New Opportunity Zone Legislation Introduced

Last week, Congress introduced a bill – H.R. 3937, titled the “Small Business Jobs Act” (“SBJA”) – which contained several provisions affecting Qualified Opportunity Zones. This article highlights the relevant sections of the bill which expand the OZ program.

Notably, a few items which were introduced in previous legislation (see our post on April 12, 2022) were not included in this bill, including:

• Extension of the program for two additional years. The earlier proposed legislation extended the program until the end of 2028, but that extension is not included in the SBJA.
• Allow “fund of fund” or “feeder fund” investments. This proposal was left out of the SBJA.
• Modification of opportunity zone census tract designations. The original proposal included modification and sunset provisions for certain existing QOZ tracts and designation of certain new tracts formerly used for industrial purposes and which contain a brownfield site. This proposal was also excluded from the SBJA – but read below for a different proposal to expand QOZ census tracts.

The new bill includes the following proposals to the opportunity zone program:

• Creation of new “rural” opportunity zones. This term refers to a new definition of census tract which is located in a rural county and is in persistent poverty. The SBJA proposal includes provisions which mirror the original opportunity zone provisions (deferral of capital gains invested, partial reduction of investments held for 5 and 7 years, step up in basis for investments held for 10 years), but importantly, these expanded opportunity zone benefits apply only to the rural census tracts defined in and created by the new bill. The time period for making rural opportunity zone investments begins after December 31, 2023 and ends December 31, 2032. In a way, this proposal expands and extends the OZ program, but only to rural opportunity zone investments. Existing opportunity zone investments would continue on the existing course set to expire on December 31, 2026.
• Increased information reporting requirements. Similar to the April 2022 proposals, the SBJA seeks to increase the information reporting requirements placed on qualified opportunity funds, qualified opportunity zone businesses, investors in QOFs, and apply these same reporting requirements to the proposed rural opportunity zone funds, businesses, and investors. Also, the penalty regime contained in the previous bill is retained in the SBJA.
• Public reporting by Treasury. The SBJA would require Treasury to issue periodic reports containing evaluations, measurements, and other information regarding opportunity zones and the investments being made into them.

As this proposed legislation makes its way through Congress, we will continue to monitor its progress and post additional information as it becomes available.