IRS Releases Updated Priority Guidance Plan

The IRS recently issued the second quarter update to its 2017-18 Priority Guidance Plan. The IRS had issued the initial 2017-2018 Priority Guidance Plan in October 2017. The plan gives an overview of the projects that the IRS intends to address in the plan year ending June 30, 2018. As in prior years, the IRS updates the plan periodically to reflect additional guidance that it intends to publish. With this update, additions include guidance for Opportunity Zones. And still on the priority list is LIHTC compliance monitoring final regulations.

With regard to the Opportunity Zones update, the recently passed Tax Cuts and Jobs Act established Opportunity Zones to spur private investment in distressed communities throughout the country. The Opportunity Zones program allows investors specialized tax treatment, including deferred capital gains, for investments in Opportunity Funds, which must in turn invest at least 90 percent of their assets in businesses located in certain low-income communities designated by governors as qualified Opportunity Zones.

Recent guidance issued by the IRS clarified two important issues regarding the data that states should be using to designate Opportunity Zones: which tracts are eligible for designation and how many can be designated. First, the IRS stated that Opportunity Zone designations made on the basis of 2015 Year American Community Survey (2015 ACS) data will be accepted using a “safe harbor” rule, meaning that the designations won’t be rejected on the grounds that they’re no longer eligible under more recent census data. On the other hand, the IRS will consider a designation made on the basis of 2016 Year American Community Survey (2016 ACS) to be valid, as long as it’s supported with the appropriate data.

In addition, the IRS has stated that the total number of Opportunity Zones that states can designate must be based only on the 2015 ACS. So, while choosing to work with the 2016 ACS data can add some additional flexibility in which tracts are eligible, it won’t affect the total number of tracts that can be designated.