Draft QOF form presents compliance burdens

Tax Hot Topics newsletter The IRS released a draft of the 2019 Form 8996 for Qualified Opportunity Funds (QOFs) on Oct. 31 that significantly expands information reporting requirements and could increase compliance burdens for taxpayers with Opportunity Zone investments.

Opportunity Zones were created by the Tax Cuts and Jobs Act (TCJA) to encourage investment in certain economically distressed communities, which are represented by census tracts designated by the IRS. The incentive allows taxpayers who invest in QOFs to defer or even exclude capital gain if certain requirements are met. A QOF is generally any entity treated as a partnership or corporation for federal tax purposes that holds at least 90% of its assets in qualified Opportunity Zone (QOZ) property. Qualifying assets include QOZ business property, QOZ stock or a QOZ partnership interest.

Draft Form 8996 contains three new parts that require details regarding the qualifying assets of a QOF. For QOFs that directly own or lease QOZ business property, Part V requires they list each census tract where property is located and the property’s value on each specified testing date. Parts VI and VII apply to qualified opportunity zone stock or partnership interests owned by the QOF. The QOF must report each census tract in which the QOZ business’s tangible property is located, the employer identification number of the business, the value of the QOF’s stock or partnership interest on each specified testing date apportioned to each census tract and the value of the QOZ business’s tangible property on each specified testing date.

The new form is designed to gather data to help the government evaluate the effects of the Opportunity Zone incentive and may represent the first step in its effort to do so. Four Democrats in Congress, including House Ways and Means Committee Chair Richard Neal (D-Mass.) and Senate Finance Committee Chair Ron Wyden (D. Ore.), sent a letter to Comptroller General Gene Dodaro on Nov. 4 requesting that Government Accountability Office (GAO) assist Congress in monitoring the implementation and outcomes of the incentive. The letter specifically asked that the GAO evaluate and make recommendations related to the compliance controls the IRS has in place. Bipartisan legislation (S. 1344 and H.R. 2593) has also been introduced to direct the IRS to collect specific information on opportunity zones and report back to Congress.

Dustin Stamper
Managing Director
Washington National Tax Office
T +1 202 861 4144

Omair Taher
Senior Associate
Washington National Tax Office
T +1 202 861 4143

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