Tax Incentives for Opportunity Zones

Changes from December 7, 2020 to April 26, 2022

This page shows textual changes in the document between the two versions indicated in the dates above. Textual matter removed in the later version is indicated with ~~red strikethrough~~ and textual matter added in the later version is indicated with blue.

Tax Incentives for Opportunity Zones
~~December 7, 2020~~April 26, 2022
The 2017 tax revision (P.L. 115-97) temporarily authorized Opportunity Zone (OZ) tax The 2017 tax revision (P.L. 115-97) temporarily authorized Opportunity Zone (OZ) tax
incentives, which are intended to encourage private investment in economicallyincentives, which are intended to encourage private investment in economically distressed distressed
~~Sean Lowry~~Donald J. Marples
communities. OZ tax incentives are allowed for investments held by Qualified Opportunity communities. OZ tax incentives are allowed for investments held by Qualified Opportunity
~~Analyst~~Specialist in Public Finance in Public Finance
Funds (QOFs) in qualified OZs. In 2018, the Community Development Financial Institutions Funds (QOFs) in qualified OZs. In 2018, the Community Development Financial Institutions

(CDFI) Fund in the Treasury Department designated qualified census tracts that are eligible for (CDFI) Fund in the Treasury Department designated qualified census tracts that are eligible for
OZ tax incentives after receiving recommendations from head executives (e.g., OZ tax incentives after receiving recommendations from head executives (e.g., ~~govern ors~~governors) at the ~~) at the~~
~~Donald J. Marples~~
state level. Qualified OZ designations for census tracts are in effect through the end of 2026. state level. Qualified OZ designations for census tracts are in effect through the end of 2026.
~~Specialist in Public Finance~~

OZ tax incentives include (1) a temporary tax deferral for capital gains reinvested in a QOF, (2) a OZ tax incentives include (1) a temporary tax deferral for capital gains reinvested in a QOF, (2) a

step-up in basis for any investment in a QOF held for at least five years (10% basis increase) or step-up in basis for any investment in a QOF held for at least five years (10% basis increase) or
seven years (15% basis increase), and (3) a permanent exclusion of capital gains from the sale or exchange of an investment seven years (15% basis increase), and (3) a permanent exclusion of capital gains from the sale or exchange of an investment
in a QOF held for at least 10 years. in a QOF held for at least 10 years.
This report discusses (1) which census tracts have been designated as an OZ, (2) what types of entities are eligible as QOFs, This report discusses (1) which census tracts have been designated as an OZ, (2) what types of entities are eligible as QOFs,
(3) the tax benefits of investments in QOFs, (4) a summary of IRS/Treasury regulations implementing OZs, (5) what (3) the tax benefits of investments in QOFs, (4) a summary of IRS/Treasury regulations implementing OZs, (5) what
economic effects can be expected from OZ tax incentives, and (6) what policy issues Congress has raised with respect to economic effects can be expected from OZ tax incentives, and (6) what policy issues Congress has raised with respect to
OZs.OZs.
This report also discusses several issues for Congress regarding the implementation of OZ tax incentives. First, the Internal This report also discusses several issues for Congress regarding the implementation of OZ tax incentives. First, the Internal
Revenue Service (IRS) has determined that the list of census tracts designated as qualified OZs cannot be altered absent Revenue Service (IRS) has determined that the list of census tracts designated as qualified OZs cannot be altered absent
enactment of new legislation. Second, given that Treasury and IRS have promulgated final regulations regarding tax-related enactment of new legislation. Second, given that Treasury and IRS have promulgated final regulations regarding tax-related
issues pertaining to OZ transactions, state and local governments are likely to play a larger role in the types of projects that issues pertaining to OZ transactions, state and local governments are likely to play a larger role in the types of projects that
willwill be funded in OZs. Some states have enacted their own OZ tax incentives to further encourage investment in their be funded in OZs. Some states have enacted their own OZ tax incentives to further encourage investment in their
jurisdictions. Additionally, local government entities will jurisdictions. Additionally, local government entities will generally be in charge of approving and permitting individual projects within be in charge of approving and permitting individual projects within
an OZ. Third, although state and local governments will likely now have a more direct role in individual OZ transactions, thean OZ. Third, although state and local governments will likely now have a more direct role in individual OZ transactions, the
federal government may still be involved. For example, federal government may still be involved. For example, then-President Trump issued an President Trump issued an ~~execut ive~~executive order requiring executive order requiring executive
agencies to determine how they agencies to determine how they ~~can~~could prioritize or focus federal programs in economically prioritize or focus federal programs in economically distressed communities, including distressed communities, including
OZs. Agencies were charged with reducing regulatory and administrative costs that could discourage public and private OZs. Agencies were charged with reducing regulatory and administrative costs that could discourage public and private
investment in such areas. Fourth, Congress could consider extending deadlines for specific OZ tax benefits. Under current investment in such areas. Fourth, Congress could consider extending deadlines for specific OZ tax benefits. Under current
law, an investor would have needed to roll over a capital gain by the end of 2019 in order to get seven law, an investor would have needed to roll over a capital gain by the end of 2019 in order to get seven ~~years~~years of credit and by the end of 2021 to get five years of credit for holding credit for holding
their investment in a QOF, for the purposes of the their investment in a QOF, for the purposes of the 15% basis adjustment and the 10% basis adjustment, respectively. ~~15% basis adjustment. While an investor can still get a 10% basis~~
~~adjustment under current law, Congress could amend the law to provide for a larger incentive for post-2019 investment.~~
OZs have also been subject to a number of congressional oversight concerns. Based on the requests of individual Members of OZs have also been subject to a number of congressional oversight concerns. Based on the requests of individual Members of
Congress, the Treasury Inspector General and the Government Accountability Office (GAO) have conducted or are currently Congress, the Treasury Inspector General and the Government Accountability Office (GAO) have conducted or are currently
conducting investigations regarding the qualified OZ designation process and potential effectiveness of OZs to spur conducting investigations regarding the qualified OZ designation process and potential effectiveness of OZs to spur
investment in low-income areas, respectively. Additionally, there has been a broader concern, from both Members of investment in low-income areas, respectively. Additionally, there has been a broader concern, from both Members of
Congress and commentators, on the lack of information and transparency regarding QOFs, their investments, and their Congress and commentators, on the lack of information and transparency regarding QOFs, their investments, and their
investors required under current law. More QOF disclosure on tax forms could aid the IRS in administering OZ tax incentives investors required under current law. More QOF disclosure on tax forms could aid the IRS in administering OZ tax incentives
as well as providing data that could be used to evaluate these as well as providing data that could be used to evaluate these ~~p rovisions~~provisions. Although current law . Although current law ~~would likely limit~~ limits the IRS’s the IRS’s
ability to disclose detailed taxpayer-provided data to the public without taxpayer consent, ability to disclose detailed taxpayer-provided data to the public without taxpayer consent, itthe agency could release aggregated data, could release aggregated data,
such as amounts of OZ investments organized at state or local levels or the tax benefits claimed by income level. This such as amounts of OZ investments organized at state or local levels or the tax benefits claimed by income level. This
information could provide information could provide Congress and the public with a better idea of how the direct benefits of OZ tax incentives are distributed. the public with a better idea of how the direct benefits of OZ tax incentives are distributed.
However, additional disclosure could increase compliance costs and could dissuade some investors from investing in OZs. However, additional disclosure could increase compliance costs and could dissuade some investors from investing in OZs.
Congressional Research Service Congressional Research Service

Tax Incentives for Opportunity Zones
Congressional Research Service Tax Incentives for Opportunity Zones
he 2017 tax revision (P.L. 115-97) temporarily authorized Opportunity Zone (OZ) tax he 2017 tax revision (P.L. 115-97) temporarily authorized Opportunity Zone (OZ) tax
incentives, which are intended to encourage private investment in incentives, which are intended to encourage private investment in ~~economical y~~economically distressed distressed
T communities.1 In 2018, the Community Development Financial Institutions (CDFI) Fund T communities.1 In 2018, the Community Development Financial Institutions (CDFI) Fund
in the Treasury Department designated qualified census tracts that are eligible for OZ tax in the Treasury Department designated qualified census tracts that are eligible for OZ tax
incentives after receiving recommendations from a state’s chief executive officer (CEO), incentives after receiving recommendations from a state’s chief executive officer (CEO),
~~general y~~generally the governor. Qualified OZ designations are in effect through the end of 2026. the governor. Qualified OZ designations are in effect through the end of 2026.
Investments eligible for OZ tax incentives must be channeled through a qualified opportunity Investments eligible for OZ tax incentives must be channeled through a qualified opportunity
fund (QOF). The tax benefits for these QOF investments include (1) a temporary tax deferral for fund (QOF). The tax benefits for these QOF investments include (1) a temporary tax deferral for
capital gains reinvested in a QOF, (2) a step-up in basis for any investment in a QOF held for at capital gains reinvested in a QOF, (2) a step-up in basis for any investment in a QOF held for at
least five years (10% basis increase) or seven years (15% basis increase), and (3) a permanent least five years (10% basis increase) or seven years (15% basis increase), and (3) a permanent
exclusion of capital gains from the sale or exchange of an investment in a QOF held for at least exclusion of capital gains from the sale or exchange of an investment in a QOF held for at least
10 years. These incentives effectively increase the after-tax rate of return of QOF investments to 10 years. These incentives effectively increase the after-tax rate of return of QOF investments to
their investors. their investors.
This report describes what census tracts have been designated as an OZ, what types of entities are This report describes what census tracts have been designated as an OZ, what types of entities are
eligibleeligible as QOFs, the tax benefits of investments in QOFs, what economic effects can be expected as QOFs, the tax benefits of investments in QOFs, what economic effects can be expected
from OZ tax incentives, and several issues for Congress regarding the implementation and from OZ tax incentives, and several issues for Congress regarding the implementation and
oversight of OZ tax incentives. oversight of OZ tax incentives.
For further reading on the CDFI Fund’s other programs and analysis of related policy issues, see For further reading on the CDFI Fund’s other programs and analysis of related policy issues, see
CRS Report R42770, CRS Report R42770, Community Development Financial Institutions (CDFI) Fund: Programs
and Policy Issues~~, by Sean Lowry~~. (Throughout this report, the CDFI Fund is referred to simply . (Throughout this report, the CDFI Fund is referred to simply
as “the Fund”.) For updated guidance regarding OZ tax incentives, as “the Fund”.) For updated guidance regarding OZ tax incentives, ~~including any Internal~~
~~Revenue Service (IRS) notices and proposed regulations,~~ see websites created by the Fund and see websites created by the Fund and
~~IRS~~Internal Revenue Service (IRS).2 .2
Opportunity Zone Designations
Opportunity Opportunity ~~zones~~Zones were nominated by states’ CEOs (e.g., governors) in early 2018. were nominated by states’ CEOs (e.g., governors) in early 2018. ~~Specifical y,~~
Specifically, states’ CEOs nominated, in writing, a limited number of census tracts to the Secretary of the states’ CEOs nominated, in writing, a limited number of census tracts to the Secretary of the
Treasury to be designated eligible for OZ tax incentives.3 These nominations were due by March Treasury to be designated eligible for OZ tax incentives.3 These nominations were due by March
21, 2018.4 A nominated tract must have been either (1) a qualified low-income community (LIC), 21, 2018.4 A nominated tract must have been either (1) a qualified low-income community (LIC),
using the same criteria as eligibilityusing the same criteria as eligibility under the New Markets Tax Credit (NMTC),5 or (2) a census under the New Markets Tax Credit (NMTC),5 or (2) a census
tract that was contiguous with a nominated LIC if the median family income of the tract did not tract that was contiguous with a nominated LIC if the median family income of the tract did not
exceed 125% of that contiguous, nominated LIC.6 In principle, these requirements appear to have exceed 125% of that contiguous, nominated LIC.6 In principle, these requirements appear to have

~~1 T hese provisions amend the~~ 1 These provisions are found in Internal Revenue Code (IRC) Internal Revenue Code (IRC) as Sections 1400Z-1 and 1400Z-2. Sections 1400Z-1 and 1400Z-2.
2 CDFI Fund,2 CDFI Fund, “Opportunity Zone Resources,” at https://www.cdfifund.gov/Pages/Opportunity-Zones.aspx; and IRS, “Opportunity Zone Resources,” at https://www.cdfifund.gov/Pages/Opportunity-Zones.aspx; and IRS,
“Opportunity Zones Frequently Asked Questions,” at https://www.irs.gov/newsroom/opportunity-zones-frequently-“Opportunity Zones Frequently Asked Questions,” at https://www.irs.gov/newsroom/opportunity-zones-frequently-
asked-questions. asked-questions.
3 For the purposes of OZ tax incentives, a “state” includes the District of Columbia and any U.S. possession. 3 For the purposes of OZ tax incentives, a “state” includes the District of Columbia and any U.S. possession.
4 IRS4 IRS Rev. Proc. 2018-16, p. 3, at https://www.irs.gov/pub/irs-drop/rp-18-16.pdf. Rev. Proc. 2018-16, p. 3, at https://www.irs.gov/pub/irs-drop/rp-18-16.pdf.
5 See5 See IRC Section 45D(e). Qualifying LICs, underIRC Section 45D(e). Qualifying LICs, under ~~the NMT C~~ the NMTC, include census, include census tracts that have at least one of the tracts that have at least one of the
followingfollowing criteria: (1) a poverty rate of at least 20%; (2) a median family income belowcriteria: (1) a poverty rate of at least 20%; (2) a median family income below 80% of the greater of the 80% of the greater of the
statewide or metropolitan area median family income if the LIC is located in a metropolitan area; or (3) a median statewide or metropolitan area median family income if the LIC is located in a metropolitan area; or (3) a median
family income belowfamily income below 80% of the median statewide family income if the LIC is located outside a metropolitan area.80% of the median statewide family income if the LIC is located outside a metropolitan area. In In
addition, designatedaddition, designated targeted populations may be treated as LICs. For more information, see CRStargeted populations may be treated as LICs. For more information, see CRS Report RL34402, Report RL34402,
New Markets Tax Credit: An Introduction, by Donald J. Marples and Sean, by Donald J. Marples and Sean Lowry. Lowry.
6 See 6 See ~~IRS~~ IRS Rev. Proc. 2018-16, p. 2, at https://www.irs.gov/pub/irs-drop/rp-18-16.pdf. Rev. Proc. 2018-16, p. 2, at https://www.irs.gov/pub/irs-drop/rp-18-16.pdf.
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Tax Incentives for Opportunity Zones: In Brief

been intended to provide governors with the ability to identify LICs, or low been intended to provide governors with the ability to identify LICs, or low - to moderate-income - to moderate-income
areas adjacent to LICs, in which to direct OZ tax benefits.7 areas adjacent to LICs, in which to direct OZ tax benefits.7
P.L. 115-97 explicitly limits the number of census tracts within a state that can be designated as P.L. 115-97 explicitly limits the number of census tracts within a state that can be designated as
qualified OZs based on the following criteria: qualified OZs based on the following criteria:
 If the number of LICs in a state is less than 100, then a total of 25 census tracts  If the number of LICs in a state is less than 100, then a total of 25 census tracts
may be designated as qualified OZs. may be designated as qualified OZs.
 If the number of LICs in a state is 100 or more, then the maximum number of  If the number of LICs in a state is 100 or more, then the maximum number of
census tracts that may be designated as qualified OZs is equal to 25% of the total census tracts that may be designated as qualified OZs is equal to 25% of the total
number of LICs. number of LICs.
 Not more than 5% of the census tracts designated as qualified OZs in a state can  Not more than 5% of the census tracts designated as qualified OZs in a state can
be non-LIC tracts that are contiguous to nominated LICs. This effectively limits be non-LIC tracts that are contiguous to nominated LICs. This effectively limits
the number of census tracts that arethe number of census tracts that are not ~~economical y~~economically distressed or low income distressed or low income
from receiving the OZ designation. from receiving the OZ designation.
The official list of designated Opportunity Zones was published in IRS Notice 2018- The official list of designated Opportunity Zones was published in IRS Notice 2018-~~488~~48 and IRS and IRS
Notice 2019-42.Notice 2019-42.9
Qualified Opportunity Funds
P.L. 115-97 defined a QOF as any investment vehicle organized as a corporation or partnership P.L. 115-97 defined a QOF as any investment vehicle organized as a corporation or partnership
for the purpose of investing in a qualified opportunity zone property (other than another QOF) for the purpose of investing in a qualified opportunity zone property (other than another QOF)
and which holds at least 90% of its assets in qualified OZ property. A qualified OZ property can and which holds at least 90% of its assets in qualified OZ property. A qualified OZ property can
be a stock or partnership interest in a business located within a qualifiedbe a stock or partnership interest in a business located within a qualified OZ or tangible business OZ or tangible business
property located in a qualified OZ. Examples of potential QOF investments in qualified OZ property located in a qualified OZ. Examples of potential QOF investments in qualified OZ
property include purchasing a building located in a qualifiedproperty include purchasing a building located in a qualified OZ, purchasing stock in a business OZ, purchasing stock in a business
located in a qualified OZ, or purchasing machinery used by a business located in a qualified OZ. located in a qualified OZ, or purchasing machinery used by a business located in a qualified OZ.
A qualified OZ property must have been acquired by the QOF after December 31, 2017. For each A qualified OZ property must have been acquired by the QOF after December 31, 2017. For each
month that a QOF fails to meet the 90% requirement it must month that a QOF fails to meet the 90% requirement it must ~~general y~~generally pay a penalty. The penalty pay a penalty. The penalty
is calculated based on the monthly shortage multiplied by an underpayment rate (short-term is calculated based on the monthly shortage multiplied by an underpayment rate (short-term
federal interest rate plus three percentage points). federal interest rate plus three percentage points).
The IRS instructs a corporation or partnership seeking to become a QOF to self-certify its status The IRS instructs a corporation or partnership seeking to become a QOF to self-certify its status
by by ~~fil ing~~ filling out Form 8996 as part of its annual income tax filings.out Form 8996 as part of its annual income tax filings.108 (This self-certification process (This self-certification process
differs from the NMTC, in which the Fund takes prospective action to certify “community differs from the NMTC, in which the Fund takes prospective action to certify “community
development entities” (CDEs) before they can receive an NMTC development entities” (CDEs) before they can receive an NMTC ~~al ocation.)~~

~~7 See Senator T im~~allocation.) 7 See Senator Tim Scott, “Op-ed: Opportunity Zones Are Really Working,” Scott, “Op-ed: Opportunity Zones Are Really Working,” Washington Examiner, October 18, 2019, , October 18, 2019,
at https://www.washingtonexaminer.com/opinion/opat https://www.washingtonexaminer.com/opinion/op -eds/sen-tim-scott-opportunity-zones-are-really-working. In his -eds/sen-tim-scott-opportunity-zones-are-really-working. In his
op-ed, Senator Scott, who co-sponsored the original, standalone billop-ed, Senator Scott, who co-sponsored the original, standalone bill proposing OZs, says that “proposing OZs, says that “ …instead of taking a …instead of taking a
top-down approach to addressing poverty, Opportunity Zones empower our community leaders, mayors, and governors top-down approach to addressing poverty, Opportunity Zones empower our community leaders, mayors, and governors
to come together to decide for themselves which of their neighborhoods shouldto come together to decide for themselves which of their neighborhoods should ~~be designated to pa rticipate.” T hat~~ be designated to participate.” That
standalone billstandalone bill in the 115th Congress wasin the 115th Congress was the Investing in Opportunity Actthe Investing in Opportunity Act (H.R. 828; S. 293). (H.R. 828; S. 293).
8~~8 Internal Revenue Service, Internal Revenue Bulletin, Bulletin No. 2018-28, Washington, DC, July 9, 2018,~~
~~https://www.irs.gov/pub/irs-drop/n-18-48.pdf.~~
~~9 Internal Revenue Service, Internal Revenue Bulletin, Bulletin No. 2019-29, Washington, DC, July 15, 2019,~~
~~https://www.irs.gov/pub/irs-drop/n-19-42.pdf.~~
10 For more information, see IRS, “Opportunity Zones Frequently Asked Questions,” at For more information, see IRS, “Opportunity Zones Frequently Asked Questions,” at
https://www.irs.gov/newsroom/opportunityhttps://www.irs.gov/newsroom/opportunity -zones-frequently-asked-questions. -zones-frequently-asked-questions.
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link to page link to page 79 link to page 9 link to page link to page 79 Tax Incentives for Opportunity Zones: In Brief

Tax Benefits for Qualified OZ Investments
P.L. 115-97 provides three main tax incentives to encourage investment in qualifiedP.L. 115-97 provides three main tax incentives to encourage investment in qualified OZs. These OZs. These
benefits are briefly summarized, followed by an benefits are briefly summarized, followed by an ~~il ustrative~~ illustrative example showing how the three example showing how the three
benefits reduce the amount of capital gains subject to taxation for OZ investors:benefits reduce the amount of capital gains subject to taxation for OZ investors:
1. 1. Temporary deferral of capital gains that are reinvested in qualified OZ
property: Taxpayers can defer capital gains tax due upon Taxpayers can defer capital gains tax due upon the sale or disposition of a sale or disposition of a
(presumably non-OZ) asset if the capital gain portion (presumably non-OZ) asset if the capital gain portion ~~of that asset~~ is reinvested is reinvested
within 180 days in a QOF.within 180 days in a QOF.119 Under current law, the deferral of gain is available Under current law, the deferral of gain is available
on qualified investments up until the on qualified investments up until the earlier of (a) the date on which the (a) the date on which the
investment in the QOF is sold or exchanged, or (b) December 31, 2026.investment in the QOF is sold or exchanged, or (b) December 31, 2026.1210
In other words, this deferral is only in effect until December 31, 2026. Any In other words, this deferral is only in effect until December 31, 2026. Any
reinvested capital gains in a QOF made before this date must be realized on reinvested capital gains in a QOF made before this date must be realized on
December 31, 2026. Thus, investors would realize the deferred gain in their 2026 December 31, 2026. Thus, investors would realize the deferred gain in their 2026
income filings, even if they do not income filings, even if they do not ~~sel~~ sell or dispose of their investment in a QOF. or dispose of their investment in a QOF.
Any reinvested capital gains in a QOF after this date are not eligibleAny reinvested capital gains in a QOF after this date are not eligible for deferral. for deferral.
2. 2. Step-up in basis for investments held in QOFs: If the investment in the QOF is If the investment in the QOF is
held by the taxpayer for at least five years, the basis on the original gain is held by the taxpayer for at least five years, the basis on the original gain is
increased by 10% of the original gain. Basis is increased by 10% of the original gain. Basis is ~~general y~~generally the value of capital gain the value of capital gain
when the investment is sold, before it is reinvested in a QOF.when the investment is sold, before it is reinvested in a QOF.1311 (An increase in (An increase in
basis, basis, al all else unchanged, reduces the amount of the investment subject to else unchanged, reduces the amount of the investment subject to
taxation and hence reduces tax liability.) If the OZ asset or investment is held by taxation and hence reduces tax liability.) If the OZ asset or investment is held by
the taxpayer for at least seven years, the basis on the original gain is increased by the taxpayer for at least seven years, the basis on the original gain is increased by
an additionalan additional 5% of the original gain. 5% of the original gain.
3. 3. Exclusion of capital gains tax on qualified OZ investment returns held for at
least 10 years: The basis of investments maintained (a) for at least 10 years and The basis of investments maintained (a) for at least 10 years and
(b) until at least December 31, 2026, (b) until at least December 31, 2026, ~~wil~~ will be eligiblebe eligible to be marked up to the fair to be marked up to the fair
market value of such investment on the date the investment is sold. Effectively, market value of such investment on the date the investment is sold. Effectively,
this amounts to an exclusion of capital gains tax on any gains earned from the this amounts to an exclusion of capital gains tax on any gains earned from the
investment in the QOF (over 10 years) when the investment is sold or disposed. investment in the QOF (over 10 years) when the investment is sold or disposed.
Table 1 ~~il ustrates~~illustrates the tax benefits of a hypothetical investment of $100,000 in a QOF made in the tax benefits of a hypothetical investment of $100,000 in a QOF made in
2019. This investment could be $100,000 in capital gains earned from the sale or disposition of 2019. This investment could be $100,000 in capital gains earned from the sale or disposition of
another asset (e.g., real property) from outsideanother asset (e.g., real property) from outside of an OZ that is reinvested into a QOF within 180 an OZ that is reinvested into a QOF within 180
days from the date of that sale or disposition. Taxes on these capital gains are deferred while the days from the date of that sale or disposition. Taxes on these capital gains are deferred while the
~~investment is held in a QOF.~~
~~Column A shows the investment’s value over time, assuming a 7% annual y compounded rate of~~
~~return. This hypothetical investment is simplified to assume that an initial investment in a QOF is~~

~~11 For more background on capital gains taxation, see CRS~~ investment is held in a QOF. As investments made after 2021 no longer qualify for either the 10% or 15% basis adjustments, investments made in 2022 or later would be eligible for a smaller incentive than shown in Table 1. 9 For more background on capital gains taxation, see CRS Report 96-769, Report 96-769, Capital Gains Taxes: An Overview,, by Jane by Jane
G.G. Gravelle; and p. 391 in CRSGravelle; and p. 391 in CRS Committee Print Committee Print ~~CP10003~~CP10004, , Tax Expenditures: ~~Com pendium~~Compendium of Background Material
on Individual Provisions — A ~~Com m ittee~~Committee Print Prepared for the Senate ~~Com m ittee~~Committee on the Budget, ~~2018~~ 2020, by Jane G. , by Jane G.
GravelleGravelle et al.et al.
12 10 IRC Section 1400Z-2(b)(1). IRC Section 1400Z-2(b)(1).
1311 For example, an investor buys For example, an investor buys a piece of commercial real estate for $500,000 and then sells it two years later for a piece of commercial real estate for $500,000 and then sells it two years later for
$600,000. Although the investor realized $100,000 in capital gain on the sale of the real estate, the gain would$600,000. Although the investor realized $100,000 in capital gain on the sale of the real estate, the gain would not be not be
recognized (subjectrecognized (subject to tax) upon sale if reinvested within 180 days in a QOF. to tax) upon sale if reinvested within 180 days in a QOF. ~~T he “~~ The “basis adjustments” wouldbasis adjustments” would affect the affect the
$100,000 reinvested capital gains. $100,000 reinvested capital gains. ~~T his~~This calculation is illustrated in calculation is illustrated in Table 1.
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~~link to page 8~~ Tax Incentives for Opportunity Zones: In Brief

Column A shows the investment’s value over time, assuming a 7% annually compounded rate of return. This hypothetical investment is simplified to assume that an initial investment in a QOF is made in year one and the QOF constantly reinvests any returns to that initial investment (i.e., the made in year one and the QOF constantly reinvests any returns to that initial investment (i.e., the
QOF does not pay out periodic dividends to the investor during the life of the investment). QOF does not pay out periodic dividends to the investor during the life of the investment).
Column B shows the increase in adjusted basis earned from holding that investment in a QOF Column B shows the increase in adjusted basis earned from holding that investment in a QOF
over time: 10% of the original capital gain of $100,000 after the investment is held in a QOF for over time: 10% of the original capital gain of $100,000 after the investment is held in a QOF for
at least five years (10% of $100,000 = $10,000), and 15% after the capital gain is held for at least at least five years (10% of $100,000 = $10,000), and 15% after the capital gain is held for at least
seven years (15% of $100,000=$15,000). seven years (15% of $100,000=$15,000).
Column C shows the mandatory recognition of reinvested capital gains at the end of 2026. Column C shows the mandatory recognition of reinvested capital gains at the end of 2026.1412 Even Even
if the investor retains their investment in the QOF beyond 2026, they must if the investor retains their investment in the QOF beyond 2026, they must ~~stil~~ still recognize or pay recognize or pay
capital gains tax on $85,000 in capital gains under this hypothetical example. This adjustment capital gains tax on $85,000 in capital gains under this hypothetical example. This adjustment
amount is calculated as $100,000 in capital gains amount is calculated as $100,000 in capital gains ~~initial y~~ initially rolled over into the QOF in 2019 (i.e., rolled over into the QOF in 2019 (i.e.,
tax deferred) minus the $15,000 in basis adjustment for holding their investment in the QOF for tax deferred) minus the $15,000 in basis adjustment for holding their investment in the QOF for
seven years. seven years.
Column D shows the amount of capital gains subject to taxation if the investment in a QOF is Column D shows the amount of capital gains subject to taxation if the investment in a QOF is
sold or disposed sold or disposed of in any of the 10 years shown in the table. Of note, if the investment was sold in any of the 10 years shown in the table. Of note, if the investment was sold
after being held for 10 years, then any capital gains earned on the after being held for 10 years, then any capital gains earned on the ~~initial y~~ initially reinvested $100,000 reinvested $100,000
would be completely excluded from tax. In the hypothetical example, the investor earned an would be completely excluded from tax. In the hypothetical example, the investor earned an
additional $96,715 from their initialadditional $96,715 from their initial investment of $100,000. Therefore, if they held that QOF investment of $100,000. Therefore, if they held that QOF
investment for 10 years and then sold it, they would not pay tax on the $96,715 in gains as investment for 10 years and then sold it, they would not pay tax on the $96,715 in gains as ~~wel~~ well as as
not paying tax on $15,000 worth of the original investment. (They would have realized $85,000 not paying tax on $15,000 worth of the original investment. (They would have realized $85,000
in capital gains in 2026, and paid capital gains tax on that amount.) In other words, for their in capital gains in 2026, and paid capital gains tax on that amount.) In other words, for their
investment valued at $196,715 in 2029, the investor would have paid tax on $85,000 of this investment valued at $196,715 in 2029, the investor would have paid tax on $85,000 of this
amount in 2026, with the remainder being tax-free. This calculation amount in 2026, with the remainder being tax-free. This calculation ~~il ustrates~~illustrates that a major that a major
economic incentive to investing in a QOF is the permanent exclusion of capital gains earned after economic incentive to investing in a QOF is the permanent exclusion of capital gains earned after
~~the acquisition of the QOF investment.15~~
~~Table 1. Illustration of Opportunity Zone (OZ) Tax Benefits~~
~~for a Hypothetical Investment of $100,000 in Reinvested Capital Gains Made in 2019~~
~~(Assuming an annual rate of return of 7%)~~

A
B
C
D
~~Mandatory~~
~~Recognition of~~
~~Reinvested Capital~~
~~Taxable Capital~~
~~Year~~
~~Investment Valuea~~
~~Basis Adjustment~~
~~Gain~~
~~Gains if Sold~~
~~2019~~
~~$100,000~~
$0
-
~~$100,000~~
~~2020~~
~~$107,000~~
$0
-
~~$107,000~~

~~14 Ibid.~~
15the acquisition of the QOF investment.13 12 Ibid. 13 After P.L. 115-97 was enacted, some commentators raised concerns that legislative text created an ambiguity as to After P.L. 115-97 was enacted, some commentators raised concerns that legislative text created an ambiguity as to
whether taxpayers could actually claim the exclusion of qualifiedwhether taxpayers could actually claim the exclusion of qualified OZ investment return gains after 10 years. OZ investment return gains after 10 years. ~~T his~~This was was
becausebecause the capital gains tax exclusion on OZ investment returns provision requires the QOF to hold investments in an the capital gains tax exclusion on OZ investment returns provision requires the QOF to hold investments in an
OZ for 10 years. OZ for 10 years. ~~T he~~The OZ designations were OZ designations were authorized by P.L. 115-97 through 2026. Thus, unless Congress extended authorized by P.L. 115-97 through 2026. Thus, unless Congress extended
OZ designations in subsequentOZ designations in subsequent legislation, it wouldlegislation, it would have only been possible for QOFshave only been possible for QOFs to hold investments in qualified to hold investments in qualified
OZs for a maximum of nine years (i.e., 2018 through 2026). However, the Department of the Treasury released OZs for a maximum of nine years (i.e., 2018 through 2026). However, the Department of the Treasury released
proposed regulations on October 19, 2018, clarifying that the benefit available in year 10 wouldproposed regulations on October 19, 2018, clarifying that the benefit available in year 10 would still be available even still be available even
if the designations expire at the end of 2026. if the designations expire at the end of 2026. ~~T he~~The proposed regulations state that the benefit will be proposed regulations state that the benefit will be available until available until
December 31, 2027. December 31, 2027. ~~T reasury~~Treasury claims that this interpretation is consistent with the legislative intent of P.L. 115-97. See claims that this interpretation is consistent with the legislative intent of P.L. 115-97. See
Department of the Department of the ~~T reasury~~Treasury, “Treasury, IRS Issue, “Treasury, IRS Issue Proposed Regulations on NewProposed Regulations on New Opportunity Zone Opportunity Zone ~~T ax~~Tax Incentive,” Incentive,”
press release, October 19, 2018, at https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-new-press release, October 19, 2018, at https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-new-
opportunity-zone-tax-incentive. The related passage is on p. 16 of the proposed regulation. opportunity-zone-tax-incentive. The related passage is on p. 16 of the proposed regulation.
Final regulations for Opportunity Zones were published in the Federal Register on January 21, 2020, and have been effective since March 13, 2020. See Internal Revenue Service (IRS), Treasury, “Investing in Qualified Opportunity Funds,” 85 Federal Register 1866-2001, January 13, 2020. Congressional Research Service Congressional Research Service

4 4

link to page link to page 89 link to page link to page 89 link to page link to page 79 link to page link to page 79 Tax Incentives for Opportunity Zones: In Brief

Table 1. Illustration of Opportunity Zone (OZ) Tax Benefits for a Hypothetical Investment of $100,000 in Reinvested Capital Gains Made in 2019 (Assuming an annual rate of return of 7%)
A
B
C
D
Mandatory
Recognition of
Reinvested Capital
Taxable Capital
Year
Investment ~~Valu~~ea Valuea
Basis Adjustment
Gain
Gains if Sold
2019 $100,000 $0 - $100,000 2020 $107,000 $0 - $107,000 2021 2021
$114,490 $114,490
$0 $0
- -
$114,490 $114,490
2022 2022
$122,504 $122,504
$0 $0
- -
$122,504 $122,504
2023 2023
$131,080 $131,080
$0 $0
- -
$131,080 $131,080
2024 2024
$140,255 $140,255
$10,000 $10,000
- -
$130,255 $130,255
2025 2025
$150,073 $150,073
$10,000 $10,000
- -
$140,073 $140,073
2026 2026
$160,578 $160,578
$15,000 $15,000
$85,000 $85,000
$60,578 $60,578
2027 2027
$171,819 $171,819
- -
- -
$71,819 $71,819
2028 2028
$183,846 $183,846
- -
- -
$83,846 $83,846
2029 2029
$196,715 $196,715
- -
- -
$0b
Source: CRS calculations. CRS calculations.
Notes:
a. This hypothetical calculates OZ tax benefits froma. This hypothetical calculates OZ tax benefits from an initial investment of $100,000 in capital gains earned an initial investment of $100,000 in capital gains earned
from outside of an OZ (e.g., from outside of an OZ (e.g., sale of appreciated real property) that is rol edsale of appreciated real property) that is rol ed ~~over~~ over (i.e.,(i.e., not taxed) into a not taxed) into a
qualified opportunity fund (QOF), assuming constant reinvestmentqualified opportunity fund (QOF), assuming constant reinvestment over the lifeover the life of the OZ investment (i.e., of the OZ investment (i.e.,
no periodic dividends issued from the qualified opportunity fund to the investor).no periodic dividends issued from the qualified opportunity fund to the investor).
b. Investments maintained (a) for at least 10 years and (b) until at least December b. Investments maintained (a) for at least 10 years and (b) until at least December 31, 202631, 2026 , wil, wil be eligiblebe eligible for for
permanent exclusion of capital gains tax on any gains from permanent exclusion of capital gains tax on any gains from the qualified OZ portion of the investment when the qualified OZ portion of the investment when
sold or disposed. In this hypothetical, the $196,715 in earnings over the 10 years that the investment is held sold or disposed. In this hypothetical, the $196,715 in earnings over the 10 years that the investment is held
in a QOF would be excluded fromin a QOF would be excluded from capital gains tax, and tax would be due on the initial $100,000 in capital gains tax, and tax would be due on the initial $100,000 in ~~outsid e~~
outside capital gains rol edcapital gains rol ed over into the QOF after applying the OZ adjusted basis increaseover into the QOF after applying the OZ adjusted basis increase benefit of 15% (i.e.,benefit of 15% (i.e., tax tax
due on $85,000 in capital gains). due on $85,000 in capital gains).
Note Note ~~tha~~tthat Table 1 only shows the tax-related benefits of investing in a QOF. It does not include only shows the tax-related benefits of investing in a QOF. It does not include
the economic benefits of temporarily deferring capital gains tax on the initialthe economic benefits of temporarily deferring capital gains tax on the initial $100,000 $100,000
investment, which would depend on the time value of money, which is the economic concept that investment, which would depend on the time value of money, which is the economic concept that
an amount of money availablean amount of money available at the present time is at the present time is ~~general y~~generally worth more than the same amount worth more than the same amount
in the future. Accordingly, investors would prefer to defer paying tax because the money they in the future. Accordingly, investors would prefer to defer paying tax because the money they
would use to otherwise pay the tax could be put to some other use with a higher rate of return would use to otherwise pay the tax could be put to some other use with a higher rate of return
(e.g., investing in other assets) while their tax (e.g., investing in other assets) while their tax ~~bil~~ bill is deferred. From an income tax collection is deferred. From an income tax collection
perspective, though, deferral of capital gains tax just delays a tax liabilityperspective, though, deferral of capital gains tax just delays a tax liability from one period to from one period to
another.another.
Actual QOF investment structures could differ from the arrangement i Actual QOF investment structures could differ from the arrangement in Table 1. With a similar With a similar
tax benefit, the New Markets Tax Credit (NMTC), investors have developed financial structures tax benefit, the New Markets Tax Credit (NMTC), investors have developed financial structures
that increase the amount of other funding from that increase the amount of other funding from ~~either~~ private or public sources (i.e., increasing private or public sources (i.e., increasing
~~leverage~~ leverage Congressional Research Service 5 Tax Incentives for Opportunity Zones: In Brief on the NMTC investment).on the NMTC investment).1614 Additional layers of financing structures could increase the Additional layers of financing structures could increase the
complexity of investment arrangements and costs attributed to fees and transactional costs instead complexity of investment arrangements and costs attributed to fees and transactional costs instead

~~16 Under the NMT C, the investor receives a credit equal to 5% of the total amount paid for the stock or capital interest~~
~~at the time of purchase. For the final four years, the value of the credit is 6% annually. Investors must retain t heir~~
~~interest in a qualified equity investment throughout the seven -year period. T he NMT C value is 39% of the cost of the~~
~~qualified equity investment and is claimed over a seven-year credit allowance period. For more information, see CRS~~
~~Report RL34402, New Markets Tax Credit: An Introduction, by Donald J. Marples and Sean Lowry.~~
~~Congressional Research Service~~

5

~~Tax Incentives for Opportunity Zones: In Brief~~

~~of development, which could ultimately reduce investment in development projects, al else being~~
~~equal.17~~of development, which could ultimately reduce investment in development projects, all else being equal.15
OZ tax incentives are in effect from the enactment of P.L. 115-97 on December 22, 2017, through OZ tax incentives are in effect from the enactment of P.L. 115-97 on December 22, 2017, through
December 31, 2026. There is no gain or deferral available with respect to any sale or exchange December 31, 2026. There is no gain or deferral available with respect to any sale or exchange
made after December 31, 2026, and there is no exclusion available for investments in qualified made after December 31, 2026, and there is no exclusion available for investments in qualified
OZs made after December 31, 2026. OZs made after December 31, 2026.
Implementing Regulations
The Department of the Treasury and IRS The Department of the Treasury and IRS ~~have~~ issued multiple sets of proposed regulations related issued multiple sets of proposed regulations related
to investments in a QOF (under Section 1400Z-2). Notices of Proposed Rulemaking (NPRM) to investments in a QOF (under Section 1400Z-2). Notices of Proposed Rulemaking (NPRM)
were published in the were published in the Federal Register on October 29, 2018, and May 1, 2019. on October 29, 2018, and May 1, 2019.1816 The final The final
~~regulation was~~regulations were published in the published in the Federal Register on January 13, 2020. on January 13, 2020.1917 These regulations inform These regulations inform
investors, QOFs, and other parties that have invested in or are considering investing in projects investors, QOFs, and other parties that have invested in or are considering investing in projects
located within qualified OZs. A comprehensive analysis of the lengthy, final located within qualified OZs. A comprehensive analysis of the lengthy, final ~~regulation~~regulations is outside is outside
the scope of this report.the scope of this report.20
18 With that said, commentators have noted that the final With that said, commentators have noted that the final ~~regulation provides~~regulations provide guidance on a range of guidance on a range of
transactional matters, such as what types of capital gains may be invested, what qualifies as transactional matters, such as what types of capital gains may be invested, what qualifies as
qualified OZ business property, when QOF transactions trigger or do not trigger recognition of qualified OZ business property, when QOF transactions trigger or do not trigger recognition of
capital gain, when capital gains qualify for the purposes of the 10-year exclusion, and other exit capital gain, when capital gains qualify for the purposes of the 10-year exclusion, and other exit
considerations for investors.considerations for investors.2119 Some of these positions are consistent with those established in the Some of these positions are consistent with those established in the
regulations proposed in 2018 and 2019, whereas other positions in the final regulations proposed in 2018 and 2019, whereas other positions in the final ~~regulation~~regulations represent represent a a
change from the change from the ~~previous regulations.~~
~~The final regulation became official y effective on March 13, 2020, but commentators and~~
~~practitioners have noted that it appears to have mixed guidance for retroactive application. The~~
~~preamble of the final regulation notes that taxpayers may choose to either rely on the final~~
~~regulation or the proposed regulations, as long as they pick one or the other consistently.22~~

~~17 For more discussion, see Government Accountability Office (GAO),~~ ~~New Markets Tax Credit - Better Controls and~~
~~Data Are Needed to Ensure Effectiveness, GAO-14-500, July 2014, pp. 5-20, at~~
~~https://www.gao.gov/assets/670/664717.pdf.~~
~~18 Internal Revenue Service (IRS), Department of the Treasury, “Investing in Qualified Opport unity~~proposed regulations. 14 Under the NMTC, the investor receives a credit equal to 5% of the total amount paid for the stock or capital interest at the time of purchase. For the final four years, the value of the credit is 6% annually. Investors must retain their interest in a qualified equity investment throughout the seven-year period. The NMTC value is 39% of the cost of the qualified equity investment and is claimed over a seven-year credit allowance period. For more information, see CRS Report RL34402, New Markets Tax Credit: An Introduction, by Donald J. Marples and Sean Lowry. 15 For more discussion, see Government Accountability Office (GAO), New Markets Tax Credit - Better Controls and Data Are Needed to Ensure Effectiveness, GAO-14-500, July 2014, pp. 5-20, at https://www.gao.gov/assets/670/664717.pdf. 16 Internal Revenue Service (IRS), Department of the Treasury, “Investing in Qualified Opportunity Funds,” 83 Federal Funds,” 83 Federal
Register 54279-54296, October 29, 2018; and 84Register 54279-54296, October 29, 2018; and 84 Federal Register 18652-18693, May 1, 2019. The regulatory docket 18652-18693, May 1, 2019. The regulatory docket
(including(including ~~public~~ public comments) on the May proposed rule iscomments) on the May proposed rule is available at https://www.regulations.gov/document?D=IRS-available at https://www.regulations.gov/document?D=IRS-
2019-0022-0001. 2019-0022-0001.
1917 IRS, IRS, Department of the Treasury, “Investing in QualifiedDepartment of the Treasury, “Investing in Qualified Opportunity Funds,” 85Opportunity Funds,” 85 Federal Register 1866-2001, 1866-2001,
January 13, 2020. January 13, 2020.
~~20 T he~~18 The final regulation is 136 pages long in the triple-column version printed in the Federal Register, above, and is final regulation is 136 pages long in the triple-column version printed in the Federal Register, above, and is 544 544
pages long in the preliminary version posted on the IRS websitepages long in the preliminary version posted on the IRS website at https://www.irs.gov/pub/irs-drop/td-9889.pdf. at https://www.irs.gov/pub/irs-drop/td-9889.pdf.
21 19 For shorter summaries of the final regulation, see Marie Sapirie, For shorter summaries of the final regulation, see Marie Sapirie, “Do You Hear the People Sing? A Guide“Do You Hear the People Sing? A Guide to the to the
Final O-Zone Regs,”Final O-Zone Regs,” Tax Notes Federal, January 6, 2020; and John Sciarretti and Michael Novogradac, , January 6, 2020; and John Sciarretti and Michael Novogradac, Final OZ
Regulations - Quick Take, Novogradac, December 19, 2019, https://www.novoco.com/notes-from-novogradac/final-oz-, Novogradac, December 19, 2019, https://www.novoco.com/notes-from-novogradac/final-oz-
regulations-quick-take. For more detailedregulations-quick-take. For more detailed summaries of the final regulation, see Lisa M. Zarlenga, John Cobb,summaries of the final regulation, see Lisa M. Zarlenga, John Cobb, and and
Caitlin R.Caitlin R. ~~T harp~~ Tharp, , Final Opportunity Zone Regulations Provide ~~Som e~~Some Much -Needed Clarity, Steptoe & Johnson LLP, , Steptoe & Johnson LLP,
December 27, 2019, at https://www.steptoe.com/en/news-publications/final-opportunity-zone-regulations-provide-December 27, 2019, at https://www.steptoe.com/en/news-publications/final-opportunity-zone-regulations-provide-
some-much-needed-clarity.html; and Lisa M. Brill et al., some-much-needed-clarity.html; and Lisa M. Brill et al., Opportunity Zones: Final Regulations Provide Additional
Flexibility, Shearman & Sterling, January 14, 2020, at https://www.shearman.com/perspectives/2020/01/opportunity-, Shearman & Sterling, January 14, 2020, at https://www.shearman.com/perspectives/2020/01/opportunity-
zones-final-regulations-provide-additional-flexibility. zones-final-regulations-provide-additional-flexibility.
~~22 Some commentators have noted that this choice in applicable regulations could increase short -term complexity and~~
decisions for taxpayers. Stephanie Cumings, “O-Zone Rules Applicability Date Raises Dilemma for Investors,” Tax
~~Congressional Research Service~~

6

~~Tax Incentives for Opportunity Zones: In Brief~~

~~Individual sections of the final regulation, though, appear to al ow~~ Congressional Research Service 6 Tax Incentives for Opportunity Zones: In Brief The final regulations became officially effective on March 13, 2020, but commentators and practitioners have noted that they appear to have mixed guidance for retroactive application. The preamble of the final regulations notes that taxpayers may choose to either rely on the final regulations or the proposed regulations, as long as they pick one or the other consistently.20 Individual sections of the final regulations, though, appear to allow a taxpayer to apply either the a taxpayer to apply either the
final or a proposed version of the regulations on a section-by-section basis.final or a proposed version of the regulations on a section-by-section basis.2321 IRS and Treasury IRS and Treasury
could clarify this issue in subsequent could clarify this issue in subsequent ~~communications~~guidance. .
Expected Economic Effects of OZs
Because OZs are a relatively new tax benefit, there are limitedBecause OZs are a relatively new tax benefit, there are limited data that can be used to assess data that can be used to assess
their specific impacts on economic development. Nonetheless, economic theory and examination their specific impacts on economic development. Nonetheless, economic theory and examination
of several other of several other ~~geographical y~~geographically targeted federal programs and incentives for economic targeted federal programs and incentives for economic
development may provide insights on the expected economic effects of OZs. Examples of similar development may provide insights on the expected economic effects of OZs. Examples of similar
economic development incentives that are administered through the tax code include the economic development incentives that are administered through the tax code include the
NMTC,NMTC,2422 the low-income housing tax credit (LIHTC), the low-income housing tax credit (LIHTC),2523 and the tax credit for the rehabilitation of and the tax credit for the rehabilitation of
historic structures.historic structures.2624 Below is a brief discussion of potential economic effects of OZs. Below is a brief discussion of potential economic effects of OZs.
Effects on Employment
Current place-based economic development Current place-based economic development ~~tax polices~~tax policies tend to be structured to directly benefit tend to be structured to directly benefit
owners of capital who invest in particular communities or in particular types of projects and to owners of capital who invest in particular communities or in particular types of projects and to
indirectly benefit the residents of low-income communities. The OZ tax incentives follow this indirectly benefit the residents of low-income communities. The OZ tax incentives follow this
structure by delivering a direct benefit to the owners of capital through capital gains tax relief. structure by delivering a direct benefit to the owners of capital through capital gains tax relief.
Benefits delivered in this manner effectively reduce the cost of investment (i.e., the cost of Benefits delivered in this manner effectively reduce the cost of investment (i.e., the cost of
capital). Economic theory would predict that tax subsidies for capital would not directly benefit capital). Economic theory would predict that tax subsidies for capital would not directly benefit
workers (e.g., in the form of higher wages).workers (e.g., in the form of higher wages).2725 While it is too soon for detailed analysis of the OZ While it is too soon for detailed analysis of the OZ
tax incentives, research on the tax incentives, research on the ~~NMTCs~~NMTC has shown limited effects on employment. has shown limited effects on employment.28
~~Effects on Investment~~
~~Studies find that place-based economic development incentives tend to shift investment from one~~
~~area to another, rather than result in a net increase in aggregate economic activity.29 Previous~~
~~analysis of economic development tax incentives suggests that any one of these tax incentives on~~
~~its own might be insufficient to generate a positive investment return from an otherwise~~
~~unprofitable development project. However, developers may be able to “stack” the benefits of~~

Notes Federal, January 15, 2020.
~~23 For example, see Stephanie Cumings, “Confusion Looms About Which Set of O-Zone Regs~~ 26 20 Some commentators have noted that this choice in applicable regulations could increase short-term complexity and decisions for taxpayers. Stephanie Cumings, “O-Zone Rules Applicability Date Raises Dilemma for Investors,” Tax Notes Federal, January 15, 2020. 21 For example, see Stephanie Cumings, “Confusion Looms About Which Set of O-Zone Regs to Apply,” to Apply,” Tax Notes
Today Federal, January 29, 2020. , January 29, 2020.
~~24 See CRS~~ 22 See CRS Report RL34402, Report RL34402, New Markets Tax Credit: An Introduction, by Donald J. Marples and Sean, by Donald J. Marples and Sean Lowry. Lowry.
~~25 See CRS~~ 23 See CRS Report RS22389, Report RS22389, An Introduction to the Low-Income Housing Tax Credit, by Mark P. Keightley. , by Mark P. Keightley.
2624 See See National Park Service, “National Park Service, “~~T ax~~Tax Incentives for Preserving Historic Properties,” at https://www.nps.gov/tps/tax- Incentives for Preserving Historic Properties,” at https://www.nps.gov/tps/tax-
incentives.htm. incentives.htm.
2725 Economic theory suggests that the substitution effect (the use of more capital, relative to labor) could offset the Economic theory suggests that the substitution effect (the use of more capital, relative to labor) could offset the
benefits of the output effect (the use of more labor, duebenefits of the output effect (the use of more labor, due to more investment and expanded economic activity). The net to more investment and expanded economic activity). The net
effect of these tax subsidieseffect of these tax subsidies ~~will depend~~ will depend on which effect is larger. For more discussionon which effect is larger. For more discussion on the effects of economic on the effects of economic
development policies targeting capital versus labor, see CRSdevelopment policies targeting capital versus labor, see CRS Report R42770, Report R42770, ~~Com m unity Developm ent~~Community Development Financial
Institutions (CDFI) Fund: ~~Program s~~Programs and Policy Issues, by, by Sean Lowry. Sean Lowry.
2826 Harger, K., A. Ross, and Harger, K., A. Ross, and H. Stephens, “What matters the most for economic development? Evidence from the H. Stephens, “What matters the most for economic development? Evidence from the
Community Development Financial Institutions Fund,” Papers in RegionalCommunity Development Financial Institutions Fund,” Papers in Regional Science 98, no. 2, pp. 883Science 98, no. 2, pp. 883 ~~-904, 2019.~~
~~29 For a discussion of the economic literature on geographically targeted development policies, see CRS Report~~
~~R42770, Com m unity Developm ent Financial Institutions (CDFI) Fund: Program s and Policy Issues, by Sean Lowry.~~
~~Congressional Research Service~~

7

~~Tax Incentives for Opportunity Zones: In Brief~~

~~multiple federal tax incentives (as wel as any state and local incentives). The sum of these~~
-904, 2019. Congressional Research Service 7 Tax Incentives for Opportunity Zones: In Brief Effects on Investment Studies find that place-based economic development incentives tend to shift investment from one area to another, rather than result in a net increase in aggregate economic activity.27 Previous analysis of economic development tax incentives suggests that any one of these tax incentives on its own might be insufficient to generate a positive investment return from an otherwise unprofitable development project.28 However, developers may be able to “stack” the benefits of multiple federal tax incentives (as well as any state and local incentives). The sum of these benefits could make a project located in one area more profitable than alternatives. benefits could make a project located in one area more profitable than alternatives.
OZs and New Markets Tax Credit (~~NMTCs~~NMTC)
With limited With limited information currently available on the economicinformation currently available on the economic effects of OZs, policymakerseffects of OZs, policymakers may comparemay compare them to them to
another another ~~economic~~ place-based economic development tax incentive—the NMTC. The NMTC is a nonrefundable tax credit intended to development tax incentive—the NMTC. The NMTC is a nonrefundable tax credit intended to
encourage private capital investment in eligible,encourage private capital investment in eligible, impoverished,impoverished, low-income communities.low-income communities. NMTCs are NMTCs are ~~al ocated~~allocated by by
the CDFI under a competitivethe CDFI under a competitive application process.application process. Investors who make qualified equity investments reduce their Investors who make qualified equity investments reduce their
federal incomefederal income tax liability by claiming the credit. tax liability by claiming the credit.
WhileWhile both the NMTC and OZs are both the NMTC and OZs are ~~geographical y~~geographically targeted and provide tax incentives to investors, targeted and provide tax incentives to investors, several several
differences between OZs and differences between OZs and ~~NMTC discussed below~~the NMTC may lessen may lessen the applicability of any findings on the NMTCthe applicability of any findings on the NMTC
to OZs.to OZs.
One key difference is that OZ tax benefits are available to most investment in OZs, whereas NMTC tax benefits One key difference is that OZ tax benefits are available to most investment in OZs, whereas NMTC tax benefits
are available to a more limitedare available to a more limited set of approved investments.set of approved investments. This fol owsThis fol ows from the NMTC being limitedfrom the NMTC being limited to a set to a set
amount per year ($amount per year ($3.5 bil ion 5 bil ion ~~most recently~~through 2025) while the OZ benefits are uncapped. ) while the OZ benefits are uncapped.
A second difference is that there are no statutory requirementsA second difference is that there are no statutory requirements for outcome-based reporting of OZ tax benefits, for outcome-based reporting of OZ tax benefits,
whereas NMTC tax benefits are subject to such reporting.whereas NMTC tax benefits are subject to such reporting. A GovernmentA Government Accountability Office (GAO) report Accountability Office (GAO) report
found a lack of statutory authority for OZ data found a lack of statutory authority for OZ data ~~col ection.30~~ collection.29 In contrast, NMTC investmentsIn contrast, NMTC investments are subject to more are subject to more
statutory restrictionsstatutory restrictions and structural layers of accountability to low-incomeand structural layers of accountability to low-income populations and communitiespopulations and communities than than
OZs. ForOZs. For example, the Fund evaluates NMTC applications based on a set of factors. One factor is the potential example, the Fund evaluates NMTC applications based on a set of factors. One factor is the potential
impact that the investmentsimpact that the investments supported wil have on “community outcomes,” including benefits to low-income supported wil have on “community outcomes,” including benefits to low-income
persons and jobs directly induced by the investments.persons and jobs directly induced by the investments.3130 Investments made by QOFs are eligible Investments made by QOFs are eligible to benefit a broad to benefit a broad
range of potential projects, regardlessrange of potential projects, regardless of their potential “community outcomes.”of their potential “community outcomes.”3231 A final difference concerns A final difference concerns
community focuscommunity focus ~~(investment~~. Investment vehicles for OZs are not required vehicles for OZs are not required to have a community focus, whereas those for to have a community focus, whereas those for
NMTCs are required to have a primary missionNMTCs are required to have a primary mission of serving or providing investment capital to low-income of serving or providing investment capital to low-income
communitiescommunities). .
As a result of these differences between NMTCs and OZs, researchAs a result of these differences between NMTCs and OZs, research findings from the NMTC may not be findings from the NMTC may not be
applicable to OZs.applicable to OZs. In addition, studying OZs is further complicatedIn addition, studying OZs is further complicated because they could direct morebecause they could direct more investment to investment to
low-incomelow-income ~~communities~~ communities than the NMTC (as a result of being uncapped), but the investment may be less focused than the NMTC (as a result of being uncapped), but the investment may be less focused
to achieve community outcomes. to achieve community outcomes.
~~Revenue Effects~~
~~The Joint Committee on Taxation initial y estimated that the OZ tax incentives would result in a~~
~~revenue loss to the federal government of $1.6 bil ion over 10 years.33 Subsequent tax~~
~~expenditure estimates were higher: a revenue loss of $8.2 bil ion over 5 years.34 The revenue loss~~
~~within the initial 10-year and most recent 5-year budget windows is due to the relatively smal~~

~~30 U.S.~~ 27 For a discussion of the economic literature on geographically targeted development policies, see CRS Report R42770, Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issues. 28 U.S. Government Accountability Office, New Markets Tax Credit Appears to Increase Investment by Investors in Low-Income Communities, but Opportunities Exist to Better Monitor Compliance, GAO-07-296, January 31, 2007, pp. 35-37, https://www.gao.gov/assets/gao-07-296.pdf. 29 U.S. Government Accountability Office, Government Accountability Office, OPPORTUNITY ZONES: Improved Oversight Needed to Evaluate Tax
Expenditure ~~Perform ance~~Performance, GAO-21-20, October 8, 2020, https://www.gao.gov/products/GAO-21-30#summary. , GAO-21-20, October 8, 2020, https://www.gao.gov/products/GAO-21-30#summary.
3130 For examples of such criteria, see the “Community Outcomes” section of CDFI Fund, For examples of such criteria, see the “Community Outcomes” section of CDFI Fund, ~~NMTC Program~~ NMTC Program—Allocation
Application Frequently Asked Questions, June 7, 2018, at , June 7, 2018, at
https://www.cdfifund.gov/Documents/Updated%202018%https://www.cdfifund.gov/Documents/Updated%202018%~~20NMT C~~20NMTC%20Application%20FAQs%20Document%20-%20Application%20FAQs%20Document%20-
For%20Posting%For%20Posting%~~20MAST ER~~20MASTER.pdf. .pdf.
32 31 QOF investments made in the following QOF investments made in the following categories are not eligiblecategories are not eligible as investments in “qualified OZ business as investments in “qualified OZ business
property”: any private or commercial golf course, country club, massageproperty”: any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, parlor, hot tub facility, suntan facility,
racetrack or other facility used for gambling,racetrack or other facility used for gambling, or any store the principal businessor any store the principal business of which is the sale of alcoholic of which is the sale of alcoholic
beveragesbeverages for consumption off premises. See IRCfor consumption off premises. See IRC Section 1400Z-2 and IRC Section 144(c)(6)(B). Further, any capital gains 1400Z-2 and IRC Section 144(c)(6)(B). Further, any capital gains
earned from investments from the above types of projects are not be eligibleearned from investments from the above types of projects are not be eligible for OZ tax benefits. Congressional Research Service 8 link to page 14 link to page 14 Tax Incentives for Opportunity Zones: In Brief Revenue Effects The Joint Committee on Taxation initially estimated that the OZ tax incentives would result in a revenue loss to the federal government of $1.6 billion over 10 years.32 Subsequent tax expenditure estimates were higher: a revenue loss of $8.2 billion over 5 years.33 The revenue loss within the initial 10-year and most recent 5-year budget windows is due to the relatively small ~~for OZ tax benefits.~~
~~33 Joint Committee on T axation, Estimated Revenue Effects of the Conference Agreement for H.R. 1~~~~, The “Tax Cuts~~
~~and Jobs Act,”~~ ~~JCX-67-17, December 18, 2017, p. 6, at~~
~~https://www.jct.gov/publications.html?func=startdown&id=5053 .~~
~~34 U.S. Congress, Joint Committee on T axation, Estimates of Federal Tax Expenditures for Fiscal Years 2020-2024,~~
~~committee print, 116th Cong., October 5, 2020, JCX-23-20, at https://www.jct.gov/publications/2020/jcx-23-20/.~~
~~Congressional Research Service~~

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~~link to page 13 link to page 13~~ ~~Tax Incentives for Opportunity Zones: In Brief~~

revenue losses associated with the deferral of capital gains tax and the OZ basis adjustments in revenue losses associated with the deferral of capital gains tax and the OZ basis adjustments in
years 5 and 7. The largest tax benefit associated with OZ tax incentives, the exclusion of capital years 5 and 7. The largest tax benefit associated with OZ tax incentives, the exclusion of capital
gains tax on qualified OZ investment returns in year 10, would gains tax on qualified OZ investment returns in year 10, would ~~fal~~ fall outside of the 10-year budget outside of the 10-year budget
window. Those revenue losses would not be expected until 2028 (i.e., FY2028-FY2029). window. Those revenue losses would not be expected until 2028 (i.e., FY2028-FY2029).
Issues for Congress
Changing Designation of Qualified Opportunity Zones
Some Members of Congress have inquired whether Treasury or IRS have the authority to change Some Members of Congress have inquired whether Treasury or IRS have the authority to change
designation of qualified OZs from one eligibledesignation of qualified OZs from one eligible census tract to another. One potential reason to census tract to another. One potential reason to
change an OZ designation could be to support investment in an area that has more viable change an OZ designation could be to support investment in an area that has more viable
development projects for investors. However, development projects for investors. However, the IRS has stated that such requests cannot be IRS has stated that such requests cannot be
~~accommodated, and that~~accommodated because IRC Section 1400Z-1 authorized only one determination and designation IRC Section 1400Z-1 authorized only one determination and designation
period for Treasury and IRS to certify and designate census tracts as qualified OZs.period for Treasury and IRS to certify and designate census tracts as qualified OZs.3534 Under this Under this
reasoning, new legislation would need to be enacted to change the amount of qualified OZs, open reasoning, new legislation would need to be enacted to change the amount of qualified OZs, open
a new round of OZ designations (e.g., using the most recent economic data), or change criteria for a new round of OZ designations (e.g., using the most recent economic data), or change criteria for
qualified OZs. qualified OZs.
Roles of Federal and Subnational Governments
The federal government played an active role in establishing the rules for OZs and continues to The federal government played an active role in establishing the rules for OZs and continues to
administer the tax benefits to QOFs that engage in OZ-eligibleadminister the tax benefits to QOFs that engage in OZ-eligible activities. Congress enacted OZs activities. Congress enacted OZs
as part of the 2017 tax revision (P.L. 115-97). The Fund as part of the 2017 tax revision (P.L. 115-97). The Fund ~~formal y~~formally designated census tracts as designated census tracts as
QOFs that were eligible under the statutory criteria and nominated by state QOFs that were eligible under the statutory criteria and nominated by state ~~governors~~CEOs (e.g., governors). Treasury . Treasury
and the IRS then promulgated regulations on and the IRS then promulgated regulations on ~~qualified OZ designations~~the OZ tax benefits and issued additional and issued additional
transactional guidance. As discussed more in transactional guidance. As discussed more in “Coordination of Federal Economic Development
Programs with Opportunity Zones,”,” other agencies could assume a larger role in providing other agencies could assume a larger role in providing
financial incentives for investment in qualified OZs. financial incentives for investment in qualified OZs.
Absent further congressional legislation, subnational governments Absent further congressional legislation, subnational governments ~~wil~~ will likely play a larger role in likely play a larger role in
the types of individualthe types of individual projects and activities that projects and activities that ~~wil~~ will be supported by OZ investment. For be supported by OZ investment. For
example, governors and state legislatures could seek to promote OZs within their jurisdictions as example, governors and state legislatures could seek to promote OZs within their jurisdictions as
attractive options for investment, or enact state-level incentives to enhance potential private-attractive options for investment, or enact state-level incentives to enhance potential private-
~~sector returns in OZs.36 Like state officials, local government entities can also provide further~~
~~incentives to attract OZ investments. Local zoning agencies and mayoral offices have the most~~
~~direct effect on what projects can proceed within specific OZs. These officials can approve or~~
~~deny building permits, or grant approval of permits based on the projects meeting certain~~
~~conditions (e.g., building height variances, promotion of certain goals about population density,~~
~~mixed-income housing units).~~

~~35 Letter 2019-0025 from William A. Jackson, Chief, Branch 5, IRS Office of Associate Chief Counsel, to Honorable~~
~~Donald Norcross, Member, U.S.~~ 32 Joint Committee on Taxation, Estimated Revenue Effects of the Conference Agreement for H.R. 1, The “Tax Cuts and Jobs Act,” JCX-67-17, December 18, 2017, p. 6, at https://www.jct.gov/publications.html?func=startdown&id=5053. 33 U.S. Congress, Joint Committee on Taxation, Estimates of Federal Tax Expenditures for Fiscal Years 2020-2024, committee print, 116th Cong., November 5, 2020, JCX-23-20, at https://www.jct.gov/publications/2020/jcx-23-20/. 34 Letter 2019-0025 from William A. Jackson, Chief, Branch 5, IRS Office of Associate Chief Counsel, to Honorable Donald Norcross, Member, U.S. House of Representatives, September 27, 2019, at https://www.irs.gov/pub/irs-wd/19-0025.pdf. Congressional Research Service 9 Tax Incentives for Opportunity Zones: In Brief sector returns in OZs.35 Like state officials, local government entities can also provide further incentives to attract OZ investments. Local zoning agencies and mayoral offices may have the most direct effect on what projects can proceed within specific OZs. These officials can approve or deny building permits, or grant approval of permits based on the projects meeting certain conditions (e.g., building height variances, promotion of certain goals about population density, mixed-income housing units).~~House of Representatives, September 27, 2019, at https://www.irs.gov/pub/irs-wd/19-~~
~~0025.pdf.~~
~~36 For example, see J. Brian Charles, “States, Cities Add Sweeteners to Attract 'Opportunity Zone' Investors,”~~
Governing, April 17, 2019, at https://www.governing.com/topics/finance/gov -opportunity-zones-extra-incentives.html;
~~and Novogradac, “State Opportunity Zones Legislation,” at https://www.novoco.com/resource-centers/opportunity-~~
~~zones-resource-center/state-opportunity-zones-legislation.~~
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~~Tax Incentives for Opportunity Zones: In Brief~~

Coordination of Federal Economic Development Programs with
Opportunity Zones
In 2018, In 2018, then-President Trump issued an executive order that President Trump issued an executive order that ~~developed~~created the interagency White House the interagency White House
Opportunity and RevitalizationOpportunity and Revitalization Council, whose goal was to “encourage public and private Council, whose goal was to “encourage public and private
investment in urban and investment in urban and ~~economical y~~economically distressed areas, including qualified opportunity zones distressed areas, including qualified opportunity zones
[sic~~].”37~~ .”36 This council, chaired by the Secretary of the U.S. Department of Housing and Urban This council, chaired by the Secretary of the U.S. Department of Housing and Urban
Development, was tasked with assessing actions that each federal agency could take under its Development, was tasked with assessing actions that each federal agency could take under its
existing authority to prioritize or focus federal programs in existing authority to prioritize or focus federal programs in ~~economical y~~economically distressed communities, distressed communities,
including qualifiedincluding qualified OZs, and reduce regulatory and administrative costs that could discourage OZs, and reduce regulatory and administrative costs that could discourage
such public and private investment. Pursuant to the such public and private investment. Pursuant to the ~~President’s~~ executive order, some agencies executive order, some agencies
have promulgated regulations or issued press releases explaining how they are working toward have promulgated regulations or issued press releases explaining how they are working toward
these goals.these goals.38
37 Proponents of such activities could argue that federal coordination of benefits could enhance the Proponents of such activities could argue that federal coordination of benefits could enhance the
incentive effects of OZs. Examinations of past federal economic development incentives, such as incentive effects of OZs. Examinations of past federal economic development incentives, such as
the NMTC, have indicated that one federal incentive, alone, might not be sufficient to drive the NMTC, have indicated that one federal incentive, alone, might not be sufficient to drive
private-sector investment in distressed communities.private-sector investment in distressed communities.3938 By “stacking” multiple government By “stacking” multiple government
benefits in qualified OZs, though, economic development assistance could be more successful in benefits in qualified OZs, though, economic development assistance could be more successful in
driving private and public investment in qualified OZs. Critics of this approachdriving private and public investment in qualified OZs. Critics of this approach~~, though,~~ could could
argue that such coordination could undermine assessments of the OZ tax incentivesargue that such coordination could undermine assessments of the OZ tax incentives, and could and could
make the OZ tax incentives appear to be more effective in increasing economic outcomes than make the OZ tax incentives appear to be more effective in increasing economic outcomes than
they would otherwise if measured in isolation. they would otherwise if measured in isolation.
Timeline of Tax Benefits
In order to benefit from the In order to benefit from the 10% (or 15%)~~15%~~ step-up in basis for capital gains rolled over into a QOF and held step-up in basis for capital gains rolled over into a QOF and held
~~for seven~~for five (or seven) years, investors would have needed to roll over their capital gains into a QOF by the years, investors would have needed to roll over their capital gains into a QOF by the
end of calendar year end of calendar year ~~2019~~2021 (or 2019). By doing so, investors would be able to obtain a full . By doing so, investors would be able to obtain a full ~~seven~~five (or seven) years years
holding period needed for the holding period needed for the ~~15% basis adjustment. (Investments made after 2019 can stil~~
~~benefit from a 10% step-up in basis.)~~
~~Congress could decide that two calendar years (2018 and 2019) were not sufficient time for QOFs~~
~~to form and raise money from investors, who might have waited to participate in OZ investments~~
~~until they conducted more research or reviewed developing regulations. To al ow for more~~
~~investments to qualify for the 15% step-up in basis, the mandatory recognition of deferred capital~~
~~gains in IRC 1400Z-2 could be delayed (e.g., to December 31, 2027). Critics of such a proposal,~~
~~however, could oppose such a policy, citing a concern that the OZ tax incentives largely benefit~~
~~investors, rather than low-income communities and their current residents.~~

3710% (or 15%) basis adjustment. 35 For example, see J. Brian Charles, “States, Cities Add Sweeteners to Attract 'Opportunity Zone' Investors,” Governing, April 17, 2019, at https://www.governing.com/topics/finance/gov-opportunity-zones-extra-incentives.html; and Novogradac, “State Opportunity Zones Legislation,” at https://www.novoco.com/resource-centers/opportunity-zones-resource-center/state-opportunity-zones-legislation. 36 Executive Order 13853, “Establishing the White House Opportunity and Revitalization Council,” 83 Executive Order 13853, “Establishing the White House Opportunity and Revitalization Council,” 83 Federal
Register 65071, December 18, 2018, at https://www.federalregister.gov/documents/2018/12/18/2018 65071, December 18, 2018, at https://www.federalregister.gov/documents/2018/12/18/2018 --
27515/establishing-the-white-house-opportunity-and-revitalization-council. 27515/establishing-the-white-house-opportunity-and-revitalization-council.
3837 For example, see U.S. For example, see U.S. Department of Commerce, “Review of DOC Policy in Opportunity Zones,” 84 Department of Commerce, “Review of DOC Policy in Opportunity Zones,” 84 Federal
Register 45946-45949, September 3, 2019. 45946-45949, September 3, 2019.
39 38 For example, see p. 34 in U.S. For example, see p. 34 in U.S. Government Accountability Office, Government Accountability Office, Tax Policy: New Markets Tax Credit Appears to
Increase ~~Investm ent~~Investment by Investors in Low-~~Incom e Com m unities~~Income Communities, but Opportunities Exist to Better Monitor ~~Com pliance~~ Compliance, ,
GAO-07-296, January 2007, https://www.gao.gov/new.items/d07296.pdfGAO-07-296, January 2007, https://www.gao.gov/new.items/d07296.pdf.
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Tax Incentives for Opportunity Zones: In Brief

~~Congressional Oversight~~
~~Congressional oversight of OZs has focused on how they are designated, their efficacy as a means~~
~~to increase investment in low-income areas, and their reporting requirements. Each issue is~~
~~discussed below.~~
~~Designation of Qualified Opportunity Zones~~
~~Some Members of Congress have expressed concern that certain individuals with ties to the~~
~~Administration could have had an unfair or improper influence on the geographical designation of~~
~~certain census tracts as qualified OZs. These reports have been published in various media~~
~~outlets.40 While engagement and lobbying with state and federal officials on tax incentives are not~~
~~unusual activities, some Members have raised concern that the qualified OZ designation process~~
~~could have been conducted in a way “to enrich political supporters or personal friends of senior~~
~~administration officials.”41 For example, Representative Bil Pascrel wrote a separate letter to~~
~~Treasury Secretary Steven Mnuchin requesting a response to the media reports and questions~~
~~related to meetings held by the Secretary and his staff with certain types of potential stakeholders~~
~~in OZ investments.~~Congress could decide that there was not sufficient time for QOFs to form and raise money from investors, who might have waited to participate in OZ investments until they conducted more research or reviewed developing regulations. To allow for more investments to qualify for the 10% (or 15%) step-up in basis, the mandatory recognition of deferred capital gains in IRC 1400Z-2 could be delayed to allow these benefits time to accrue. In the 117th Congress, H.R. 7467 would extend the OZ deferral period through the end of 2028 and allow the 15% step-up in basis on a six-year holding period and H.R. 970 would extend OZ deadlines by two years. Critics of such proposals, however, could oppose such policies, citing a concern that the OZ tax incentives largely benefit investors, rather than low-income communities and their current residents. Congressional Oversight Congressional oversight of OZs has focused on how they are designated, their efficacy as a means to increase investment in low-income areas, and their reporting requirements. Each issue is discussed below. Designation of Qualified Opportunity Zones Some Members of Congress have expressed concern that politically connected individuals might have had an unfair or improper influence on the geographical designation of certain census tracts as qualified OZs. Reports alleging such influence have been published in various media outlets.39 In 2019, Senator Cory Booker, Representative Emmanuel Cleaver, and Representative Senator Cory Booker, Representative Emmanuel Cleaver, and Representative
Ron Kind sent a letter to Acting Treasury Inspector General (IG) Richard Delmar asking that the Ron Kind sent a letter to Acting Treasury Inspector General (IG) Richard Delmar asking that the
designation process be investigated.designation process be investigated.4240 The Treasury IG has reportedly accepted that request, The Treasury IG has reportedly accepted that request,
although the although the exact scope of the investigation has not been publicly disclosed.41 Related to this issue, the Urban Institute previously analyzed the census tracts designated by the CEOs of the states and the District of Columbia, “scoring” each against measures of the investment flows they are receiving and the socioeconomic changes they have already experienced.42 Tracts that were selected by the state’s respective CEO and designated as QOZs were compared with eligible, nondesignated tracts not selected by the CEO. CEOs in Montana, DC, Alaska, and Georgia selected areas with the lowest levels of preexisting investment.43 Conversely, CEOs in Hawaii, Vermont, Nebraska, and West Virginia selected areas with the highest levels of preexisting investment. Additionally, the researchers found Designated [OZ] tracks [sic] do have lower incomes, higher poverty rates, and higher unemployment rates than eligible nondesignated tracts (and the US overall average, which 39 For example, see Jeff Ernsthausen and Justin Elliott, “One Trump Tax Cut Was Meant to Help the Poor. A Billionaire Ended Up Winning Big,” ProPublica, June 19, 2019, at https://www.propublica.org/article/trump-inc-podcast-one-trump-tax-cut-meant-to-help-the-poor-a-billionaire-ended-up-winning-big; Eric Lipton and Jesse Drucker, “Symbol of ’80s Greed Stands to Profit From Trump Tax~~exact scope of the investigation has not been publicly disclosed.43~~
~~Efficacy of OZs to Improve Economic Conditions of Low -Income Areas~~
~~House Ways and Means Committee Chairman Richard E. Neal, Senate Finance Committee~~
~~Ranking Member Ron Wyden, Former Ways and Means Oversight Subcommittee Chairman John~~
~~Lewis, and Senator Cory Booker wrote a letter to GAO requesting it to “study the program to~~
~~review its effectiveness in spurring investment in low-income areas compared to other federal~~
~~incentives, zone designations and program compliance.”44 Among several research questions, the~~
~~request asks GAO to compare OZ tax incentives to other economic development tax incentives,~~
~~such as the NMTC and the low-income housing tax credit (LIHTC), and analyze the~~
~~characteristics of census tracts that were eligible but not designated to those that were designated.~~
~~GAO issued its final report in October 2020 and found that OZs have fewer limits on permissible~~

~~40 For example, see Jeff Ernsthausen and Justin Elliott, “One T rump Tax Cut Was Meant to Help the Poor. A~~
~~Billionaire Ended Up Winning Big,” ProPublica, June 19, 2019, at https://www.propublica.org/article/trump-inc-~~
~~podcast -one-trump-tax-cut-meant-to-help-the-poor-a-billionaire-ended-up-winning-big; Eric Lipton and Jesse Drucker,~~
~~“Symbol of ’80s Greed Stands to Profit From T rump T ax~~ Break for Poor Areas,” Break for Poor Areas,” NY Times, October 26, 2019, at , October 26, 2019, at
https://www.nytimes.com/2019/10/26/business/michael-milken-trump-opportunity-zones.html; and Jeff Ernsthausen https://www.nytimes.com/2019/10/26/business/michael-milken-trump-opportunity-zones.html; and Jeff Ernsthausen
and Justin Elliott, “How a and Justin Elliott, “How a ~~T ax~~Tax Break to Help the Poor Went to NBA Owner Dan Gilbert,” Break to Help the Poor Went to NBA Owner Dan Gilbert,” ProPublica, October 24, , October 24,
2019, at https://www.propublica.org/article/how-a-tax-break-to-help-the-poor-went2019, at https://www.propublica.org/article/how-a-tax-break-to-help-the-poor-went ~~-to-nba-owner-dan-gilbert.~~
~~41 Senator Cory Booker, “Following Allegations of Misconduct, Booker, Cleaver, Kind Urge T reasury Inspector~~
~~General for “Complete Review” of T reasury’s Implementation of Opportunity Zones,” press release, October 31, 2019,~~
~~at https://www.booker.senate.gov/?p=press_release&id=1005 . See also Representative Bill Pascrell, “ Pascrell Assails~~
~~Mnuchin T reasury Corruption,” press release, October 29, 2019, at~~
~~https://pascrell.house.gov/news/documentsingle.aspx?DocumentID=4051 .~~
~~42 See~~ -to-nba-owner-dan-gilbert. 40 See Letter from Sen. Booker et al. (October 31, 2019). Letter from Sen. Booker et al. (October 31, 2019).
4341 Justine Coleman, “ Justine Coleman, “~~T reasury~~Treasury Watchdog to Investigate Watchdog to Investigate ~~T rump~~Trump Opportunity Zone Program Opportunity Zone Program ,” ,” The Hill, January 15, , January 15,
2020, at https://thehill.com/policy/finance/478521-treasury-watchdog-to-investigate-trump-opportunity-zone-program. 2020, at https://thehill.com/policy/finance/478521-treasury-watchdog-to-investigate-trump-opportunity-zone-program.
~~44 House Ways and Means Committee Chairman Richard Neal, “Neal, Wyden, Lewis, Booker Request GAO Study on~~
~~Opportunity Zone Program,” press release, November 6, 2019, at https://waysandmeans.house.gov/media-center/press-~~
~~releases/neal-wyden-lewis-booker-request -gao-study-opportunity-zone-program.~~
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~~Tax Incentives for Opportunity Zones: In Brief~~

~~project types and controls to limit revenue losses. GAO also found that insufficient data were~~
~~being collected to evaluate OZ performance. GAO found that addressing the latter concern may~~
~~require congressional action.~~
~~Related to this issue, the Urban Institute previously analyzed the census tracts designated by the~~
~~CEOs of the states and the District of Columbia, “scoring” each against measures of the~~
~~investment flows they are receiving and the socioeconomic changes they have already~~
~~experienced.45 Tracts that were selected by the state’s respective CEO and designated as QOZs~~
~~were compared with eligible, nondesignated tracts not selected by the CEO. CEOs in Montana,~~
~~DC, Alaska, and Georgia selected areas with the lowest levels of preexisting investment.46~~
~~Conversely, CEOs in Hawai , Vermont, Nebraska, and West Virginia selected areas with the~~
~~highest levels of preexisting investment. Additional y the researchers found~~
~~Designated [OZ] tracks [sic] do have lower incomes, higher poverty rates, and higher~~
~~unemployment rates than eligible nondesignated tracts (and the US overall average, which~~
~~is as expected given eligibility criteria). Housing conditions trend in similar ways, with~~
~~lower home values, rents, and homeownership rates. The designated tracts are also notably~~
~~less white and more Hispanic and black than eligible no ndesignated tracts. Age~~
~~compositions are comparable. Education levels are somewhat lower among designated~~
~~tracts than eligible nondesignated tracts.... In terms of this program, there appears to be no~~
~~targeting on the basis of urbanization.47~~
~~Some Members of Congress have also introduced bil s that are intended to limit the benefits of~~
~~OZ tax incentives. For example, H.R. 5042 would modify the eligibility criteria for qualified OZs~~
~~and replace existing OZs that do not conform to those criteria with new designations. H.R. 5042~~
~~also retroactively prohibits (effective as if enacted as part of P.L. 115-97) qualified OZ~~
~~investments in self-storage property, stadiums, and residential rental property unless 50% or more~~
~~of the residential units of such property are both rent-restricted and occupied by individuals~~
~~whose income is 50% or less of area median income.~~
~~Data and Reporting Requirements on Beneficial Investors and Projects~~
~~Testimony before some committees has reinforced suggestions that Congress lacks adequate~~
~~information for oversight of OZ tax benefits and that further data-reporting requirements are~~
~~needed.48 QOFs are not required by statute to provide periodic public reports on the locations of~~
~~their investments or economic impacts of those investments on low -income communities. The~~
~~ability of the IRS and Treasury to disclose such information is currently limited by general~~
~~provisions protecting taxpayer confidentiality absent the taxpayer’s consent.49 However, Treasury~~
~~or Joint Committee on Taxation (JCT) economists could conduct an in-house study measuring the~~
~~effects of the tax provision without publicly disclosing confidential taxpayer data, and Congress~~
~~could amend taxpayer confidentiality rules to permit disclosure.~~

~~45 Brett T heodos, Brady Meixell, and Carl Hedman, Did States Maximize Their Opportunity Zone Selections? Urban~~
~~Institute, May 21, 2018, at https://www.urban.org/research/publication/did-states-maximize-their-opportunity-zone-~~
~~selections. State-by-state comparisons are available in a spreadsheet on the linked page.~~
~~46 Ibid., at 4.~~
~~47 Ibid., at 8.~~
~~48 For example, see U.S. Congress, House Committee on Small Business, Subcommittee on Economic Growth, T ax,~~
~~and Capital Access, Can Opportunity Zones Address Concerns in the Sm all Business Econom y? 116th Cong., October~~
~~17, 2019, at https://smallbusiness.house.gov/calendar/eventsingle.aspx?Ev entID=2901. All of the witnesses in that~~
~~hearing recommended additional data collection.~~
~~49 See IRC Section 6103.~~
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~~Tax Incentives for Opportunity Zones: In Brief~~

~~Under its existing authority, the IRS has sought public input on ways to modify the Form 8996,~~
~~which is filed annual y by taxpayers that have self-elected QOF status, to increase the amount of~~
~~data collected on OZ investments.50 Starting with the 2019 tax year (2020 tax filing season), the~~
~~IRS now asks for more data on the value and location of qualified OZ property owned or leased~~
~~by the QOF, as wel as any qualified OZ stock or partnership interests.51~~
~~Currently, data and metrics on investment in OZs are provided by nongovernmental, private~~
~~industry sources. For example,~~ 42 Brett Theodos, Brady Meixell, and Carl Hedman, Did States Maximize Their Opportunity Zone Selections? Urban Institute, May 21, 2018, at https://www.urban.org/research/publication/did-states-maximize-their-opportunity-zone-selections. State-by-state comparisons are available in a spreadsheet on the linked page. 43 Ibid., at 4. Congressional Research Service 11 Tax Incentives for Opportunity Zones: In Brief is as expected given eligibility criteria). Housing conditions trend in similar ways, with lower home values, rents, and homeownership rates. The designated tracts are also notably less white and more Hispanic and black than eligible nondesignated tracts. Age compositions are comparable. Education levels are somewhat lower among designated tracts than eligible nondesignated tracts.... In terms of this program, there appears to be no targeting on the basis of urbanization.44 In the 117th Congress, several bills would modify OZ designations. H.R. 7467 would allow state CEOs to remove OZ designations from tracts where median family income now exceeds 130% of the national median family income and allow those CEOs to designate a replacement census tract, while H.R. 4177 would allow state CEOs to designate an additional 5% of the state’s eligible census tracts, and H.R. 1740 would designate all of Puerto Rico as an OZ. Efficacy of OZs to Improve Economic Conditions of Low-Income Areas In 2019, House Ways and Means Committee Chairman Richard E. Neal, Senate Finance Committee then-Ranking Member Ron Wyden, House Ways and Means Oversight Subcommittee then-Chairman John Lewis, and Senator Cory Booker wrote a letter to GAO requesting it to “study the [OZ] program to review its effectiveness in spurring investment in low-income areas compared to other federal incentives, zone designations and program compliance.”45 Among several research questions, the request asked GAO to compare OZ tax incentives to other economic development tax incentives, such as the NMTC and LIHTC, and compare the characteristics of census tracts that were eligible but not designated to those that were designated. GAO issued its final report in October 2020 and found that OZs have fewer limits on permissible project types and fewer controls to limit revenue losses.46 GAO also found that insufficient data were being collected to evaluate OZ performance. GAO found that addressing the latter concern may require congressional action. Early academic research on Opportunity Zones has generally found modest to no effect on economic outcomes. Focusing on employment, preliminary evidence is mixed, with research using establishment-level data finding the reduction in capital gains taxes for OZ investment increasing job growth by 3 to 4.5 percentage points relative to census tracts that were eligible but did not receive OZ designations.47 Other research using census tract-level data and controlling for predesignation trends fails to find an effect on employment, and research focusing on job postings also fails to find an increase in job postings in OZ census tracts.48 Other preliminary research has found initial OZ investment to be concentrated in a limited number of designated census tracts 44 Ibid., at 8. 45 House Ways and Means Committee Chairman Richard Neal, “Neal, Wyden, Lewis, Booker Request GAO Study on Opportunity Zone Program,” press release, November 6, 2019, at https://waysandmeans.house.gov/media-center/press-releases/neal-wyden-lewis-booker-request-gao-study-opportunity-zone-program. 46 U.S. Government Accountability Office, Opportunity Zones: Improved Oversight Needed to Evaluate Tax Expenditure Performance, GAO-21-30, October 8, 2020, https://www.gao.gov/products/gao-21-30. 47 Alina Arefeva et al., “The Effect of Capital Gains Taxes on Business Creation and Employment: The Case of Opportunity Zones,” December 13, 2021, https://ssrn.com/abstract=3645507 or http://dx.doi.org/10.2139/ssrn.3645507. 48 Matthew Freedman, Shantanu Khanna, and David Neumark, “JUE Insight: The Impacts of Opportunity Zones on Zone Residents,” NBER Working Paper 28573, November 2021, https://www.nber.org/system/files/working_papers/w28573/w28573.pdf; and Rachel Atkins et al., “What is the Impact of Opportunity Zones on Employment?” July 31, 2021, NYU Stern School of Business, https://ssrn.com/abstract=3673986. Congressional Research Service 12 Tax Incentives for Opportunity Zones: In Brief that appear to have positive predesignation economic trends49 and little to no initial effect on housing prices.50 Data and Reporting Requirements on Beneficial Investors and Projects Testimony before some committees has reinforced suggestions that Congress lacks adequate information for oversight of OZ tax benefits and that further data-reporting requirements are needed.51 QOFs are not required by statute to provide periodic public reports on the locations of their investments or economic impacts of those investments on low-income communities. The ability of the IRS and Treasury to disclose such information is currently limited by general provisions protecting taxpayer confidentiality absent the taxpayer’s consent.52 However, Treasury or Joint Committee on Taxation (JCT) economists could conduct an in-house study measuring the effects of the tax provision without publicly disclosing confidential taxpayer data, and Congress could amend taxpayer confidentiality rules to permit or require disclosure. Under its existing authority, the IRS has sought public input on ways to modify the Form 8996, which is filed annually by taxpayers that have self-elected QOF status, to increase the amount of data collected on OZ investments.53 Starting with the 2019 tax year (2020 tax filing season), the IRS now asks for more data on the value and location of qualified OZ property owned or leased by the QOF, as well as any qualified OZ stock or partnership interests.54 Currently, data and metrics on investment in OZs are provided by government and private industry sources. For example, a working paper utilizing federal business tax returns indicated that $18.9 billion in new OZ investment was claimed on electronically filed returns and that roughly $6 billion in new OZ investment was claimed via paper returns.55 The authors find that reported OZ investment is overwhelmingly concentrated in equity investments in businesses that specialize in real estate, construction, and finance. Novogradac, an accounting and consulting firm that focuses on Novogradac, an accounting and consulting firm that focuses on
economic development tax incentives, reported that a total of economic development tax incentives, reported that a total of ~~580~~1,035 QOFs nationwide had raised QOFs nationwide had raised
~~$12.05 bil ion in equity as of September 1, 2020.52~~$28.37 billion in equity as of March 2022.56 The names, contact information, and The names, contact information, and
investment focus investment focus ~~area~~areas of QOFs that elected to provide such information are 49 Patrick Kennedy and Harrison Wheeler, “Neighborhood-Level Investment from the U.S. Opportunity Zone Program: Early Evidence,” April 15, 2021, https://ssrn.com/abstract=4024514. 50 Jiafeng Chen, Edward L. Glaeser, and David Wessel, “The (Non-) Effect of Opportunity Zones on Housing Prices,” NBER Working Paper 26587, December 2019, https://www.nber.org/papers/w26587. 51 For example, see U.S. Congress, House Committee on Ways and Means, Subcommittee on Oversight, The Opportunity Zone Program and Who it Left Behind, 117th Cong., November 16, 2021 at https://waysandmeans.house.gov/legislation/hearings/oversight-subcommittee-hearing-opportunity-zone-program-and-who-it-left-behind and U.S. Congress, House Committee on Small Business, Subcommittee on Economic Growth, Tax, and Capital Access, Can Opportunity Zones Address Concerns in the Small Business Economy? 116th Cong., October 17, 2019, at https://smallbusiness.house.gov/calendar/eventsingle.aspx?EventID=2901. 52 See IRC Section 6103. 53 Department of the Treasury, “Request for Information on Data Collection and Tracking for Qualified Opportunity Zones,” 84 Federal Register 18648-18649, May 2, 2019. Regulatory docket available at https://www.regulations.gov/document?D=TREAS-DO-2019-0004-0001. 54 For the most recent official version see, IRS, “Form 8996 – Qualified Opportunity Fund,” at https://www.irs.gov/pub/irs-pdf/f8996.pdf. 55 Patrick Kennedy and Harrison Wheeler, “Neighborhood-Level Investment from the U.S. Opportunity Zone Program: Early Evidence,” April 15, 2021, https://ssrn.com/abstract=4024514. 56 Novogradac, “Opportunity Funds Listing” (accessed April 25, 2022), at https://www.novoco.com/resource-centers/opportunity-zone-resource-center/opportunity-funds-listing. In addition, Novogradac has identified another 383 QOFs that have not yet reported raising equity. Congressional Research Service 13 Tax Incentives for Opportunity Zones: In Brief ~~of QOFs that elected to provide such information are~~ also listed on also listed on
Novogradac’s website, as Novogradac’s website, as ~~wel~~ well as other third-party sites.as other third-party sites.5357 Some of these third-party data sources Some of these third-party data sources
also indicate the minimum investment required for an investor to participate in a particular QOF. also indicate the minimum investment required for an investor to participate in a particular QOF.
Several Several ~~bil s~~bills introduced in the introduced in the ~~116th~~117th Congress are intended to promote oversight and transparency Congress are intended to promote oversight and transparency
of OZs. For example, of OZs. For example, ~~S. 1344/H.R. 2593~~H.R. 7467 would require QOFs to report the physical location of an OZ investment, the industry of the investment, and the number of jobs supported by the investment. The bill would also require investors to report information on their investments in QOFs that would allow the IRS the ability to link the investor to a specific QOF and to their deferred gains invested in a QOF ~~would require the Department of the Treasury to collect~~
~~data and report to Congress on investments held by QOFs. These bil s would also require the~~
~~Treasury to make certain information regarding these investments publicly available.~~
~~Additional y, S. 2787 would require QOFs to file an annual report disclosing specific information~~
~~on its investments and investors, and require that QOFs publicly disclose such information~~. .
More QOF disclosure on tax forms could aid the IRS in ensuring the proper administration of OZ More QOF disclosure on tax forms could aid the IRS in ensuring the proper administration of OZ
tax incentives. Although tax incentives. Although the IRS would IRS would ~~likely~~ be limitedbe limited to in disclosing such taxpayer-provided data to disclosing such taxpayer-provided data to
the public without the taxpayer’s consent, it could release some aggregated amounts of OZ the public without the taxpayer’s consent, it could release some aggregated amounts of OZ
investments organized at state or local levels or the tax benefits claimed by income level in order investments organized at state or local levels or the tax benefits claimed by income level in order
to provide the public with a better idea of how the direct benefits of OZ tax incentives are to provide the public with a better idea of how the direct benefits of OZ tax incentives are
distributed. If substantial disclosure, public or private, were required by investors or QOFs, distributed. If substantial disclosure, public or private, were required by investors or QOFs,
though, then that could be a disincentive for some participation in OZ-related investments. More though, then that could be a disincentive for some participation in OZ-related investments. More
~~detailed forms could also increase compliance costs for QOFs.~~

~~50 Department of the Treasury, “Request for Information on Data Collection and T racking for Qualified Opportunity~~
~~Zones,” 84 Federal Register 18648-18649, May 2, 2019. Regulatory docket available at~~
~~https://www.regulations.gov/document?D=T REAS-DO-2019-0004-0001.~~
~~51 For the most recent official version see, IRS, “Form 8996 – Qualified Opportunity Fund,” at~~
~~https://www.irs.gov/pub/irs-pdf/f8996.pdf.~~
~~52 Novogradac, “Opportunity Funds Listing” (accessed December 7, 2020), at https://www.novoco.com/resource-~~
~~centers/opportunity-zone-resource-center/opportunity-funds-listing.~~
53detailed forms could also increase compliance costs for QOFs. 57 For example, see OpportunityDb, “Opportunity Zone Fund Directory,” at https://opportunitydb.com/funds/. For example, see OpportunityDb, “Opportunity Zone Fund Directory,” at https://opportunitydb.com/funds/.
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link to page link to page 1820 Tax Incentives for Opportunity Zones: In Brief

Appendix A. Illustration of CDFI OZ Mapping Tool
Figure A-1 provides an provides an ~~il ustrative~~illustrative screenshot of the Fund’s online mapping tool. This image screenshot of the Fund’s online mapping tool. This image
displays census tracts that have been designated as a qualified OZ in the Southeast, primarily displays census tracts that have been designated as a qualified OZ in the Southeast, primarily
Alabama, Georgia, and South Carolina. Designated OZs are shown in blue. A complete list of Alabama, Georgia, and South Carolina. Designated OZs are shown in blue. A complete list of
qualified OZs qualified OZs ~~has been published as an IRS Internal Revenue Bulletin and is available~~ is available on the ~~on the~~
Fund’s “Opportunity Zone” website.Fund’s “Opportunity Zone” website.54

~~54 See CDFI Fund,~~ 58 58 See CDFI Fund, “List of Designated Qualified“List of Designated Qualified Opportunity Zones,” at https://www.cdfifund.gov/Opportunity Zones,” at https://www.cdfifund.gov/~~Pages/Opportunity-~~
~~Zones.aspx. Qualified~~ sites/cdfi/files/documents/designated-qozs.12.14.18.xlsx. Qualified OZs are also publishedOZs are also published ~~in IRS~~ in IRS Notice 2018Notice 2018 -48, Designated Qualified-48, Designated Qualified Opportunity Zones Under Opportunity Zones Under
Internal Revenue CodeInternal Revenue Code § 1400Z-2, at https://www.irs.gov/pub/irs-drop/n-18-48.pdf; and IRS§ 1400Z-2, at https://www.irs.gov/pub/irs-drop/n-18-48.pdf; and IRS Notice 2019-42, Notice 2019-42,
Amplification of Notice 2018-48 to Include Additional Puerto Rico Designated QualifiedAmplification of Notice 2018-48 to Include Additional Puerto Rico Designated Qualified Opportunity Zones, at Opportunity Zones, at
https://www.irs.gov/pub/irs-drop/n-19-42.pdf. https://www.irs.gov/pub/irs-drop/n-19-42.pdf.
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Figure A-1. CDFI Fund Mapping Tool Showing Designated Opportunity Zones (OZs) in the Southeast

Source: CRS screenshot of CDFI Fund, CIMS mapping tool,CRS screenshot of CDFI Fund, CIMS mapping tool, accessed November 11, 2018, at https://www.cims.cdfifund.gov/preparation/?config=config_nmtc.xml.accessed November 11, 2018, at https://www.cims.cdfifund.gov/preparation/?config=config_nmtc.xml.
Notes: Designated OZs are shown in blue. Congressional Designated OZs are shown in blue. Congressional district bordersdistrict borders have been enabled in the above screenshothave been enabled in the above screenshot
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Appendix B. Number of Census Tracts Eligible in
Each State for Qualified OZ Designation
Table 2 displays the maximum number of census tracts in each state or territory that were eligible displays the maximum number of census tracts in each state or territory that were eligible
for OZ designation under each of the two nomination criteria. These data, from February 27, for OZ designation under each of the two nomination criteria. These data, from February 27,
2018, were posted on the Fund’s website before the qualified OZ recommendations issued by 2018, were posted on the Fund’s website before the qualified OZ recommendations issued by
state or territory CEOs were certified. state or territory CEOs were certified.
Table 2. Maximum Number of Census Tracts Eligible
for Opportunity Zone Designation, by State or Territory, 2018

A
B
C
Maximum Number of
~~Maximum Number~~ of
Tracts That Can Be
~~Eligible Non-LIC~~Maximum Number of
Nominated ~~(the~~
~~Contiguous Tracts~~ (the Eligible Non-LIC
Total Number of Low-
Greater of 25% of All
~~That Can Be~~Contiguous Tracts
Income Community
LICs or 25 If ~~State~~ That Can Be (LIC) Tracts in State/Territory Has
Nominated (5% of
State/Territory
~~(LIC) Tracts in State~~State/Territory
Fewer Than 100 LICs)
Column B)
Alabama Alabama
629 629
158 158
8 8
Alaska Alaska
55 55
25 25
2 2
American American Samoa Samoa
16 16
25 25
See Notes See Notes
Arizona Arizona
671 671
168 168
9 9
Arkansas Arkansas
340 340
85 85
5 5
California California
3,516 3,516
879 879
44 44
Colorado Colorado
501 501
126 126
7 7
Connecticut Connecticut
286 286
72 72
4 4
Delaware Delaware
80 80
25 25
2 2
District District of Columbia of Columbia
97 97
25 25
2 2
Florida Florida
1,706 1,706
427 427
22 22
Georgia Georgia
1,039 1,039
260 260
13 13
Guam Guam
31 31
25 25
2 2
~~Hawai~~
Hawaii 99 99
25 25
2 2
Idaho Idaho
109 109
28 28
2 2
Il inois Il inois
1,305 1,305
327 327
17 17
Indiana Indiana
621 621
156 156
8 8
Iowa Iowa
247 247
62 62
4 4
Kansas Kansas
295 295
74 74
4 4
Kentucky Kentucky
573 573
144 144
8 8
Louisiana Louisiana
597 597
150 150
8 8
Maine Maine
128 128
32 32
2 2
Maryland Maryland
593 593
149 149
8 8
~~Massachusetts~~
~~550~~
~~138~~
7
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A
B
C
Maximum Number of
~~Maximum Number~~ of
Tracts That Can Be
~~Eligible Non-LIC~~Maximum Number of
Nominated ~~(the~~
~~Contiguous Tracts~~ (the Eligible Non-LIC
Total Number of Low-
Greater of 25% of All
~~That Can Be~~Contiguous Tracts
Income Community
LICs or 25 If ~~State~~ That Can Be (LIC) Tracts in State/Territory Has
Nominated (5% of
State/Territory
~~(LIC) Tracts in State~~State/Territory
Fewer Than 100 LICs)
Column B)
Massachusetts 550 138 7 Michigan Michigan
1,152 1,152
288 288
15 15
Minnesota Minnesota
509 509
128 128
7 7
Mississippi Mississippi
399 399
100 100
5 5
Missouri Missouri
641 641
161 161
9 9
Montana Montana
90 90
25 25
2 2
Nebraska Nebraska
176 176
44 44
3 3
Nevada Nevada
243 243
61 61
4 4
New Hampshire New Hampshire
105 105
27 27
2 2
New Jersey New Jersey
676 676
169 169
9 9
New Mexico New Mexico
249 249
63 63
4 4
New York New York
2,055 2,055
514 514
26 26
North Carolina North Carolina
1,007 1,007
252 252
13 13
North Dakota North Dakota
50 50
25 25
2 2
Northern Mariana Islands Northern Mariana Islands
20 20
25 25
See Notes See Notes
Ohio Ohio
1,280 1,280
320 320
16 16
Oklahoma Oklahoma
465 465
117 117
6 6
Oregon Oregon
342 342
86 86
5 5
Pennsylvania Pennsylvania
1,197 1,197
300 300
15 15
Puerto Rico Puerto Rico
835 835
See Notes See Notes
See Notes See Notes
Rhode Island Rhode Island
78 78
25 25
2 2
South Carolina South Carolina
538 538
135 135
7 7
South Dakota South Dakota
69 69
25 25
2 2
Tennessee Tennessee
702 702
176 176
9 9
Texas Texas
2,510 2,510
628 628
32 32
Utah Utah
181 181
46 46
3 3
Vermont Vermont
48 48
25 25
2 2
Virgin Islands Virgin Islands
13 13
25 25
See Notes See Notes
Virginia Virginia
847 847
212 212
11 11
Washington Washington
555 555
139 139
7 7
West Virginia West Virginia
220 220
55 55
3 3
Wisconsin Wisconsin
479 479
120 120
6 6
~~Wyoming~~
33
25
2
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Wyoming 33 25 2
Source: CDFI Fund, “Opportunity Zones Information Resources,”CDFI Fund, “Opportunity Zones Information Resources,” February 27, 2018, at February 27, 2018, at
https://www.cdfifund.gov/Pages/Opportunity-Zones.aspx. https://www.cdfifund.gov/Pages/Opportunity-Zones.aspx.
Notes: These data are These data are ~~not~~no longer available on the CDFI Fund website, available on the CDFI Fund website, above, and wereabove, and were accessed before publication of accessed before publication of
~~earlier~~ earlier versions of this CRS report. versions of this CRS report.
Puerto Rico: The Bipartisan Budget Act of 2018 (P.L. 115-123) deemed each census tract in Puerto Rico that is a The Bipartisan Budget Act of 2018 (P.L. 115-123) deemed each census tract in Puerto Rico that is a
low-incomelow-income community to be certifiedcommunity to be certified and designated as a qualified OZ. Treasury added two census tracts to the 835 census tracts initially deemed eligible low-income communities~~and designated as a qualified OZ. As of the time these data were posted,~~
~~the maximum number of tracts that can be nominated by Puerto Rico as wel as the maximum number of Eligible~~
~~Non-LIC Contiguous Tracts that could have been included in that nomination was being determined by the Fund~~. .
USVI: The U.S. Virgin Islands could nominate Eligible Non-LIC Contiguous Tracts, provided that the nominated The U.S. Virgin Islands could nominate Eligible Non-LIC Contiguous Tracts, provided that the nominated
non-LIC tracts do not exceed 5% of non-LIC tracts do not exceed 5% of al all nominated tracts (both low-incomenominated tracts (both low-income ~~communities~~ communities and nominated and nominated
contiguous tracts). Thus the USVI could nominate no morecontiguous tracts). Thus the USVI could nominate no more than one of its Eligible Non-LIC Contiguous Tracts. than one of its Eligible Non-LIC Contiguous Tracts.
Northern ~~Mariana~~ Mariana Islands and American Samoa: Neither the Northern Mariana Islands nor AmericanNeither the Northern Mariana Islands nor American Samoa had Samoa had
any Eligibleany Eligible Non-LIC Contiguous Tracts. Non-LIC Contiguous Tracts.

Author Information

~~Sean Lowry~~
Donald J. Marples Donald J. Marples
~~Analyst~~ Specialist in Public Finance in Public Finance
~~Specialist in Public Finance~~

Acknowledgments Sean Lowry, former CRS Analyst, co-authored an earlier version of this report.
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