qualified Opportunity Fund can use in its initial year to determine whether it meets the required test that 90 percent of its assets must be "qualified opportunity zone property." The Qualified Opportunity Fund can choose both its first tax year as a Qualified Opportunity Fund and the month in which its first six-month testing period begins. This flexibility means that a Qualified Opportunity Fund can conduct some activities before it needs to meet the test on it first testing date. However, in no event can the first testing date be later than the last day of the Qualified Opportunity Fund's first tax year. The proposed regulations do not permit any ramp-up period for a fund's initial period of operations in which it could raise investor money but not invest.
  • Clarification was provided that for purposes of the 90 percent of assets test, assets are valued based on the Qualified Opportunity Fund's qualified financial statements if available. If the Qualified Opportunity Fund does not maintain qualified financial statements assets can be valued based on cost.

Qualified Opportunity Zone Businesses

  • Similar to Qualified Opportunity Funds, clarification was provided that pre-existing entities can be Qualified Opportunity Zone Businesses so long as they satisfy the qualification requirements at the time they choose to be treated as a Qualified Opportunity Zone Business, including that substantially all of the business's tangible property was acquired after Dec. 31, 2017.
  • By law, in order to be a Qualified Opportunity Zone Business, the business must have "substantially all" of its tangible property located in an Opportunity Zone. Clarification was provided that in this instance "substantially all" means a threshold of only 70 percent. The proposed regulations acknowledge that there are numerous parts of the law that use the term "substantially all," and the meaning of the term in these other sections will be defined in future guidance.
  • Helpfully, the proposed regulations allow a Qualified Opportunity Zone Business to maintain working capital (cash) for up to 31 months if certain conditions are met, without threatening its status as a Qualified Opportunity Zone Business.
  • The proposed regulations and contemporaneous Revenue Ruling discuss the rules around land and existing buildings in Opportunity Zones. The Revenue Ruling notes that land can never meet the "original use" requirement. Accordingly, where an existing building and the land on which it is located are purchased, the substantial improvement test must be met. For purposes of this test, however, the proposed regulations provide that the land value can be ignored and the substantial improvement test is applied to the basis of the building only.

Conclusion and Considerations

The recent guidance provided by the Treasury Department and the IRS is very helpful for stakeholders who are trying to unleash the power of the new Opportunity Zone incentive. Unfortunately, as was anticipated given the complex and novel law, certain important questions remain unanswered. These questions include how the penalty should apply when a Qualified Opportunity Fund fails to meet the 90 percent asset test, how Qualified Opportunity Zone Businesses satisfy the requirement that they must be an "active" trade or business, how vacant land will be treated, how long a Qualified Opportunity Fund will have to redeploy funds from an investment it has disposed of, and how an investor's exit from a Qualified Opportunity Fund after 10 years will work and whether debt will be treated as a separate investment for such purposes. Nevertheless, the enthusiasm around the new Opportunity Zone incentive is well-founded. Investors, those who want to attract investment, and state, local and tribal governments should act sooner rather than later to determine how to take advantage of this powerful new tax incentive.


1 Although these regulations were issued in proposed form, reliance on the proposed regulations is generally permitted (if followed in their entirety) until final regulations are promulgated. In addition, the U.S. Treasury Department and IRS are actively encouraging and seeking comments on several issues, including the rules announced in the proposed regulations.

Written by:

Holland & Knight LLP

Holland & Knight LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at:

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit
  • New Relic - For more information on New Relic cookies, please visit
  • Google Analytics - For more information on Google Analytics cookies, visit To opt-out of being tracked by Google Analytics across all websites visit This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at:

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.