NAWRB’s Response to IRS Notice of Proposed Rulemaking for Opportunity Zones


Burgandy Basulto is a Content Writer at NAWRB. She has a bachelor’s degree in both English and Philosophy, and a master’s degree in Philosophy. When she’s not reading or writing, she loves running, kickboxing, watching films, trying new restaurants she finds via Yelp, and experiencing other cultures during her travels.

27 December 2018

To Whom It May Concern,

Women in the Housing & Real Estate Ecosystem (NAWRB) is writing in response to the Notice of Proposed Rulemaking for the Opportunity Zones provision of the Internal Revenue Code (Section 1400Z-2)

NAWRB’s decade-long history in social impact through our data analytics, media engagement, connections with senior executives and expert leaders across the housing ecosystem, and involvement in government legislation, drives our ability to facilitate greater returns on communities, helping them thrive and be sustainable for generations to come. Our primary role in Opportunity Zones is connecting and advising key players on the best way to positively impact distressed communities.

The following comments and questions are the results of NAWRB’s review of the regulations and our discussions with other organizations with interests in making this program an effective tool for bringing capital gains dollars to community development in ways that benefit the investor and the Opportunity Zone community.  

Qualification of pre-existing operating businesses

Some professionals worry that pre-existing low-income community businesses operating prior to January 1, 2018 will not be able to be qualified as a Qualified Opportunity Zone Business (QOZB) because a substantial amount of their tangible property is likely to have been purchased or leased before January 1, 2018. Also, it might not be feasible to expect operating QOZ businesses to meet the substantial improvement test on an asset-by-asset basis.

A recommendation for facilitating the qualification of pre-existing businesses is to allow the substantial improvement test to be met by a QOZ business on an aggregate basis. Therefore, if a QOZ business doubled its assets over the 30-month period, this would qualify it as substantially improving its assets.

Qualification of abandoned or underutilized property

There is concern that the original use designation will prove too much of a burden to QOFs and QOZBs, thus deterring them from repurposing or improving vacant buildings in Opportunity Zones. They recommend that the Treasury stipulate that property that is vacant for at least one year, including the date of zone designation, should be disregarding when determining original use. In this regard, de Minimis incidental uses of property will be likewise disregarded.


Issues regarding partnerships are two-fold. First, it is unclear if the option provided to partnerships in making a gain deferral elections also extends to partners in a tiered partnership structure. If this is the case, it also needs to be specified which partnership’s taxable year-end marks the beginning of the 180-day period. One recommendation is that this option should be available to tiered partnerships and that the 180-day period should begin on the last day of the taxable year of the taxpayers’ direct investment partnership.

Second, there is a concern that partnerships won’t be given enough time to notify their partners between receiving information on partnership gain and the Opportunity Zone Fund investment deadline since a partnership usually allocates its gain 257 days after the end of the partnership’s taxable year. Thus, partnerships should be required to notify their partners in a timely manner whether they are making or opting out of an election to defer capital gains so that the partners can then make investments and elections on time.  

Safe harbors

The proposed regulations do not make it clear if working capital designated for start-up operating expenditures, such as payroll and occupancy costs, are also considered reasonable if designated in writing. It is recommended that the Treasury provide for operating expenditures designated to qualify for the safe harbor.

In addition, there should be objective and clear standards for the safe harbors, but there is still some ambiguity, especially regarding what is meant by “the schedule being consistent with the ordinary start-up business.” The “ordinary start-up schedule” should be further clarified or replaced with a provision that any schedule within 31 months is acceptable.

Clarification of terminology

There are some terms throughout the regulations that are ambiguous and require further clarification. First, it is unclear what it means to be “substantially consistent” with the plan. Thus the Treasury should provide examples of what it means to be substantially consistent. For example, if a taxpayer plans to purchase one property, but, for whatever reason, decides to purchase another one instead for the same price, is this still substantially consistent?

Second, more explanation is needed for what the term “substantial” means in relation to intangible property. One recommendation is that it should mean at least 40%, which is consistent with the meaning of the term regarding tangible property under the new markets tax credit program.

Third, it is not clear what it means to “use intangible property in the active conduct of a trade or business,” but a potential definition is the commercial use of intangible property for the management, development, manufacturing, sale or lease of goods and services for revenue.

Fourth, and finally, it is requested that the term “month” is defined in each instance it is used throughout the regulations. For example, keeping the definition as a period of time between the same date in successive calendar months will help retain consistency before the first required six-month test.

Requirement to sell QOF interest

We are  concerned that the requirement that a taxpayer sell their QOF interest rather than the underlying property will diminish the marketability and value of a taxpayer’s investment. In instances of a QOF partnership investment held by a taxpayer for at least ten years, it is recommended that a topside adjustment be allowed to realized gains from the sale of underlying property in a redemption year. This proposal would make it so a taxpayer is treated as if they sold their investment at fair market value before the sale of the underlying property.

QOF reporting & certification

Qualified Opportunity Zone Funds should be expected to provide the Treasury information through timely reports. Relevant data that should be sent to the Treasury includes:

  • Dollar amount of the investment;
  • Total project costs or financing provided;
  • NAICS code and census tract of business;
  • Total square feet of project for real estate;
  • Total number of full-time equivalents at the business;
  • Number of jobs for low-income persons that pay living wages;
  • Total number of clients served; and
  • Narrative section where Opportunity Zone Funds can describe the project in greater detail, as well as its intended benefit to the community. The QOF should not only identify their intended goals for community impact, such as creating more quality jobs for low-income individuals or affordable housing, but also report data indicating how much they were able to achieve in reaching these set goals.

The aforementioned data points should be used as a way of certifying Qualified Opportunity Zone Funds (QOF), who otherwise are able to self-certify according to the IRS’s present guidelines and regulations. The current situation is analogous to when businesses were able to claim themselves as “women-owned businesses” without having to go through a certification process. This led to companies certifying themselves as “women-owned” when they were not.

To avoid a possible situation where entities are certifying themselves as a QOF but are not operating in the spirit of the Opportunity Zone tax incentive (i.e., with overall goal of investing in low-income communities that need it most), the IRS should have a more rigorous application system with an emphasis on potential community impact.

Requesting this information and other application materials will help make sure that entities who apply to be QOF are using this opportunity to not only receive the benefits of the tax incentive but are also striving to make a considerable impact on community development.

Social impact

These proposed regulations (e.g., the fact that Opportunity Funds only need 70 percent of their gross assets in an OZ, and OZ businesses only need to spend as much to improve a property as was paid for buildings only, not the underlying land value) are likely to give investors more flexibility and encourage investments in Opportunity Zones, but it is uncertain how these changes will benefit low- and moderate-income residents of these communities.

There is no incentive for investors to put their capital in areas that might be considered higher risk, and there is no clear oversight to make sure that all Opportunity Zones are given their share of investment. A concerted effort will have to be made to make sure that rural areas are not overlooked for investment in fear of small returns compared to more populated city centers in states such as New York and California.

In addition, the allowance that an Opportunity Zone business only needs to have 70 percent of its gross assets in an Opportunity Zone in order to meet the “substantially all” requirement leaves 30 percent of tax-free capital that QOFs will be able to use however they wish. This regulation has obvious appeal to businesses, but it takes away money that could be put towards further development of disadvantaged communities by providing quality jobs, affordable housing, construction and more.

For a greater impact on revitalizing our communities, there should be a requirement that the remaining 30 percent still be put into some aspect of community development, if not directly into the designated Opportunity Zones. Revitalizing our distressed communities will help to bring more jobs to citizens, especially in the development of hospitality businesses, reduce crime rates, and provide resources and opportunities for more Americans to reach their full potential and improve their quality of life.


Desirée Patno

NAWRB CEO & President

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