ver the last three decades there has been little significant legislation come out of our congressional small business committees. When the late, great Parren J. Mitchell retired from the House Small Business Committee as Chairperson, it kind of marked the end of great legislation relative to small and minority business procurement and investment. Fortunately, the Honorable Tim Scott, Black Republican senator from South Carolina had a vision and has made it a reality. The Opportunity Zone Program, officially the Tax Cuts and Jobs Act is now law and quite active.
The Clinton Administrations had similar programs such as the Enterprise Zones and Empowerment Zones.. However, those lacked some transparency and promoted gentrification more than economic empowerment.
The federal agency in charge of overseeing the program is the Internal Revenue Service. The following is a great description of what the law is all about:
Question: “What is an Opportunity Zone?”
Answer: An Opportunity Zone is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as Opportunity Zones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the U.S. Treasury via his delegation authority to the Internal Revenue Service.
Q. “Who created Opportunity Zones?”
A. Opportunity Zones were added to the tax code by the Tax Cuts and Jobs Act on Dec. 22, 2017.
Q. “Have Opportunity Zones been around a long time?”
A. No, they are new. The first set of Opportunity Zones, covering parts of 18 states, were designated on April 9, 2018.
Q. “What is the purpose of Opportunity Zones?”
A. Opportunity Zones are an economic development tool—that is, they are designed to spur economic development and job creation in distressed communities.
Q. “How do Opportunity Zones spur economic development?”
A. Opportunity Zones are designed to spur economic development by providing tax benefits to investors. First, investors can defer tax on any prior gains until the earlier of the date on which an investment is sold or exchanged, or December 31, 2026, so long as the gain is reinvested in a Qualified Opportunity Fund. Second, if the investor holds the investment in the Opportunity Fund for at least ten years, the investor would be eligible for an increase in basis equal to the reasonable value of the investment on the date that the investment is sold or exchanged.
Q. “What is a Qualified Opportunity Fund?”
A. Qualified Opportunity Fund is an investment vehicle that is set up as either a partnership or corporation for investing in eligible property that is located in an Opportunity Zone and that utilizes the investor’s gains from a prior investment for funding the Opportunity Fund.
Q. “Do I need to live in an Opportunity Zone to take advantage of the tax benefits?”
A. No. You can get the tax benefits, even if you don’t live, work or have a business in an Opportunity Zone. All you need to do is invest in a Qualified Opportunity Fund.
Q. I am interested in investing in an Opportunity Zone. “Is there a list of Opportunity Zones available?”
A. Yes. The current list of approved Opportunity Zones can be found at Opportunity Zones Resources. This list will continue to be updated as more Opportunity Zones are approved. A complete list of approved Opportunity Zones will be published later this spring after all Opportunity Zones have been nominated, certified and designated.
Q. “How does a taxpayer become certified as a Qualified Opportunity Fund?”
A. To become a Qualified Opportunity Fund, an eligible taxpayer self certifies. (Thus, no approval or action by the IRS is required.) To self-certify, a taxpayer merely completes a form (which will be released in the summer of 2018) and attaches that form to the taxpayer’s federal income tax return for the taxable year. (The return must be filed timely, taking extensions into account.)
Q. “How can I get more information about Opportunity Zones?”
A. Over the next few months, the Treasury Department and the Internal Revenue Service will be providing further details, including additional legal guidance, on this new incentive. More information will be available at Treasury.gov and IRS.gov.
The National Black Chamber of Commerce will be working with Senator Scott to ensure that all states take advantage of this program. For instance, Governor Bruce Rauner of Illinois, has already secured 325 neighborhoods eligible for investors. Check with your congressional representative for the latest news for your area. Make sure they are aware that you have a personal stake. Realtors, developers, contractors, architects, engineers, retailers, etc. should stay on top of the opportunities as they unfold.
Let us all give the Honorable Senator Tim Scott a well-deserved “salute”.
Harry C. Alford is co-founder, president/CEO of the National Black Chamber of Commerce®. Website: www.nationalbcc.org Email: firstname.lastname@example.org
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