IRS Aids State and Local Governments With Tax-Exempt Tender Bonds and Commercial Paper: McGuire Woods

State and local governments frequently finance capital projects such as airports and utility systems by issuing tax-exempt qualified tender bonds (also commonly called variable rate demand obligations or “lower-floaters”) and commercial paper. These obligations give the issuer the benefits of long-term financing with short-term interest rates.

However, tender bonds and commercial paper are variable-rate obligations. This exposes issuers to higher interest rates in times of market dislocation.

During the week of March 9, 2020, the extent of the COVID-19 outbreak was becoming apparent. The World Health Organization declared the outbreak a pandemic, President Trump declared a national emergency and many state governors declared states of emergency. Investors fled tender bonds and commercial paper. Over the course of the following week, the rates on these obligations increased fourfold.

State and local governmental issuers often seek to lessen the budgetary blow from spiking interest rates by purchasing their own tender bonds and commercial paper and holding them until the markets return to normal.

An issuer with sufficient liquidity may find a temporary purchase and hold strategy to be attractive. However, it is fraught with federal tax issues. A debt obligation generally is treated as retired or extinguished when an issuer purchases it because the interests of the issuer and the holder merge. The ability to resell the obligation on a tax-exempt basis requires the retesting of all the various program requirements for new issues of tax-exempt bonds. The reissuance of the debt obligation may result in various negative consequences to the issuer, including changes in yield for purposes of the arbitrage investment restrictions, acceleration of arbitrage rebate payment obligations, deemed terminations of integrated interest rate swaps under the qualified hedge arbitrage rules, new public approval requirements for qualified private activity bonds, and change in law risk. The obligation may lose its tax-exempt status.

Fortunately, the IRS has provided administrative relief to promote liquidity and stability in the tax-exempt tender bond and commercial paper markets in response to the COVID-19 pandemic.

On May 4, 2020, the IRS published Revenue Procedure 2020-25 to expand existing authority for state and local governmental issuers to purchase their own tender bonds and commercial paper on a temporary basis without causing a reissuance or retirement. To qualify, the issuer must purchase the bonds or paper during calendar year 2020 and not hold the debt after Dec. 31, 2020. The revenue procedure affords additional relief for purchases of tender bonds pursuant to qualified tender rights. The issuer may hold such a bond for 180 days after the purchase (instead of the usual 90 days) so long as the purchase occurs before Dec. 31, 2020.

Revenue Procedure 2020-25 allows the issuer to refund its purchased obligation with a tax-exempt refunding bond, to tender the purchased obligation for purchase pursuant to a qualified tender right the same as any other bondholder, or otherwise to sell the purchased obligation during the permitted holding period without jeopardizing its tax-exempt status.

Note: State and local governments often issue tender bonds and commercial paper to finance projects for non-governmental conduit borrowers. Examples include an economic development authority issuing tax-exempt tender bonds and lending the proceeds to the private operator of a solid waste disposal facility or the 501(c)(3) owner of a hospital. Also, tender bonds are often secured by a third-party credit and/or liquidity provider, such as a commercial bank. Conduit borrowers and credit and liquidity providers are generally allowed to purchase, hold and resell the tax-exempt tender bonds and commercial paper from which they benefit or secure without regard to any permitted holding period.

McGuireWoods has established a COVID-19 Response Team to help clients navigate urgent and evolving legal and business issues arising from the novel coronavirus pandemic. Lawyers in the firm’s 21 offices are ready to assist quickly on questions involving healthcare, labor and employment, education, real estate and more. For assistance, contact a team member or email [email protected]

McGuireWoods has published additional thought leadership analyzing how companies across industries can address crucial business and legal issues related to COVID-19.

May 12, 2020

Urban Core Development in Opportunity Zones, with Alex Bhathal.

The Sacramento Kings ownership group successfully spearheaded downtown Sacramento’s revitalization, which by the end of 2018 had resulted in a hugely positive community impact and a downtown job increase of 38 percent. Now, can they leverage the Opportunity Zone incentive to replicate this success in similar markets across the country? Alex Bhathal and his family are principal co-owners of the Sacramento Kings NBA franchise and…

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Opportunity Db

May 13, 2020

Tax-Averse Nashville Goes Where Few Other Cash-Poor Cities Dare.

Nashville’s Music Row has gone quiet, its teeming hotels have emptied and its bustling restaurants, like the Capitol Grille, a fixture since 1910, are open for take-out only.

In a matter of weeks, the coronavirus pandemic has frozen the tourist-powered economy of one of the hottest cities in America. Nashville, Tennessee, finds itself staring into what Mayor John Cooper is calling its worst financial situation ever.

Nashville’s Music Row has gone quiet, its teeming hotels have emptied and its bustling restaurants, like the Capitol Grille, a fixture since 1910, are open for take-out only.

In a matter of weeks, the coronavirus pandemic has frozen the tourist-powered economy of one of the hottest cities in America. Nashville, Tennessee, finds itself staring into what Mayor John Cooper is calling its worst financial situation ever.

Cooper did what few mayors have dared. Last month, he proposed a 32% property-tax increase to help Nashville’s city-county government weather an estimated $470 million revenue loss over the next 16 months.

“This is the last thing anybody in my job would want to be doing,” Cooper said in an interview.

Nashville’s crisis is echoing across America. Just about every big city in the U.S. is facing revenue declines from weeks of stay-at-home orders, according to a National League of Cities survey. Congress has earmarked $150 billion for states and local governments — Nashville is slated to receive $122 million — but the money must be spent on public health and can’t be used to fill budget holes.

State and local governments are in “uncharted territory” and will have to start making serious cuts if they don’t get more help, said Richard Auxier, a senior policy associate in the Urban-Brookings Tax Policy Center.

“Their revenue was literally turned off,” he said.

Millions Jobless

Few city officials around the country are following Nashville’s lead. With the pandemic comes the concern that tax hikes may dampen economic recovery at a time when millions of Americans are suddenly jobless.

Leaders of New York, Chicago, San Diego, Memphis and Charlotte, North Carolina, have all grappled with virus-related deficits without plans to increase taxes.

Seattle officials have talked about a new payroll tax to help close a budget gap that could grow to $300 million, but they had to delay discussions because of restrictions on government meetings during the pandemic. Philadelphia, with a $650 million deficit, is opting to cut services “down to the most essential,” Mayor Jim Kenney said. He would, however, raise taxes on businesses and commuters.

Extra Expenses

Nashville restaurateur Howard Greenstone said Cooper’s proposal comes as retailers are preoccupied trying to navigate new social-distancing restrictions and a bleak outlook for tourism.

Greenwood said he pays about $75,000 in property taxes for one of his restaurants, Adele’s, a popular brunch spot, and the tax bill could rise by $24,000 as a result.

“These extra expenses are going to be crippling,” he said.

Nashville, like many other cities, has fiscal troubles that predate the pandemic. Taxes are political poison in Tennessee, a legacy of the Tea Party movement, and officials have engaged in financial engineering to keep them low.

It restructured some of its municipal bonds in 2010, putting off payments to avoid higher taxes, according to the state comptroller’s office. Since then, outstanding debt ballooned to $4.4 billion in fiscal 2019.

Even as the local economy boomed, Nashville, with a population of about 670,000, resisted raising taxes. A 2017 property reassessment in the county showed a median increase of 37% in property values over the previous four years, which could have bolstered an argument for adding revenue to pay for expanded services. But a state law that mandated reassessments be “revenue neutral” resulted in some residents paying less. Nashville officials didn’t work around the rule.

“We dug some of our own hole,” said Freddie O’Connell, a city-council member.

In November, State Comptroller Justin Wilson warned Nashville that it was cash-poor.

“Would you want to take a flight, a 3,000-mile flight, if the pilot says, ‘Well, I expect we have enough gasoline to get us 3,002 miles?’” Wilson said. “That’s how you’re operating.”

Cooper’s fiscal 2021 budget would avoid layoffs, but they loom.

“If this is not passed, my ability to finance next year will demand immediate and sharp layoffs, which would also be unprecedented,” Cooper said.

Even with the proposed hike, he said, property taxes would remain lower than other cities in the state and below the city’s historic norm.

Effects of the virus may have persuaded at least one reluctant lawmaker. With the metro area projected to lose at least 24,000 jobs this year, the timing of the hike “couldn’t be worse,” said city-council member Jeff Syracuse. And though he’s voted against hikes before, he said this time it may be necessary.

“A third of the county got a tax break in 2017,” Syracuse said. “That’s indicative of the unsustainability that we face.”

Bloomberg Markets

By Amanda Albright

May 11, 2020, 6:00 AM PDT

IRS Offers Tax-Exempt Bond Issuers More Flexibility.

The IRS is offering expanded periods in which state and local governments may purchase and hold their own exempt qualified tender bonds and tax-exempt commercial paper.

In Notice 2020-25, 2020-22 IRB 1, the IRS said May 4 that it is providing the added flexibility to help government bond issuers adapt to changing financing needs during the coronavirus pandemic.

The change applies for purposes of sections 103 and 141 through 150, and the notice says an exempt qualified tender bond or exempt commercial paper purchased by its governmental issuer on a temporary basis will be treated as continuing in effect without resulting in a reissuance or retirement of the bond if the issuer buys it during the permitted holding period and holds the bond no later than the end of the holding period.

“The governmental issuer may refund the purchased bond with a refunding bond, tender the purchased bond for purchase in a qualified tender right in its capacity as a bondholder, or otherwise resell the purchased bond” during the permitted holding period, the IRS said.

Regarding the purchase of a particular obligation of exempt commercial paper, including a purchase at maturity, “a refinancing of that purchased tax-exempt commercial paper with tax-exempt commercial paper during the permitted holding period will be treated as part of the same issue as the issue of which the purchased tax-exempt commercial paper was a part,” the IRS said.

The notice is effective May 4, 2020, and issuers may apply it retroactively to purchases on or after January 1, 2020.

Emily Swenson Brock of the Government Finance Officers Association said the group’s members are glad to see the IRS relief.

“States and local governments across the country have had to rethink public processes as a result of this pandemic, and we are happy that the IRS/Treasury is thinking outside the box as well,” Brock said. “Additionally, relief as it pertains to a potentially costly and burdensome reissuance process due to self-liquidity is a meaningful acknowledgement by the IRS.”

Phone It In

The IRS also announced May 4 that it is temporarily allowing public approval hearings on qualified private activity bonds to take place by telephone.

Between now and December 31, 2020, a public hearing on qualified private activity bonds held via teleconference (toll free) will satisfy the requirement that the conference be convenient for residents of the approving governmental unit, the IRS said in Rev. Proc. 2020-21, 2020-22 IRB 1.

The IRS added that governmental units may also offer greater access to hearings by providing other telephone numbers or through internet-based meeting technology.

The guidance received high marks from the National Association of Bond Lawyers (NABL) and other public finance organizations.

“NABL applauds the IRS responding to the COVID-19 crisis by providing clarity regarding the ability to hold telephone public hearings and providing relief regarding issuers’ ability to provide self-liquidity,” NABL President Richard J. Moore said in a statement to Tax Notes.

Moore, a partner at Orrick Herrington & Sutcliffe LLP, also praised “the retroactive nature of this guidance, given that some issuers have been adapting to the COVID-19 crisis for almost two months now.”

NABL is studying the guidance and may have further suggestions, Moore said, adding that if conditions warrant, it may request extensions of the relief periods.




IRS Issues Revenue Procedure, Notice Providing Guidance for Private Activity Bonds During COVID-19-Related Economic Disruption.

The Internal Revenue Service (IRS) today issued two types of guidance concerning tax-exempt private activity bonds (PABs), which are used with 4 percent low-income housing tax credits (LIHTCs) to finance affordable housing. In Revenue Procedure 2020-21, the IRS provides temporary guidance to allow hearings held by teleconference due to the COVID-19 pandemic to meet the statutory public approval requirement for PABs. Notice 2020-25 temporarily expands the circumstances and period for which a PAB is treated as “continuing in effect” without requiring the reissuance or retirement. There also is relief regarding a holding period and qualified hedge. The IRS said the allowances are being made in recognition of the need for liquidity and stability in the market during the current period of economic disruption. Notice 2020-25 is in effect retroactive to Jan. 1.

For community development, affordable housing and renewable energy updates related to COVID-19, see Novogradac’s dedicated page.

May 4, 2020

Hawkins Advisory: Recently Released Regulatory Relief for Issuers of Certain Tax-Exempt Bonds

Treasury and the Internal Revenue Service released welcome temporary guidance addressing two of the many issues provoked by the COVID 19 pandemic.

Rev. Proc. 2020-21 permits issuers of private activity bonds to hold the public hearings required by the TEFRA rules by teleconference, expanding existing guidance requiring such hearings to be conducted in person.

Notice 2020-25 generally allows issuers of governmental bonds to purchase and hold their own tax-exempt qualified tender bonds and commercial paper during calendar year 2020, without causing such obligations to be considered extinguished for federal tax purposes.

It should be noted that the provisions set forth in both these measures apply to events taking place in calendar year 2020.

Read the Advisory.

IRS Expands Ability of Issuers to Purchase Their Own Tax-Exempt Bonds: Holland & Knight

The COVID-19 crisis has caused many disruptions in the municipal bond market. Over the course of the crisis, many issuers of tender bonds or tax-exempt commercial paper have been unable to remarket their tender bonds or roll-over their commercial paper either at all or at commercially advantageous interest rates. There have been instances where even issuers with strong credits have been forced to remarket their short-term bonds at rates in excess of 10 percent.

In such circumstances, some issuers have considered holding their bonds during the crisis period rather than remarket or roll them over at high interest rates. However, the problem is that under federal tax rules, there are situations where the debt is treated as either exchanged for new debt (reissued) or retired when it is purchased by the issuer. While the municipal bond market has stabilized lately, there is still concern regarding this.

In light of this situation, the IRS has released guidance in Notice 2020-25 (the Guidance), a temporary rule that provides:

  1. Issuers of tax-exempt qualified tender bonds can purchase and hold their own bonds during calendar year 2020 without the bonds being treated as reissued or retired. During this period, the issuer also may refund the purchased bond with a refunding bond, tender the purchased bond for purchase in a qualified tender right as a bondholder or otherwise resell the purchased bonds.
  2. Tax-exempt bonds purchased during calendar year 2020 pursuant to a qualified tender right can be held for up to 180 days by the issuer or on behalf of the issuer without the bonds treated as being retired (the prior law’s period was 90 days). For example, bonds purchased on Dec. 31, 2020, pursuant to a tender right can be held by the issuer until June 2021 without the bonds being treated as retired. However, a tender bond purchased by an issuer on Jan. 1, 2021, would revert to the prior 90-day holding period.
  3. Issuers of tax-exempt commercial paper may purchase and hold this debt during calendar year 2020 without the debt being treated as reissued or retired. During this period, the issuer also may refinance the purchased commercial paper (even if purchased at maturity) with more commercial paper that will be treated as part of the same issue as the purchased commercial paper.
  4. Qualified hedges of tax-exempt bonds will not be treated as terminated as a result of the governmental issuer holding the hedged bonds during the periods described in Nos. 1, 2 and 3 above.

Prior Law Issues

Under prior law, issuers were allowed to hold their own tender bonds when they were unable to remarket them for up to 90 days without the bonds being treated as retired. However, those provisions applied only when issuers were unable to remarket their bonds at par following reasonable best efforts, and it was unclear whether it would apply in cases where remarketing was possible but at unfavorable interest rates. Also, many considered the 90-day period to be too short under the COVID-19 crisis and it did not cover commercial paper. The Guidance provides comfort to issuers in these areas.

The Guidance took effect on May 4, 2020, and may be applied retroactively to purchases on and after Jan. 1, 2020.

May 8, 2020

Holland & Knight LLP

Holland & Knight attorneys are assisting a number of issuers in analyzing the impact of COVID-19 legislation and proposals on future tax-exempt bond financings. For questions about a specific situation and its impact on your organization, contact the author or another member of Holland & Knight’s Public Finance Team.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.

The IRS Comes Through: New Guidance Allows Phone TEFRA Hearings and Helps Issuers Repurchase their VRDOs Without Extinguishing Them

As described in our previous post, NABL hasn’t been binge watching Tiger King and binge eating like the rest of us during this time at home during the COVID-19 pandemic. Instead, on March 25, 2020, NABL asked the IRS to adopt a proposed notice that would address two municipal bond concerns caused by the pandemic: (1) the requirement of in-person TEFRA hearings for tax-exempt private activity bonds; and (2) the extinguishment of qualified tender bonds and commercial paper if the issuer of such debt repurchases it without meeting certain requirements.

The IRS responded on Star Wars Day[1] with Rev. Proc. 2020-21 and Notice 2020-25, which should help alleviate these two concerns through the end of 2020.

Continue Reading

By Taylor Klavan on May 4, 2020

The Public Finance Tax Blog

Squire Patton Boggs

NABL: Treasury Issues Immediate Relief

The U.S. Department of the Treasury (Treasury) has issued guidance providing immediate relief to issuers in certain circumstances:

Temporary guidance regarding the public approval requirement:

A hearing conducted between May 4, 2020 and December 31, 2020 that is held by teleconference accessible to the residents of the approving governmental unit by calling a toll-free telephone number will be treated as held in a location that, based on the facts and circumstances, is convenient for residents of the approving governmental unit for the purpose of § 1.147(f)-1(d)(2). Provided the requirements of the preceding sentence are satisfied, governmental units are not precluded from offering additional access to the hearing by other telephone numbers or by internet-based meeting technology. Issuers may apply this revenue procedure retroactively to public hearings held telephonically before May 4, 2020 in response to the COVID-19 pandemic.

Expanded temporary rule allowing governmental issuers to purchase certain of their own tax-exempt bonds:

Solely for purposes of § 103 and §§ 141 through 150, the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) will treat a tax-exempt qualified tender bond or tax-exempt commercial paper that is purchased by its governmental issuer on a temporary basis as continuing in effect without resulting in a reissuance or retirement of the purchased tax-exempt bond if the governmental issuer purchases the tax-exempt qualified tender bond or tax-exempt commercial paper during the permitted holding period and holds the bond or paper no later than the end of the permitted holding period.

NABL Letter:

On March 25, in response to the COVID-19 pandemic, NABL sent a letter to the U.S. Treasury asking it to address certain tax issues that may affect the functioning of the tax-exempt bond markets during the current outbreak of the novel coronavirus disease.

In the letter, NABL asked for the following:

(1) Clarity that, at least for a temporary period, TEFRA hearings are not required to be held in person; and

(2) Relief as it relates to the impact of self-liquidity on extinguishment and reissuance analysis.

You can find NABL’s letter here.

For any questions, please contact Jessica Giroux, Director of Governmental Affairs at [email protected], (518) 469-1565.

Tax Revolts Aren’t Out of the Question.

When states and cities tried to raise revenues during the Great Depression, they sparked a furious backlash.

Thanks to coronavirus-induced declines in tax revenue – and record filings for unemployment benefits – state and local governments are in crisis. Many have underfunded pension systems and few have significant reserves. None can run deficits as readily as the federal government.

Like so much of the economic news as of late, the closest precedent is the Great Depression. In the early 1930s, state and city governments confronted massive budget shortfalls. Attempts to close the gap ended up sparking a movement that was largely forgotten: a massive taxpayer revolt across the nation.

In the early 1920s, the federal government cut taxes, but state and local governments actually raised them. “For every penny saved in taxes in Washington, five cents were added to taxes at the City Hall and State House,” as a critic described it in 1932. Property taxes faced some of the steepest increases.

But the additional revenue hardly paved the way to fiscal stability. Instead, state and municipal governments were overwhelmed with debt by the end of the 1920s. The whole system was predicated on never-ending prosperity: Rising property values yielded more taxes, which allowed more spending. Sound familiar?

And then the economy collapsed. The historian David Beito ably chronicled the grueling aftermath. In communities across the country, real estate development collapsed at a mind-boggling rate. In the northeast, for example, residential construction fell 97.3% from 1929 to 1933.

As the value of real estate collapsed, tax rates held steady or even increased as local governments struggled to balance budgets. Deflation only intensified the economic pain, devastating the average taxpayer’s ability to pay up. It didn’t take long for the shame of tax delinquency to begin to fade.

In 1930s, 10% of taxpayers in cities larger than 50,000 were delinquent in their tax payments. By 1933, the number had soared to 26.3%. In rural areas, where falling prices had effectively doubled the tax burden of farmers, it was even worse. In Iowa, for example, nearly half the state’s farm properties were delinquent in 1932.

But there was more to this dire picture than the inability to pay taxes, even if this was a huge part of the problem. Instead, these conditions gave rise to a highly visible, if long underestimated, tax resistance movement that spread throughout both urban and rural areas of the country.

The principal organizations behind these movements were so-called “taxpayer leagues,” local associations that took their case to state legislatures, county boards and city councils. In 1927, only 43 such organizations existed in the entire country. At the height of the crisis, their numbers had swelled to well over 4,000. Thomas Reed, a municipal reformer, likened them to mushrooms: “Every time you go out in the morning, you find more of them.”

These groups began waging a battle against taxes on several fronts. Most obviously, they lobbied for tax cuts, electing politicians who promised to deliver them. They also pressed for draconian cuts to public services.

The more extreme members would make the modern-day Tea Party look pretty tame by comparison. Indeed, many of the most vocal and visible tax resisters argued for the ultimate act of defiance: a strike on paying taxes. In most places, politicians and bondholders managed to keep activists from acting on these threats. Not so in Chicago.

It was not surprising that this city, infamous for its municipal corruption and high taxes, would give rise to the most radical of the tax resistance campaigns. Their best-known slogan left absolutely no room for compromise: “1930 taxes cannot and will not be paid!”

As some of the activists argued for closing the schools as a way of saving money, teachers and municipal employees staged rallies. Their allies in the national press, alarmed at the scale of the movement, cast the resisters as anarchists. “This is not only a tax strike, it is a revolt against government,” declared Mauritz Hallgren of the Nation.

In the end, Chicago’s government won, but at considerable cost. State courts ultimately sanctioned the seizure of delinquent taxpayers’ property, and the movement ultimately fell prey to internal rivalries.

Elsewhere, the anti-tax revolt faced a blunt campaign spearheaded by bondholders and their allies. “Pay your taxes,” they cried. Many citizens reluctantly decided to fall in line when confronted with the prospect of closed schools and furloughed police officers.

There may have been another reason for the movement’s downfall: the repeal of Prohibition in 1933. This act, as a team of economists has noted, enabled state and local governments to raise much-needed revenue from sales taxes on alcohol as well as licensing fees. Some states also experimented with state liquor monopolies as a way of raising revenue.

At the same time, the federal government taxed alcohol as well, raising significant amounts of revenue. Under the New Deal, much of that revenue went toward supplying unemployment benefits and other aid that individual states and municipalities once provided, lessening that particular burden.

As today’s leaders of cities and states grapple with brutal budget shortfalls, history could very well repeat itself. Absent a quick turnaround – and an unexpected tax windfall like the one that legalizing booze provided — the next few years may witness tax revolts on a scale last seen in the Great Depression.

Bloomberg Opinion

By Stephen Mihm

May 4, 2020, 8:00 AM PDT

Sales Tax Revenue Forecast and Federal CARES Act in the Current Economic Downturn.

With a “shelter-in-place” directive, rising unemployment figures and Coronavirus fears, the biggest component of the US GDP – consumer spending – has taken an unexpected tumble. This is particularly worrisome for local and state governments that heavily rely on sales tax revenues.

For instance, in California the sales tax forecast is expected to decline by 36% in the second quarter of 2020 with only a moderate regrowth in the following quarters.

In this article, we will take a closer look at sales tax forecasts for local and state economies and how they’re likely to affect local and state revenue and expenditure budgets.

Continue reading.

by Jayden Sangha

May 06, 2020

MUNIRevs Offers Free Tax Collection Software to Cities Hit by Tax Revenue Losses.

DURANGO, Colo., May 6, 2020 /PRNewswire/ — As cities and towns across the country struggle with the pandemic-related loss of business tax revenue, MUNIRevs, a provider of automated tax collection software, is offering municipalities a free, limited version of its trusted solution.

The limited version, made available through the MUNIRevs Cares initiative, gives municipalities that use paper-based, manual business tax collection processes rapid access to an automated, web-based tax collection system that can be accessed by staff working remotely. The benefits of the system include reduced staff time, faster revenue recognition, faster collections, greater efficiency, and increased total collections.

“As a former town finance director, I understand the challenges cities are facing with sharp drops in revenue and budget cuts. We created the MUNIRevs Cares initiative because we want to help cities capture much-needed revenue as quickly as possible. We’re offering free, simple setup, free online tax collection, and free support for municipal staff by our expert account management team,” said MUNIRevs CEO Erin Neer. “Business owners will also benefit by being able to pay their business taxes online from home or wherever they may be working,” she added.

Before starting MUNIRevs in 2011, Neer was the finance director for the mountain town of Mountain Village, near Telluride. Neer brings more than 19 years of experience in municipal finance to every facet of her company.

Access to the system will be available at no cost to municipalities for three months. Those who wish to continue using the system after that will be charged a monthly subscription fee. Those who wish to transition back to manual processes can do so easily while retaining all their data from the MUNIRevs system.

MUNIRevs automates business revenue collection for towns, cities, and states across the U.S. With extensive experience in municipal finance, the MUNIRevs team has revolutionized business tax and licensing processes. It is the trusted source for secure, paperless payment processing, helping cities and states eliminate approximately 95 percent of the manual data entry tasks. Since it was founded in 2011, MUNIRevs has processed more than $1 billion in tax revenues for its clients and more than 50,000 businesses trust MUNIRevs for tax remittance. For more information, visit

Scott, Senate Colleagues Ask Treasury to Modify OZ Rules Due to Impact of COVID-19.

Sen. Tim Scott, R-S.C., and eight colleagues sent a letter today to the Department of the Treasury and the Internal Revenue Service, making 10 requests for modification of rules concerning the opportunity zones (OZ) incentive due to the COVID-19 pandemic. Among the requests are a further extension of the 180-day window to invest in a qualified opportunity fund (QOF) following a capital gains event, the addition of COVID-19 as a reasonable cause exception under QOF regulations, a 12-month extension to the 30-month substantial improvement period for qualified OZ property and more. The Opportunity Zones Working Group made similar requests April 7.

For community development, affordable housing and renewable energy updates related to COVID-19, see Novogradac’s dedicated page.

May 4, 2020

Social Impact in L.A.’s Opportunity Zones, with Martin Muoto and Reid Thomas.

Why is social impact crucial to the long-term success of the Opportunity Zone initiative? Hear from the top urban Opportunity Zone fund, as awarded by the Forbes OZ 20, and the positive story of the impact that they are delivering in South Central Los Angeles. Martin Muoto is founder and managing partner of SoLa Impact, a $115 million Opportunity Zone real estate impact investment fund…

Read More »

Opportunity Db

May 6, 2020

Opportunity Zone Funds Have Raised More than $10 billion, Exceeding Expectations.

Opportunity Zone funds have raised $10.09 billion as of the end of April, according to a survey conducted by accounting firm Novogradac. This total represents a 50 percent increase over the $6.72 billion that the firm reported near the beginning of the year. The total invested in Opportunity Zones is likely significantly more than that reported number, as survey participation is voluntary and does not…

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Opportunity Db

May 5, 2020

How to Raise Capital for Opportunity Zone Deals, an OZ Pros Webinar.

Are you ready to attract investors for your Opportunity Zone deals? On April 29, OZ Pros and Crowdcreate hosted a webinar about how to form an Opportunity Zone fund and raise capital for OZ deals. Over 200 people attended the live webinar to learn about fund formation, legal structuring, compiling a pitchbook, and crafting the perfect pitch email. Click the play button below to listen…

Read More »

Opportunity Db

May 11, 2020

IRS Opportunity-Zone Letter Ruling Grants Relief on Certification.

The IRS allowed a qualified opportunity fund to file a late self-certification because it saw no prejudice to the government’s interests.

In what appears to be the first publicly issued letter ruling of its kind on the Opportunity Zone program, the IRS found that the taxpayer had “acted reasonably and in good faith, and that the granting of relief would not prejudice the interests of the government.“

The program, which was created by the Tax Cuts and Jobs Act, allows investors to defer, reduce, and in some cases eliminate tax on capital gains by investing in QOFs. In order to self-certify as a QOF, the fund must file a Form 8996, “Qualified Opportunity Fund.”

As the ruling released May 8 noted, the form must be filed by the due date of the tax return, including any applicable extensions.

In this case, the IRS said that the taxpayer and its adviser were aware of the requirement to file Form 8996 along with the federal income tax return. The adviser was expected to file a request for an automatic extension of time to file the tax return but failed to do so because of an administrative error. Neither the tax return nor the Form 8996 was filed by the applicable due date.

The taxpayer filed the tax return and the QOF form by the date that would have applied if the extension had been sought and submitted a request for relief under reg. sections 301.9100-1 and 301.9100-3.

The election to self-certify as a QOF is a regulatory election as defined in reg. section 301.9100-1(b), the IRS said.

“According to Treasury Regulation section 301.9100-3(a), requests for extensions of time for regulatory elections that do not meet the requirements of Treasury Regulation section 301.9100-2 (automatic extensions) must be made under the rules of Treasury Regulation section 301.9100-3,” the ruling said. “Additionally, requests for relief subject to section 301.9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good faith, and that the granting of relief will not prejudice the interests of the government.”

The IRS concluded that the taxpayer had met those requirements — although it didn’t specifically elaborate on this point — and deemed that the form certifying the taxpayer as a QOF as of the month it was formed was timely filed.

Final regulations (T.D. 9889) on the Opportunity Zone program were released at the end of 2019. The IRS issued guidance in the wake of the coronavirus pandemic that provided some relief to Opportunity Zone investors, but some practitioners say more relief may be needed.



POSTED ON MAY 11, 2020

Now May Be Good Time To Pull Opportunity Zone Investments.

As some investors reevaluate their commitments to qualified opportunity zones in light of the novel coronavirus pandemic, they may enjoy some level of favorable tax treatment in 2020 if they decide to liquidate their capital from the funds.

While investors would likely consider multiple variables before deciding to take money out of QOZs — including the extent to which discrete funds allow for withdrawals, the stability of the market writ large and their ability to write off losses — the tax code has some advantages for those seeking to opt out of funds.

That’s because the opportunity zone legislation, included in the 2017 Tax Cuts and Jobs Act and designed to offer tax relief for investments in low-income communities, doesn’t levy interest-laden penalties on investors who choose to withdraw capital gains from funds. It even restarts the clock on the 180-day window for reinvesting in other funds without losing out on the program’s favorable tax treatment.

And as investors brace for what may be prolonged economic instability, the tax treatment surrounding qualified opportunity funds is likely to play a role in their decisions to stick with current commitments or move capital gains into different areas.

“The risk of any investment is now higher” given the pandemic, Kate Kraus, partner at Allen Matkins, told Law360.

“People are definitely reevaluating whether they want to be invested in opportunity funds, and there are investors who are interested in pulling money out,” Kraus said.

The opportunity zone program allows an investor who sells an asset and reinvests the gains in a QOZ fund to defer taxes on the gains until Dec. 31, 2026. It also forgives taxes on gains from investments held in opportunity funds for at least 10 years.

As of December, 8,764 census tracts had been designated as opportunity zones by state and local officials.

For individuals who sustain capital losses in 2020, liquidating their investments in opportunity funds would likely yield an advantageous tax position, Kraus said.

That’s because whatever capital gains individuals had deferred by virtue of committing them to qualified opportunity funds in previous tax years would be recognized in 2020 if those investors decided to liquidate them this year, she said.

By doing so, those investors would be able to offset their capital gains and losses in 2020, she said, thereby reducing their tax liabilities.

While that “may not be the tax benefit people were looking for when they invested in opportunity funds,” Kraus said, it’s still better than sustaining a capital loss in 2020 because those losses can’t be carried back.

That calculus is made more advantageous given that final QOZ regulations issued by the Internal Revenue Service in December made clear that individuals wouldn’t be slapped with interest penalties, or any other kinds of penalties, if they chose to liquidate their investments early, David Shapiro, tax partner at Saul Ewing Arnstein & Lehr LLP, told Law360.

“For those who come into 2020 looking to liquidate, there’s no penalty and there’s no interest charge,” he said.

A key driving force for some investors is that they are simply “too nervous about what the state of the market is” to stick with their opportunity zone investments, James Null, partner at Eversheds Sutherland, told Law360. For those investors, “cash is king,” and they’d even be willing to take a tax hit on their capital gains in order to retain more control over their assets, he said.

Clients who are actively reevaluating their investments given the market’s current volatility are similarly looking for losses in 2020 — or even in 2019 — to offset previously deferred gains, Null said.

Still, the IRS may look askance at attempts to offset gains and losses by liquidating investments if the agency determines that those individuals lacked bona fide, good-faith intentions to follow through on those commitments, Null said, noting that the final rules also contained an anti-abuse provision.

In an example provided in the final regulations, the IRS said that individuals who direct their capital gains into opportunity funds they’ve established yet have no intention of actually investing in the projects would not be eligible to participate in the opportunity zone program.

Individuals interested in pulling their investments in QOZs in 2020 may also benefit from the ability to reinvest in other qualified opportunity funds within a 180-day window, Shapiro said. That’s because they’d effectively be recognizing a capital gain in 2020, and the 180-day window in which investors can place gains into QOZs begins whenever a capital gain is recognized, he said.

That may be an attractive option for individuals who have become dissatisfied with the funds they’ve invested in, Saul Ewing’s Shapiro said.

But there would also be diminishing returns if investors repeatedly liquidated gains that are parked in QOFs only to redeploy them into other funds later, Shapiro said, since investors may miss out on the increased levels of stepped-up basis.

One provision of the original opportunity zone legislation provides a 15% step-up in basis for investments made before Dec. 31, 2019, if those investments are held for seven years. After that window closes, investments can qualify for a 10% step-up in basis if they’re held for five years.

The ability to defer capital gains by investing in opportunity funds is set to expire in 2026, so the deadline for claiming a 10% step-up in basis is Dec. 31, 2021.

Investors who are evaluating the risks of sticking with various projects should also consider any limitations individual funds impose on withdrawals, Shapiro said.

Some funds may impose a penalty on individuals who opt out early, while others may prevent withdrawals altogether for certain periods of time, he said.

The incentives for individual investors, who may be able to secure positive tax treatment if they choose to liquidate in 2020, are much different from those involved for the funds themselves, said Kraus at Allen Matkins. For the funds, there’s little to no such upside to investors pulling out early, she said.

While that may be unfortunate for different funds, individuals may be looking at their investment portfolios anew in light of the pandemic.

“The tax benefit of a project is only as good as the project itself,” Shapiro said.

Law 360 Tax Authority

By Joshua Rosenberg · May 1, 2020, 4:00 PM EDT

–Editing by John Oudens and Neil Cohen.

IRS PLR: IRS Rules on Utility Company’s Accounting Method Change

The IRS ruled that some of a utility company’s excess annual deferred income tax amounts were not subject to the normalization method of accounting and further ruled on various aspects of the deferred tax normalization requirements in connection with a consent agreement related to an application for a change in method of accounting.

Read LTR 202017015

State And Local Tax Considerations In Light Of COVID-19: Skadden

The first order of business for many state tax authorities in response to COVID-19 was deciding whether to extend their respective income tax filing and payment deadlines for the 2019 tax year, either automatically by following the Internal Revenue Service’s extended deadlines or through separate action. Now that many states have reached a decision on that matter, they face a range of additional tax concerns arising out of the pandemic.

State Conformity With the CARES Act

The federal government enacted the Coronavirus Aid, Relief, and Economic Security, or CARES, Act on March 27 in response to the pandemic. The act included numerous key tax relief provisions intended to ease the financial burden on many companies affected by COVID-19. However, the act raises questions regarding whether states will conform to federal changes that could impact state tax liability and reporting.

Of particular importance are the CARES Act provisions related to net operating loss, or NOL, carrybacks and interest deductibility limitations under Section 163(j).[1]

Under the new law, taxpayers are generally permitted to carry back NOLs arising in taxable years beginning after Dec. 31, 2017, and before Jan. 1, 2021, for up to five years. As of today, a majority of states do not permit taxpayers to carry back NOLs. For those states that do, conformity with the new federal NOL provisions will generally require an act of a state’s legislature since most states do not automatically conform with the federal NOL provisions.

Section 163(j), which was put into place through the Tax Cuts and Jobs Act of 2017, sharply limits the ability of businesses to deduct interest payments when calculating their taxable income. Under the limitation, a taxpayer’s allowable deduction for interest expense in a particular tax year generally is limited to the sum of 30% of adjusted taxable income plus its business interest income, with any excess carried forward to future years.

The CARES Act temporarily increases, for tax years beginning in 2019 or 2020, the threshold from 30% to 50%. Whether those states that conform to Section 163(j) will adopt the changes made by the CARES Act remains to be seen, though. Because federal taxable income is the starting point for most states in the calculation of state income tax, many states likely will automatically adopt the modifications to Section 163(j), unless a state legislature enacts legislation expressly decoupling from the CARES Act modifications.

New York is the first, and currently the only, state to decouple from this CARES Act provision. On April 3, the New York Legislature amended the New York tax law and administrative code to limit the deduction for business interest expenses to 30% of the adjusted taxable income on state and New York City returns. The law requires taxpayers to do so even if they elect the more generous 50% limit allowed for federal income taxes for 2019 and 2020 tax years.

Relatedly, at the time the TCJA was enacted, some states, such as Connecticut[2], Indiana[3] and Georgia[4], enacted legislation expressly decoupling from the TCJA Section 163(j) provisions. Therefore, in those jurisdictions, the CARES Act modifications to Section 163(j) are not likely to have any effect.

State Tax Impact of Telecommuting

In response to COVID-19, states across the country have issued stay-at-home or shelter-in-place orders requiring the closure of nonessential businesses, encouraging many businesses to ask employees to work remotely. These work-from-home recommendations, although strongly encouraged by state and local governments, could potentially result in additional state tax exposure and withholding obligations for those businesses.


State policymakers should consider whether the presence of remote workers will continue to qualify as a nexus creating activity for businesses during this time. To date, six taxing jurisdictions — New Jersey,[5] Mississippi,[6] Indiana,[7] North Dakota,[8] Minnesota[9] and the District of Columbia[10] — have issued formal guidance on this matter stating that remote work in response to COVID-19 will not be cited to trigger nexus. In addition, officials from Pennsylvania have informally indicated that remote workers will not create nexus for companies responding to COVID-19.


State policymakers should consider whether a change in employee location or company property in response to COVID-19 stay-at-home orders will be considered in state apportionment formulas. For those states that rely on property or payroll factors in their apportionment formula, an employee’s change in location due to remote work or movement of company property could result in a change to the apportionment of business income. In addition, for those states that use the cost-of-performance method to determine sales sourcing, a change in the location of an employee’s activities could similarly impact apportionment for those states.

Individual Residency

Not all individuals complying with stay-at-home orders are doing so in their state of tax residency. State policymakers should consider whether an individual’s physical location for the duration of government stay-at-home orders should affect the individual’s state residency status. The ability to work remotely means that some employees will choose or be forced to work from a location different than their existing tax residency. Those individuals should be mindful of the state’s residency requirements and whether their time in the state will trigger any additional filing obligations.

Payroll Withholding

State policymakers should consider whether an individual’s personal change in domicile for the duration of stay-at-home orders will affect employers’ payroll tax withholding obligations. Because employees may choose to work from locations outside their home state, employers may be required to withhold additional payroll taxes in those states.

Credits and Incentives

Federal and state governments are rapidly working to establish programs or policies to assist businesses impacted by COVID-19.

Some struggling businesses already may have been participants in existing credit or incentive programs administered by state or local governments before the onset of COVID-19. In most cases, when a business opts to participate in a tax credit or incentive program, the business agrees to satisfy certain employment, investment or growth thresholds in exchange for tax credits or other tax incentives. When a business is unable to satisfy those requirements, it may become ineligible for future credits, and any prior credits may be subject to clawback claims.

State and local policymakers will need to consider whether they will strictly enforce program requirements and, if they do not, the appropriate criteria and process for amending them.

On April 15, the New Jersey Economic Development Authority granted some relief to businesses by extending the annual reporting deadlines for participants that received tax credits through the Grow New Jersey, Economic Redevelopment and Growth, and Urban Transit Hub programs.[11] The press release did not indicate whether participants would otherwise be relieved of satisfying program requirements.


The unprecedented and swift nature of the COVID-19 pandemic has created substantial uncertainty for taxpayers and businesses. Although some states have worked to quickly announce and implement guidance to aid taxpayers, and continue to do so, many have yet to act.

In some states, new tax guidance will require legislative action. To date, 22 states have postponed their legislative sessions, meaning for some taxpayers, any guidance will be delayed until lawmakers reconvene. Nonetheless, we expect that states will continue to provide relief, formally or informally, as states and taxpayers adapt to changing business conditions.

Skadden Arps Slate Meagher & Flom LLP

By ​​​Jessica Hough, Carl Erdmann and Paige Braddy · April 24, 2020, 1:38 PM EDT

IRS Guidance Allows Electronic Requests for Letter Rulings.

The IRS has issued guidance (Rev. Proc. 2020-29) modifying the procedures in Rev. Proc. 2020-1 to temporarily allow taxpayers to electronically submit specified letter rulings, closing agreements, determination letters, and information letters.

Until Rev. Proc. 2020-29 is modified or superseded, both paper and electronic requests for advice from the associate chief counsel offices and the IRS Large Business and International Division will be accepted. The guidance doesn’t modify the procedures for determination letters issued by the IRS’s Small Business/Self Employed Division, Wage and Investment Division, or Tax Exempt and Government Entities Division.

Taxpayers may electronically submit requests by fax or compressed and encrypted email attachments using the electronic submission procedures described in Rev. Proc. 2020-29. Those requests must be signed using the electronic signature procedures described in the guidance. The processing of paper requests will likely be delayed due to limited availability of IRS personnel.

Opportunity Zone Success Strategies During COVID-19, with Jill Homan.

How has the Opportunity Zone marketplace matured over the past 12 months? What has the investor response been? And is the current pandemic-instigated economic downturn threatening to change everything? Jill Homan is founder and president of Javelin 19 Investments, a Washington DC-based commercial real estate investor, developer, and Opportunity Zones advisor. Click the play button below to listen to my conversation with Jill. Episode Highlights…

Read More »

Opportunity Db

April 29, 2020

Pandemic Dos And Don'ts Of State Tax Policy: SALT In Review

Law360 (May 1, 2020, 1:41 PM EDT) — The novel coronavirus pandemic presents state and local governments with a conundrum like no other. They face significant revenue shortfalls and massive budget deficits. States will have to raise taxes, reduce spending or some combination of the two. On the spending side, states are unlikely to cut spending on health care during a pandemic. They may reduce or delay spending on education and transportation. They will attack waste, fraud and abuse, but there is not a lot of money there. Most states will not be able to resolve this financial crisis by cutting spending.

Most public finance experts I have spoken to think states will have to raise taxes. Part of the quandary is in determining how to do that. This public financial crisis may be different. The fundamentals of the economy before the pandemic were strong. There is a strong possibility that the economy will rebound once the public health risks dissipate. Some types of taxes will deter the economic recovery, but others will have a less deleterious effect. Here is what states should and should not do to deal with likely shortfalls in 2020 and 2021.

Policies to Avoid

Many politicians in states needing money are instinctively drawn to bad tax policy. Certain taxes will curb the recovery. Those policies should be avoided.

First, wherever possible, states should refrain from taxing business entities to close the budget gaps. Business taxation takes many forms, but the two most harmful in the current environment are corporate income and gross receipts taxes. Corporate income taxes are generally ineffective and inefficient ways to raise revenue. They have never raised much revenue, even in years with booming economies. The tax has never raised more than 5% of state tax revenue, and it has raised a much lower percentage of total revenue. Interstate and international competition and a plethora of planning opportunities keep corporate tax revenue in check.

Moreover, research shows that the state corporate income tax falls to an extent on labor in the form of higher wages and on consumers as higher prices. To be sure, the tax falls on shareholders in the form of lower returns. But taxing labor and consumption at a time of high unemployment and dismal retail sales is an unattractive option.

Some states will be tempted to join a handful of states and adopt a gross receipts tax. Virtually all public finance experts consider gross receipts taxes unsound policy choices. Such a tax is inevitably passed on to the consumers as higher prices. The ultimate result is lower consumption. Furthermore, the tax is not tied to profits. Struggling companies, and there will be many in the wake of the crisis, will be subject to tax.

The gross receipts tax falls hardest on businesses with high volume and low margins. The retail industry, along with many other consumer facing-businesses, has thin margins. Thus this tax will likely hit the segments of the economy that have been affected most during the economic downturn. Gross receipts taxes are unsound policy choices; they are particularly unsound during a recession.

Second, states should avoid calls to levy state-level wealth taxes to pay for public COVID-19 costs. The argument is that the very wealthy have weathered the economic downturn better than the rest of the country. That is true, of course. But placing a tax on the value of assets cannot be effectively accomplished at the state level. Few countries place taxes on wealth, and subnational governments cannot impose such taxes. They are simply too difficult to administer and enforce. Most assets held by the wealthy are intangible. Identifying assets and calculating wealth is difficult. Furthermore, there are too many opportunities for people to avoid the tax. The wealthy will move assets or just move.

Third, states should avoid general sales tax increases. During past recessions, states have often raised sales tax rates to close budget gaps. Because the sales tax falls broadly on consumption, states should resist pursuing such policies. As malls and stores closed across the country, personal consumption fell significantly. The economy will need people to shop again. Broad-based sales taxes are generally sound ways to raise revenue, but they curb consumption. States should not impose taxes that will effectively lower buying. A sales tax rate increase could raise substantial amounts of revenue, but the cost of curtailing consumer spending – a prolonged economic downturn – is not worth that revenue.

Here Is What to Do

States will quickly exhaust their nontax options for balancing their budgets. States will spend rainy day funds. They will make short-term budget cuts: hiring freezes, furloughs and delayed spending. State and local governments may or may not get additional federal aid. Most states, though, will need to raise additional revenue over the next two years to balance their budgets.

The first thing states needing money should do is temporarily increase the top tax rates on high-income residents. In the 41 states with broad-based personal income taxes, this would be the fairest and most effective way to raise revenue. The personal income tax has many advantages. Two of the most important, for purposes of this discussion, are fairness and the ability to raise large amounts of revenue quickly in an improving economy.

Those earning high incomes have largely escaped the harshest economic impacts of the pandemic. Higher-income taxpayers have been more likely to keep their jobs and to work remotely. It is the lower-income taxpayers who have suffered the brunt of the economic duress – those who work in restaurants, hotels, retail. A strong argument, a politically salable argument, can be made that those who have survived the economic downtown should be asked to contribute to the recovery.

The personal income tax can raise large amounts of revenue efficiently and effectively. Once the health risks abate, the economy will presumably rebound. The personal income tax is elastic, far more than any other state tax. A personal income tax increase on high-income taxpayers will raise substantial revenue in relatively short time.

The design of such a tax increase, which will vary from state to state, depends on many factors but mostly on actual revenue needs. The increase should fall only on the top earners. Some states may decide to impose a higher rate on annual income over $100,000; other states may choose a greater income threshold, say, $250,000.

It is crucial that the tax increase be temporary. Permanently raising taxes on the wealthy will not work practically or, in many states, politically. There must be an automatic sunset provision after one or two years. I am generally not in favor of high personal income taxes, but a temporary rate increase on those who have weathered this crisis the best is fair.

Raising income taxes is not an option in Texas, Florida, Nevada or other states with no levy on income. Yet these states, heavily dependent on sales taxes, also face large deficits. In oil- and gas-producing states, the crisis is aggravated by falling energy prices.

There are ways that sales-tax states can raise revenue without significantly curtailing the recovery. As noted, a general sales tax increase is not a good idea. The one area of consumption that has actually increased during the pandemic, however, is digital goods and services. Currently, 29 states tax digital goods and services in some manner. But definitions of what is taxed vary significantly. Some states tax these goods narrowly, some states have broad bases.

Sales taxation of digital goods and services is consistent with sound tax policy. The sales tax should fall on all final consumption. There is no tax or economic reason to tax a sweater or a toaster but exempt an e-book. Exempting digital goods results in greater sales tax burdens on other consumption, creating economic distortions. Most important, exempting digital goods and services results in a lot of lost revenue.

Although expanding the sales tax base to include digital goods is sound policy, states should be aware of legal and policy issues presented by such expansion. From a policy perspective, to the extent possible, business purchases of digital goods and services should be exempt because business inputs should never be subject to sales tax. Thus states should avoid policies such as those proposed in Maryland, Nebraska and New York, to target digital advertising services – purchases made exclusively by business. Legally, states should be careful not to run afoul of the Internet Tax Freedom Act , which prevents the taxing of digital goods when nondigital goods are not taxed.

Sales-tax states needing revenue should consider expanding the base to include more services. This is more difficult politically, particularly with respect to professional services. But like digital goods, personal consumption of services should be subject to sales tax. We are a service economy; exempting services from the tax base makes no sense. This is an issue long debated. We know the obstacles to taxing services. States should expand the sales tax to apply to all services, professional and nonprofessional, but should expressly limit those taxes to personal consumption. Most professional services are purchased by business entities; those services should be explicitly exempt from tax. This will raise less revenue, obviously. But it will also blunt some of the intense political opposition to sales taxes on professional services. Most states do not subject most services to sales tax. The current budget crisis should be a catalyst for changing that.

Finally, states should consider raising gas taxes. Since most states earmark gas taxes for transportation, an increase will not affect the overall budget. But there has never been a better time to increase the tax. Lower demand has caused oil prices and consequently gas prices to plummet. States are raising significantly less gas tax revenue. And while Americans are driving less, many transportation costs remain constant. With low gas prices, there is unlikely to be significant political opposition to fuel tax increases.


These proposals have the best chance to raise revenue without severely curbing an economic recovery. Political leaders, for now, should resist the temptation to use the tax laws to advance other goals. There will be proposals to give tax breaks to some industries. There will be attempts to address income inequality. There will be attempts to tax products that some think should not be consumed. The political focus, though, should be on balancing budgets while fostering economic recovery.

by David Brunori

David Brunori is a senior director at RSM US LLP in Washington, D.C., a research professor at The George Washington University and a regular contributor to Law360 Tax Authority.


Polonsky v. Town of Bedford

Supreme Court of New Hampshire - April 24, 2020 - A.3d - 2020 WL 1974144

Taxpayer brought suit against town, when it refused to pay him excess proceeds generated by its resale of real property that it had acquired by tax deed.

The Superior Court held that New Hampshire tax scheme regarding town’s obligation for payment of excess proceeds violated “takings” provision of the New Hampshire Constitution and ordered equitable relief in favor of taxpayer, and town appealed.

The Supreme Court, Donovan, J., held that:

Bring Back Tax-Exempt Advance Refundings.

Over at our Restructuring GlobalView blog, our public finance colleagues Pedro Miranda and Pedro Hernandez make the case for bringing back tax-exempt advance refundings.

The general shutdown of the economy in response to COVID-19 threatens businesses in most sectors of the economy, and the revenues that those businesses will lose cannot be taxed by state and local governments, threatening their budgets as well. Lawmakers at all levels are searching for grand gestures and bold new ideas to relieve the extraordinary burdens that COVID-19 is imposing. However, the old and tried – the low-hanging fruit – may be even more useful than the new and untried. Tax-exempt advance refunding bonds were a well-established tool that state and local governments formerly used to save money. They allowed state and local governments to reap the benefits of comparatively low prevailing interest rates even when their outstanding debt could not be redeemed until more than 90 days in the future. Citing concerns (even if only as fig leaf for the real objective of raising revenue) about having two sets of bonds (the original new money bonds and the advance refunding bonds) outstanding concurrently for more than 90 days with but a single project to support them, Congress eliminated most tax-exempt advance refunding bonds in the Tax Cuts and Jobs Act of 2017. What better time than a once-in-a-hundred-years pandemic to restore tax-exempt advance refunding bonds to their rightful place?

If Congress restores them, before the ink on President Trump’s signature is dry, tax-exempt advance refunding transactions will begin to take shape. The municipal bond market is completely familiar with the regulatory rules and business considerations involved. There are no new rules to learn or unintended consequences to consider. Working groups will convene, tax lawyers will be roused from their parents’ basement, and state and local governments can obtain significant cash flow relief using a well-established financing technique.

By Johnny Hutchinson on April 22, 2020

The Public Finance Tax Blog

Squire Patton Boggs

Bill Would Give Opportunity Zone Treatment to Small Businesses Hit by Virus.

Legislation introduced in the House would temporarily classify some small businesses harmed by the coronavirus pandemic as qualified Opportunity Zone businesses.

The COVID-19-Impacted Small Business Opportunity Zone Act, introduced April 16 by Reps. John R. Curtis, R-Utah, and Henry Cuellar, D-Texas, would extend the Opportunity Zones deferment of taxes on capital gains to investments in small businesses that have been negatively affected by the crisis.

The classification as qualified Opportunity Zone businesses would encourage private investment in those entities “by providing their investors with similar tax incentives to Opportunity Zones,” said Curtis in a release.

The bill is aimed at small businesses that have experienced supply chain disruptions, staffing challenges, a decrease in sales or customers, or full or partial suspension of business as a result of the spread of COVID-19 or the public and government response to it.

The Opportunity Zone program, created by the Tax Cuts and Jobs Act, allows investors to defer tax on prior gains invested in a qualified opportunity fund until the earlier of the date on which the investment is sold or exchanged or until December 31, 2026.

Rep. Denver Riggleman, R-Va., introduced a bill (H.R. 6513) April 14 that would extend the Opportunity Zone program through 2030.

Even without federal legislation, states may be delaying some deadlines related to Opportunity Zone investments as a result of declaring emergencies as a response to the pandemic.



POSTED ON APR. 22, 2020

8 Opportunity Zone Gain Rules That May Aid Investors.

The qualified opportunity zone program is arguably the most flexible and most impactful tax program passed by Congress in the last 50 years.[1] In this article we explain eight new rules you should know about gain recognition and reinvestment, and how these benefits may be more attractive in light of the COVID-19 crisis.

Taxpayers can elect to invest either short-term or long-term capital gains from virtually any type of asset into a qualified opportunity fund, or QOF, within 180 days of recognizing their qualified gain. But, knowing exactly when the recognition date occurs and when the 180-day reinvestment period starts requires a deep dive into the proposed and final regulations — as well as into each taxpayer’s specific facts.

In light of the unprecedented economic challenges presented by the COVID-19 outbreak, taxpayers with short-term or long-term capital gain income generated in 2019, or in early 2020 can use the opportunity zone program to park the qualified gains in a QOF for a period of time, allowing the investors adequate time to perform due diligence on various investments and make qualified opportunity zone business, or QOZB, or QOZB-property investments.

Once the capital gains have been reinvested into a QOF and then dropped into a QOZB, taxpayers have up to 62 months to reinvest the proceeds into various qualified opportunity zone projects. With the tremendous uncertainty in the current market, taxpayers will generally view this extended reinvestment period as a godsend.

The opportunity zone final regulations issued on Dec. 18, 2019, became effective March 16. The new rules give taxpayers tremendous flexibility and extension of time when it comes to determining when the 180-day capital gain reinvestment countdown begins for purposes of meeting the QOF deadline.

Taxpayers can elect to adopt the much more liberal final regulations earlier than their effective date for filing 2019 tax returns. However, this requires that electing taxpayers adopt all aspects of the final regulations — not just the 180-day rule. In most cases, this strategy should not negatively impact a taxpayer, but we highly recommend doing a full evaluation before making an early adoption election.

Below we discuss eight key aspects of the 180-day deadline rules under the proposed and final opportunity zone regulations. Let’s take them one at a time.

1. Direct Capital Gains Generated From the Sale of an Asset Held by an Individual, Grantor Trust or C Corporation

There are no changes here between the final regulations and the proposed regulations. The 180-day period starts on the date of sale. Therefore, a taxpayer effectively has 179 days after the date of a sale to contribute all (or a portion) of their capital gains into a QOF.

For example, if an individual, grantor trust or C Corporation sold stock on June 1, 2019, the 180-day deadline would fall on Nov. 27, 2019 — exactly 179 days after June 1. The deadline is not six calendar months from the date of sale (i.e. Dec. 1), as is often misunderstood. There is also no extension of the 180-day period if the last day falls on a weekend.

2. Capital Gains Flowing Through on a Schedule K-1 With No Entity-Level Election

Under the proposed regulations, taxpayers generally needed to wait until the pass-through entity’s year-end to begin their 180-day period. For example, an owner of a calendar year pass-through entity has 180 days starting on Dec. 31, 2019 and ending on June 27 to contribute their 2019 share of Schedule K-1 capital gains into a QOF.

Under the proposed regulations, if the flow-through entity notified the taxpayer of their share of Schedule K-1 capital gain and the date of the actual sale, then the equity owner was able to choose to start the 180-day period earlier than year end, i.e. on the date of the actual sale. Interestingly, neither the proposed nor final regulations provide a specific time requirement or form for notification.

Remember, this option will help taxpayers that had identified qualified opportunity zone business property before year-end and that wanted to purchase replacement property early. However, to do that, the pass-through entity should not have made an election to defer the capital gains or have made a QOF investment at the entity level — as further discussed below.

Note that if the entity-level reinvestment election is made, the qualified opportunity zone business property must be purchased and titled under a QOZB, via a two-tier parent-subsidiary QOF-QOZB-property structure. It should not be purchased by the QOF directly and then dropped into a qualified opportunity zone business property, as this may disqualify the qualified opportunity zone business property and ultimately the QOF.

The rationale for this ruling is that the U.S. Department of the Treasury and the Internal Revenue Service wanted to give taxpayers the maximum amount of flexibility and time to invest in the opportunity zone program. Regulators also wanted to ensure that taxpayers did not miss a potential deferral election if they ended up receiving their final Schedule K-1s later than the aforementioned deadline laid out in the proposed regulations.

Under the final regulations, taxpayers can elect to start the 180 days on the pass-through entity’s year-end, or on the due date of the pass-through’s income tax return (not including any extensions — generally March 15 for partnerships and S Corps, and March 31 for trusts).

For example, if a pass-through entity reports on a calendar year-end, the owner can start the 180-day countdown on either Dec. 31, 2019, or on March 16, for their share of 2019 pass-through capital gains.

If owners choose to start their 180 days on March 15, 2020, then they have until Sept. 10, to contribute their share of 2019 Schedule K-1 capital gains into a QOF. If owners choose Dec. 31, 2019 then they have until June 27, to contribute 2019 capital gains into a QOF. NOTE: Taxpayers with a 2019 gain need to elect to apply the final regulations early if they prefer to extend the reinvestment period to Sept. 10.

The same rules apply if the pass-through entity is on a fiscal year-end basis. For example, if a pass-through entity’s year-end is Nov. 30, 2019, then the 180 days would start on Nov. 30, 2019 or Feb. 15, at the election of the equity holder.

Note that limited liability company and partnership managers, and S Corp management should adopt clear guidelines about the process required to make an entity-level reinvestment and the procedure needed for notifying equity holders about capital gains and Internal Revenue Code Section 1231 gain details during the year. This is an area that may generate future litigation for entities that do not take proactive steps.

3. Capital Gains Flowing Through on a Schedule K-1 With Entity-Level Election

Alternatively, the pass-through entity can elect to defer the capital gains at the entity level, which means the 180-days would start on the date of the actual sale.

Under the proposed and final regulations, pass-through entities that make a deferral election are required to notify all of their owners of that deferral election in writing, including the amount of the eligible gain deferral (again — no specific reporting timing is mentioned).

4. IRC Section 1231 Gross vs. Net Gains

One of the most controversial provisions in the proposed regulations pertains to the somewhat complex IRC Section 1231 rules. In general, the Section 1231 rules are as follows:

Under the proposed regulations, taxpayers were required to net all of their Section 1231 losses and Section 1231 gains. Further, only the net Section 1231 gains were allowed to be contributed into a QOF under the proposed regulation — after the net amount of gains and losses was determined. Calendar year taxpayers were also required to wait until Dec. 31 to begin the 180-day period under the proposed regulations and were precluded from investing their 1231 gains prior to year-end.

However, as a result of extensive written and public comments to Treasury, the final regulations allow taxpayers to defer their gross 1231 gains via QOF investments. Treasury also changed the beginning of the investment period from the end of the taxpayer’s year to the date on which each asset was sold. Or, taxpayers can apply the rules mentioned above for pass-through K-1 capital gains, including Section 1231 gains.

The opportunity zone final regulations do not explicitly suspend Section 1231(c) losses. Therefore, electing opportunity zone treatment for current year Section 1231 gains is even more valuable for taxpayer’s with Section 1231(c) losses since the recapture amount is treated as ordinary income.

5. Regulated Investment Company and Real Estate Investment Trust Dividends

Taxpayers who receive dividend distributions from a regulated investment company, or RIC, or from a real estate investment trust, or REIT, can start their 180-day period at the end of their tax year. The final regulations added that taxpayers can elect to start the 180-day period on the date their dividends are actually received. The 180-day period for undistributed dividends starts on the taxpayer’s year-end or the RIC/ REIT’s year-end, at the election of the taxpayer.

6. Capital Gains From Installment Sales

The proposed regulations required taxpayers that had capital gains from installment sales to start their 180-day countdown period on the date of sale, provided the assets were owned directly, or to apply the pass-through rules (starting at year-end) if the gains were coming from a K-1. However, this method proved unfair to taxpayers that had to start their 180-day countdown before they actually had the cash in hand to invest into a QOF. Under the final regulations, taxpayers can delay starting their 180-day countdown until the date on which they receive their installment money.

Somewhat surprisingly, the final regulations also clarified that capital gains resulting from pre-2018 installment sales that involve post-2018 payouts now qualify for opportunity zone participation. This ruling allows taxpayers to start a new 180-day period each time an installment payment is received. The 180-day period for pass-through capital gains and Section 1231 installment gains is now treated as though it starts either on the date that the installment money is received, or on the date of the pass-through’ s year-end, or on the original due date of the pass-through entity’s tax.

7. No 180-Day Safe Harbor

Unfortunately, neither Treasury nor the IRS has provided any relief for a missed 180-day deadline, but they may do so in the future.

8. Further Election Issues

A taxpayer can elect to use either the proposed regulations, or the final regulations. However, once a method is chosen, taxpayers must apply the rules consistently throughout. For example, under the proposed regulations, net Section 1231 gains that were recognized in early 2019 by an individual taxpayer could be invested into a qualified opportunity fund on or after Dec. 31, 2019, and by no later than June 27.

If a taxpayer invested gross Section 1231 gains prior to Dec. 31, they would want to elect early application of the final regulations. Otherwise, they would have an ineligible qualified opportunity fund investment. Making this election means that all final opportunity zone regulation rules apply to them. Individual investors and the qualified opportunity fund and QOZB can make independent elections on the regulatory effective dates. Therefore, careful analysis is required for the initial filings.

Note that each taxpayer’s facts and circumstances need to be analyzed carefully in order to identify the 180-day deadline. Missing the deadline could be detrimental. As noted above there is currently no extension or safe-harbor available if you miss the 180-day qualified opportunity fund funding deadline. Therefore, all tax advisers need to be aware of these rules and discuss them with their clients as soon as possible. However, the final regulations are generally much more taxpayer-friendly than the proposed regulations, and they can serve as very helpful tax-savings or tax planning tools.

By Alejandra Lopez · April 21, 2020, 6:24 PM EDT

Alejandra Lopez is a tax manager at Holthouse Carlin & Van Trigt LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] See our comprehensive overview of the opportunity zone program here:

The Book on Opportunity Zone Investing, with Jim White.

What insights can be gleaned from the newest book on Opportunity Zone investing? Jim White, PhD is chairman and CEO of Post Harvest Technologies and founder of the PHT Opportunity Fund. He is also a best-selling author; his latest book is Opportunity Investing: How To Revitalize Urban And Rural Communities With Opportunity Funds. Click the play button below to listen to my conversation with Jim.

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Opportunity Db

April 22, 2020

NABL: IRS Extends Deadlines for Certain Time-Sensitive Actions

The IRS has issued Notice 2020-23 (linked here), which extends to July 15, 2020, the deadline for taking certain “time-sensitive actions” that were required to be taken on or after April 1, 2020, and before July 15, 2020.

These “time-sensitive actions” include filing Form 8038 or 8038-G (thus extending the deadline to July 15 for 8038s for bonds issued in the first quarter of 2020) and making any rebate or yield reduction payments that would have been due during that window and filing Form 8038-T.

The full list of time-sensitive actions is included in Section III.A of the Notice, and includes the time-sensitive actions relating to tax-exempt bonds described in Section 16 of Revenue Procedure 2018-58 (linked here).

COVID-19: How OZ Funds and Investors Are Responding, with Chris Loeffler

How are Opportunity Zone funds responding to the ongoing coronavirus pandemic? Find out why one Opportunity Zone fund walked away from $500 million worth of real estate deals last month. And could the current economic climate present some unique opportunities for investors? Chris Loeffler is co-founder and CEO of Caliber, a private equity real estate investment firm whose Opportunity Zone fund has thus far raised …

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Opportunity Db

April 15, 2020

IRS Deadline Extended for Some Opportunity Zone Investors.

The IRS has extended the investment deadline for Qualified Opportunity Fund investors whose 180-day deadline falls between April 1 and July 15. The investment deadline for these individuals has been automatically extended to July 15, 2020. In general, this relief may apply to investors who recognized capital gains between October 4, 2019 and January 17, 2020. Here is the section of the IRS notice that …

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Opportunity Db

April 15, 2020

House Republicans Introduce Bill to Extend Opportunity Zone Program.

Representative Denver Riggleman (R-VA) and five cosponsors have introduced a bill dubbed The Opportunity Zone Extension Act (H.R. 6513) that would extend the opportunity zone program from 2026 to 2030, allowing investors additional time to invest in qualifying communities.

The bill is cosponsored by Rep. Guy Reschenthaler (R-PA), Rep. Scott Tipton (R-CO), Rep. Tim Burchett (R-TN), Rep. Bryan Steil (R-WI), and Rep. Drew Ferguson (R-GA).

The opportunity zones program, part of the 2017 Tax Cuts and Jobs Act, designates certain economically distressed communities and encourages private investment in those areas in exchange for potentially significant tax breaks, if the investment is held for an extended period.

The proposed legislation would extend the inclusion date for capital gains to be invested in opportunity zones from December 31, 2026 to December 31, 2030. The amendments apply to taxable years beginning after the date of the legislation.

“Opportunity zones encourage investment and promote job creation in our most challenged communities. Now more than ever, we need to ensure the opportunity zone program is extended for the next 10 years,” said Rep Steil. “This unprecedented economic situation requires quick action so we can help the areas that need it most and prepare for the future.”

In related news, due to the coronavirus pandemic, the Internal Revenue Service recently extended the deadline for taxpayers who incurred a capital gain and had to make an investment into a qualified opportunity fund within 180 days. If that 180-day period ends between April 1 and July 15, 2020, the notice now extends the deadline to July 15, 2020.

DI Wire

April 16, 2020

What COVID-19 Means For Opportunity Zone Projects.

The past few weeks have been dramatic as the country and the rest of the world have reacted to the coronavirus pandemic. Businesses are shuttered, residents in some states are under a lockdown (or close to it), schools and universities are closed, and everyone is watching nervously as the stock market tumbles downward while the number of coronavirus cases ticks upward.

While we all try as much as possible to keep our heads together, and protect our investments and our livelihood, here is our advice to those quarantined in the land of opportunity zones.

In-Process Opportunity Zone Projects

Undoubtedly anyone with a project already underway in an opportunity zone is likely nervous about upcoming qualified opportunity fund, or QOF, and qualified opportunity zone business, or QOZB, deadlines. Keep calm and consult the regulations. The final Treasury regulations released in December 2019 contain some explicit relief and some general relief that can likely be of use under these circumstances. We may also get additional relief out of the U.S. Department of the Treasury and the IRS, but this is what we can rely on at the moment.

Additional Time to Get Your Business Up and Running — Disaster Declarations and Tolling for Delays

Any QOZB with a 31-month working capital safe harbor, or WCSH, in place should remember a few important relief provisions.

First, the final Treasury regulations automatically extend the 31-month WCSH for up to an additional 24 months if the QOZB is located in an opportunity zone within a federally declared disaster area.

As of March 31, a number of states and territories have been declared federal disaster areas, including Alabama, California, Colorado, Connecticut, Florida, Georgia, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Missouri, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, South Carolina, Texas, Washington, D.C., Puerto Rico and Guam.

Projects located in those states or territories can benefit from this 24-month extension as a result of the disaster declarations.

If additional states hardest hit by COVID-19 end up also being declared disaster areas, then any projects located in opportunity zones in those states would get up to an extra 24 months added on to their 31-month WCSHs. There is also an interpretation of the regulations which would treat the declaration of a national emergency as also triggering a 24-month extension nationwide, but it is not clear yet whether the Treasury will explicitly approve this interpretation.

Second, under the general tolling rule, a QOZB can toll its 31-month WCSH for delays caused by waiting for government approval on an application. If you are waiting for any type of approval from a government agency or municipality (building permit, zoning change, etc.), and waiting for that approval causes an actual delay in your project, you can toll the time of the delay for purposes of the 31-month WCSH.

Delays are certain to start kicking in given how many nonessential employees are being told to stay home, but remember that there must be an actual delay on your project as a result of waiting on an application. If you are able to progress the project in other ways while waiting for a particular approval, then you cannot toll for the time waiting.

Even so, given the unprecedented circumstances, it is advisable to document everything. Keep track not only of when various applications were submitted, but also of: (1) when you had to shut down your office, (2) when various government offices where you submitted applications were closed, (3) when you got notice that your architect, contractor or consultant had to close their offices or stop working, and (4) when shelter in place or lockdown orders that affect your project were issued.

If the Treasury expands the tolling rule to pick up COVID-19-related delays, you will want all of this information collected so you can count up the days.

QOF Penalty Relief for COVID-19 Delays — the Reasonable Cause Exception

The existing relief for QOFs at the moment is the reasonable cause exception to the penalty that would otherwise be imposed on a QOF for failing to meet its 90% asset test. This monetary penalty is imposed on a QOF to the extent that its qualifying assets are less than 90%.

The reasonable cause exception was included in the original statutory language in the Internal Revenue Code, and the final Treasury regulations did not expand upon or further define “reasonable cause” for purposes of the exception. In fact, in the preamble to the final Treasury regulations, the Treasury declined to include even a nonexhaustive list of circumstances that would constitute reasonable cause because a determination of reasonable cause is inherently factual.

This is hugely important because if a QOZB fails to be a QOZB for some reason, then the QOF invested in that QOZB could fail to meet its 90% asset test. Remember that for most QOFs, equity in one or more QOZBs will constitute the majority of the QOF’s qualifying assets.

Again, it is crucial right now is to document everything.

If your QOZB fails the 70% tangible property standard because of construction delays, then you want to be able to show that your materials were delayed arriving from overseas.

If your QOZB fails its 50% gross income test because of lockdowns in one of its key markets or because employees were working remotely outside of an opportunity zone, then you want to be able to show that businesses in that area were forced to close down.

If your QOF fails to meet its 90% asset test on a semiannual testing date because the project it was supposed to invest into was put on hold as a result of the pandemic, you should be collecting correspondence showing when and how that deal fell apart.

The inherently factual nature of reasonable cause means that you should be collecting as many facts as possible if you think your QOZB or QOF requirements are at risk.

Capital Raising

On the one hand, capital raising just got a lot harder. Who wants to invest in a 10-year project no less, with so much uncertainty?

On the other hand, anyone who exited the stock market in the past few weeks who realized a capital gain (either long-term or short-term) now has eligible gain to invest in a QOF. The potential universe of investors just got that much bigger. Also, the grim reality is that many small businesses will not survive the forced partial or total closure of their businesses during this time. Remember that a QOF can invest in an operating business QOZB, so any new businesses started in opportunity zones post-pandemic may be prime candidates for QOF investments.

Absent any potential new incentives or guidance (see below), think carefully and strategically about new fundraising right now. Some markets may bounce back as soon as the pandemic is over, and some markets may take a bit longer.

Opportunity zones will need new investment just as much, if not more, than other areas, and with the extra tax incentives, an opportunity zone investment may be especially attractive in just a few months’ time. Gains triggered in March could expire as soon as September. Hopefully some of the market uncertainty will have abated by then, so consider gearing up your fundraising efforts so they are ready to go by mid-summer.

Possible Future Relief

In addition to any tax-related relief passed by Congress, the Treasury and the IRS may put forward their own guidance or tax-related relief to the extent possible. Here are some possible opportunity zone related proposals that we hope will be considered. To be clear, these are all right now pie-in-the-sky wish list items and to our knowledge none of these have been proposed or are being actively considered by Congress, the Treasury or the IRS.

Still, if you are in self-isolation and dreaming big, any of these would be a silver lining to the current dreary news cycle:

Until we hear anything definitive from Congress, the Treasury or the IRS, your best bet on relief from the rigid timing requirements applicable to QOFs or QOZBs is to document everything so you are in good shape to take advantage of whatever guidance or relief we get.


By Jessica Millett

April 9, 2020, 6:36 PM EDT

Jessica Millett is a partner at Duval & Stachenfeld LLP, and co-chair of the firm’s tax practice group.

Federal Gov't Grants $1.1 Million for Disaster Recovery in Puerto Rico Opportunity Zones.

The U.S. Economic Development Administration (EDA) is awarding a $1.1 million grant to the University of Puerto Rico to hire three Disaster Recovery Coordinators to execute disaster recovery efforts throughout the entire Commonwealth.

The project, to be located in a Tax Cuts and Jobs Act designated Opportunity Zone, will be matched with $266,400 in local investment.

“The disaster recovery coordinators hired at the University of Puerto Rico will serve as liaisons between local, state, and federal partners to further advance recovery efforts and rebuild the local economy back stronger than ever before,” said U.S. Secretary of Commerce Wilbur Ross.

In 2018, EDA made $587 million available to eligible grantees in communities impacted by natural disasters in 2017, such as Hurricane Maria, which devastated Puerto Rico.

Opportunity Zones have become the buzzwords in Puerto Rico in recent months, but they have not generated the hoped for $600 million in investments that the central government was projecting.

The federal program provides tax benefits for those investing in distressed, low-income communities nationwide. Puerto Rico has also enacted its own Opportunity Zone law; hence, investors can benefit from the tax incentive at both the federal and commonwealth levels. About 98 percent of Puerto Rico has been designated by the federal government as eligible for Opportunity Zone investments.

Eligible projects include multi-family housing, including student dorms; tourism-related businesses; educational and health facilities; tech incubators; and other types of commerce.

Rosario Fajardo, The Weekly Journal Apr 10, 2020

Tax-Exempt Debt Payment Deferrals For Municipal Securities: Dinsmore

The COVID-19 pandemic has delayed and lowered revenues, creating an unprecedented period of fiscal uncertainty for borrowers of tax-exempt debt. Borrowers forced to navigate these conditions may request lenders defer scheduled debt payments to help weather the storm.

Borrowers and lenders of tax-exempt debt must be mindful that a deferral of scheduled payments may endanger the debt’s tax-exempt status. A deferral could be considered a modification causing the debt’s “reissuance,” which is treated as a new issuance for tax purposes and a refinancing of the original bond issue. When a reissuance occurs, the debt will lose its tax-exempt status unless appropriate legal steps are taken.

Not all deferred payments will adversely impact the tax exemption. First, a failure of a borrower to pay is not a modification, because there is no alteration of the rights or obligations of the lender or borrower. Furthermore, a forbearance by the lender will not be treated as a modification until the forbearance remains in effect for more than two years following the borrower’s initial nonpayment, plus any additional period during which the parties conduct good-faith negotiations (or during which the borrower is in bankruptcy proceedings or a similar case, e.g., receivership, foreclosure).

A modification altering an instrument’s payment schedule will be deemed significant if it materially defers payment. Whether a deferral is material depends on the facts and circumstances of each case. There is a safe harbor allowing a payment to be deferred up to five years (or 50 percent of the original term of the instrument, if shorter) but only from the original due date of the first scheduled payment that is deferred. Yet a finding that a deferred payment satisfies the safe harbor is not the end of the analysis, because a deferral resulting in a change of yield in excess of the greater of 0.25 percent or five percent of the pre-modification yield would still result in a significant modification under the regulations, which would trigger a reissuance of the bonds.

Deferrals of scheduled payments may be undertaken under the right circumstances. Borrowers and lenders of tax-exempt debt who are considering such a delay must be mindful of the reissuance rules to avoid adverse tax consequences.

Tuesday, April 7, 2020

© 2020 Dinsmore & Shohl LLP

Federal Tax Law Considerations for Financings COVID-19 Costs on a Tax-Exempt Basis: What Issuers Need to Know - Orrick

States, municipalities and 501(c)(3) organizations (Issuers) likely will have to incur significant expenses in their fight against COVID-19. Even if Issuers have reserves available for these costs, there are a few different avenues to financing these expenses on a tax-exempt basis. The federal tax limitations relating to capital and working capital financing are discussed in the FAQs below, including using long-term, tax-exempt debt to finance short lived capital assets or working capital expenditures.[1]


When financing capital expenditures made to fight COVID-19, are there any special considerations to take into account?
Issuers likely will incur significant capital costs during their fight against COVID-19. These expenses may include the purchase of equipment and construction of improvements. All such costs may be financed on a tax-exempt basis, but the federal tax law generally limits the maximum term of the borrowing to only a few years for short-lived assets or assets that will only be owned and used by the Issuer for a short period of time before being decommissioned or sold. Note that supplies, such as hospital personal protective equipment, are treated differently, as discussed below. Construction costs for temporary facilities need to be addressed on a case by case basis.

What if an Issuer is buying a lot of short-lived assets?
It is likely that Issuers will be buying large quantities of COVID-19 fighting equipment at the same time revenues will be drastically reduced. Accordingly, there may be a benefit to such entities to be able to finance their purchases on a long-term basis. There are a few strategies that allow for longer term financing of short useful life assets. One strategy is to combine short and long-life assets in the same tax-exempt financing, because the tax law maturity limitation compares the average maturity of bonds to the average useful life of the financed assets. See the Reimbursement Resolutions and Lines of Credit discussions immediately below. Another strategy is to treat the transaction as a long-term working capital financing, discussed further below, but that strategy only works for governmental purpose bonds.

Reimbursement Resolutions –All Issuers with these expenditures should adopt reimbursement resolutions as soon as possible. This will allow the Issuer to finance the expenditures at a later date. One strategy for extending the average maturity of bonds is to combine the reimbursement for expenditures for short-lived assets with expenditures for long-lived assets. Reimbursement resolutions do not obligate an Issuer to issue bonds, but reimbursement resolutions will preserve the ability of the Issuer to do so if later desired. Without a reimbursement resolution, an Issuer may not be able to finance prior expenditures on a tax-exempt basis.

Lines of Credit – Issuers may consider short-term lines of credit, or increasing capacity under existing lines of credit, in an effort to better manage cash flow in the coming months. Issuers that use lines of credit (whether taxable or tax-exempt) may allocate draws under the line to capital expenditures and refinance such draws on a tax-exempt basis in the future. However, the Issuer will have to allocate draws on the line to capital expenditures no later than 60 days after the expenditure. See more information on this topic here. By preserving the ability to finance these costs at a later date, the refinancing of short-lived assets can be combined with a financing for long-lived assets.

What if an Issuer will only need to use the financed assets for a short period of time?
It is reasonable to assume that many of the assets being purchased to fight COVID-19 will be decommissioned from use at some point and will be put into reserves so that they may be recommissioned during the next emergency. These assets may be financed with tax-exempt bonds on the same basis as if the Issuer expected to use the assets for their intended purpose continuously. Assets stored in a strategic reserve are considered to be used appropriately for federal tax law purposes.

What if an Issuer wants to sell the financed assets after the crisis is over?
Tax-exempt financed capital assets purchased for use for a short period of time with the expectation that the assets will be sold are subject to a different analysis depending if the assets were financed with governmental purpose bonds or qualified 501(c)(3) bonds.

Governmental Purpose Bonds

Generally, such assets may be financed with governmental purpose bonds if on the date the bonds are issued the Issuer reasonably expects it will sell few enough assets to fit within certain de minimis limitations or the Issuer meets a specialized rule. The rule requires that:

  1. The municipality reasonably expects, as of the issue date, that the financed property will be used appropriately for a substantial period before the sale;
  2. The municipality is required to redeem all the related bonds within 6 months of the sale;
  3. The municipality has not arranged for the sale of the assets as of the issue date; and
  4. The sale is for a fair market value price (and certain other technical and minor requirements).

Issuers should consult their Orrick tax counsel early in the financing process so that the specific tax requirements that apply to each situation may be determined.

Qualified 501(c)(3) Bonds

Unlike governmental purpose bonds, all property financed with the proceeds of qualified 501(c)(3) bonds must be owned by a state or local governmental entity or a 501(c)(3) entity for the entire time the bonds are outstanding. Accordingly, tax-exempt qualified 501(c)(3) bonds generally should not be used to finance the purchase of capital assets that are intended to be used for a short period of time and sold unless the final maturity of the bonds is at the same time as, or occurs before, the sale of the asset.

May personal protection equipment (PPE) be financed on a tax-exempt basis?
Given the current urgent need for personal protective equipment (PPE) that is being experienced by our healthcare providers, it is important to talk about PPE. PPE includes gloves, masks, gowns and other such equipment that is used up quickly and does not have an expected useful life of more than one year. In fact, much of the PPE is considered single use only. Accordingly, PPE is considered a supply item rather than a capital asset and therefore expenditures made for PPE are considered working capital expenditures, which are discussed in more detail below.


May working capital expenditures be financed on a tax-exempt basis?
The ability to issue tax-exempt bonds for working capital expenditures is limited. Generally, these financings fall into one of three categories:

  1. Capital financings that include a de minimis amount of working capital (no more than 5% of the bond proceeds) that are directly related to the capital expenditures being financed;
  2. Financing cash flow deficits (short-term or long-term); and
  3. Financing extraordinary, nonrecurring working capital expenditures.

We will limit this discussion to deficit financings and financings for extraordinary working capital expenditures. Note that the discussion below applies to 501(c)(3) organizations as well as state and local government entities.

What options are available to finance a short-term cash flow deficit?
Short-term deficits that are not expected to persist for more than a fiscal year may be financed on a tax-exempt basis with short-term notes that have a maturity not in excess of 13 months. This is the typical tax revenue anticipation note (TRAN) or revenue anticipation note (RAN) transaction. Generally, the maximum size of these financings is limited by the size of the deficit plus a reasonable working capital reserve that is not in excess of 5% of expenditures paid out of current revenues during the preceding year.

What options are available to finance a long-term cash flow deficit?
Current deficits that are projected to recur in future years may be financed on a longer-term basis, subject to an annual re-testing requirement:

  1. On the first day of each fiscal year after the debt is issued, the Issuer must determine whether its “available amounts” of unrestricted funds are more than 5% of its operating expenditures during the prior fiscal year. This annual testing can be delayed up to five years depending on deficit projections.
  2. Except as required below, within the first 90 days of that fiscal year, the Issuer must apply the available amounts in excess of the 5% amount (or if less, the available amount on the date of the required redemption or investment) to redeem or to invest in eligible tax-exempt bonds (as defined below). For this purpose, available amounts in a debt service fund for other bonds generally are not treated as available amounts.
  3. With two exceptions, amounts invested in eligible tax-exempt bonds (instead of being used to redeem bonds) must be invested continuously in such tax-exempt bonds. The first exception allows amounts to be uninvested for no more than 30 days each fiscal period pending reinvestment in eligible tax-exempt bonds. The second exception allows Issuers to spend amounts previously invested in eligible tax-exempt bonds to cover expenses during future deficit periods, essentially to use the tax-exempt investments as a cash deficit line of credit, or to redeem the Issuer’s tax-exempt bonds.
  4. An eligible tax-exempt bond is (i) a tax-exempt, non-AMT bond; (ii) an interest in a tax-exempt, non-AMT money market fund; or (iii) a Demand Deposit State and Local Government Series (SLGS) investment.

What are the ways to finance working capital expenditures long term without worrying about cash flow deficits?
Long-term tax-exempt bonds may be used to finance “extraordinary, nonrecurring items that are not customarily payable from current revenues.” Said another way, an Issuer can use tax-exempt bonds to finance extraordinary expenses without regard to an actual cash flow deficit! The regulations use casualty losses and extraordinary legal judgments in excess of reasonable insurance coverage as example of such expenditures. However, it seems reasonable to assume that working capital expenditures made to finance the fight against COVID-19 also will qualify.

If an Issuer maintains a reserve or has otherwise set aside funds for items of the same nature as the extraordinary expenditures (e.g., a self-insurance fund or a pandemic relief fund), those funds must be used before the bond proceeds may be allocated to the extraordinary expenditures.

One of the most common issues that arises with respect to these financings is how long the bonds may be outstanding before running into certain anti-abuse rules. However, the answer can’t be worse than requiring the Issuer to comply with the requirements in the immediately preceding section, and therefore we believe that this type of working capital financing may be quite useful for Issuers to help finance their fight against COVID-19. The IRS has been asked to give guidance on this and other issues on an emergency basis in order to help Orrick bond counsel help their clients structure bonds issued under this provision. We will update this discussion after this guidance is received.


What if Issuers expect to receive reimbursements from FEMA that will be used to pay the tax-exempt bonds?
FEMA reimbursements may impact tax-exempt financings of both capital and working capital expenditures made to fight COVID-19. Generally, bonds may not be issued on a tax-exempt basis if the payment of such bonds is directly or indirectly guaranteed by the federal government. Reimbursements to Issuers by FEMA, even if expect to be used to pay debt service, do not automatically cause a direct or indirect federal guarantee, but Issuers should let their Orrick bond and tax counsel know about the reimbursements early in the financing so that the bonds may be carefully structured to not run afoul of this prohibition.

May Issuers use tax-exempt bond proceeds to make grants to individuals and businesses?
Yes, subject to state law constraints, Issuers may use tax-exempt bond proceeds to make grants to individuals and business if the grants further a governmental purpose for governmental purpose bonds or further the exempt purpose of the 501(c)(3) entity for qualified 501(c)(3) bonds. Well-designed grant programs can help Issuers prove compliance with a number of tax requirements and reduce record-keeping requirements for Issuers. For long-term bonds issued to finance grants for working capital purposes, the tax requirements described above for working capital financing generally apply. Orrick bond and tax counsel should be consulted to help design a grant program that will allow the Issuer to make grants with the least administrative burden possible.

Public Finance Alert | April.03.2020


[1] To address any questions about the difference between a capital expenditure and a working capital expenditure, a capital expenditure is capitalized into the assets on the Issuer’s balance sheet and a working capital expenditure is treated as an operating expense on the Issuer’s income statement.

Telework Due To COVID-19 Spawns Employer Nexus Worries.

Whether states can and will assert nexus on businesses whose employees are working remotely at home has emerged as a top concern among state tax professionals amid the COVID-19 pandemic.

In the last few weeks, the mass shift to working from home as governments, businesses and individuals seek to comply with “stay at home” orders to avoid spreading the novel coronavirus has created a situation in which businesses now have presence in states that they didn’t have before. This turn of events has created confusion and worry about how states will respond, especially since COVID-19 is causing a collapse of state tax revenues at the same time as this opportunity for states to reach new business taxpayers by asserting nexus.

In response, state tax professionals are pleading with states to issue guidance declaring that they will not assert nexus to impose tax reporting and payment obligations on previously untaxed businesses if an employee is working remotely only because of safety considerations. That would be an effective form of relief for businesses and employees in what for many continues to be the most uncertain time in their histories, state tax professionals are saying.

Continue reading.

By Maria Koklanaris · April 7, 2020, 2:15 PM EDT

COVID-19 Pandemic May Imperil Opportunity Zone Projects.

Qualified opportunity zone investors face difficulty in meeting project deadlines amid the novel coronavirus pandemic and may face losing tax benefits or being forced to pull the plug on some projects if deadlines are not extended.

The Internal Revenue Service has responded to the pandemic of COVID-19, the respiratory disease caused by the novel coronavirus, by postponing tax filing and payment deadlines to July 15 from April 15. But the IRS has not overtly provided any deadline relief for opportunity zones, which allow an investor to reinvest capital gains within a 180-day window into designated low-income areas in exchange for certain tax benefits that grow the longer the money is invested in a qualified opportunity fund, up until Dec. 31, 2026.

If investments in the opportunity zone funds are held for five years, then 10% of capital gains on the prior investment will be forgiven, while 15% of capital gains will be forgiven if the investments are held for seven years. Thus an investor had until Dec. 31, 2019, to receive the higher 15% tax benefit.

Continue reading.

By Amy Lee Rosen · April 6, 2020, 8:00 PM EDT

Opportunity Zone Strategies for Community Development, with Jeanne Bonds.

How can investors, financial institutions, and other local stakeholders leverage the Opportunity Zone incentive to improve community development results? Jeanne Bonds is a professor of the Practice of Impact Investment and Sustainable Finance at UNC’s Kenan-Flagler Business School in Chapel Hill. She was formerly director of community economic development for the Federal Reserve Bank of Richmond. Click the play button below to listen to my

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Opportunity Db

April 8, 2020

Opportunity Zone Deadlines Extended By Covid-19 Disaster Declarations.


The COVID-19 pandemic has led Governors of many states to request that their states be declared federal disaster areas. As of this writing, President Trump has declared numerous states to be federal disaster areas, including New York, Washington, California, New Jersey, Iowa, Florida, Texas, North Carolina and Louisiana. It is likely that more, and perhaps even all, states will be declared disaster areas.

These declarations will extend two important deadlines in the rules relating to investments in qualified opportunity zones. First, the 31-month deadline for spending cash or other financial assets held by a qualified opportunity zone business under a working capital safe harbor plan can be extended by as much as 24 additional months. Second, where an opportunity fund receives capital or proceeds from the sale of qualified property, it has 12 months to reinvest the funds before they will be counted in the fund’s 90% asset test. The fund can get an additional 12 months to reinvest the funds if the fund’s ability to reinvest is delayed by a federally declared disaster.


Working Capital Safe Harbor. Generally, a qualified opportunity zone business may hold cash and short term debt if it is subject to a plan that calls for the expenditure of the funds within 31 months. Final Treasury Regulation Section 1.1400Z2(d)-1(d)(3)(v)(D) provides that the 31 months can be extended for an additional 24 months if the working capital plan relates to a project within a qualified opportunity zone which is part of a Federally declared disaster area, so long as the business otherwise meets the requirements for the working capital safe harbor.

Reinvestments by an Opportunity Fund. Second, a qualified opportunity fund must hold 90% of its assets in qualified opportunity zone property. Cash, debt instruments and securities are not qualified property. If a qualified opportunity fund receives cash from the sale of qualified opportunity zone property or gets a return of capital from a qualified opportunity zone business, the opportunity fund generally has 12 months to reinvest the funds before those funds will count in a 90% test. However, the Final Opportunity Zone Regulations provide that if an opportunity fund is delayed in reinvesting the funds by a federal disaster, it can receive an additional 12 months to reinvest the funds, provided that it eventually reinvests as originally intended. For example, if an opportunity fund is unable to invest in certain property because the property is located in a federally declared disaster area, the opportunity fund must invest the proceeds in similar property located in that QOZ


These extended deadlines do not extend to the period investors have to invest qualified capital gains in an opportunity fund, or the time an opportunity fund has to invest its funds. Polsinelli therefore recommends that qualified gains be invested in an opportunity fund to defer the gain, and then to a qualified opportunity zone business within necessary time frames. By doing so, an opportunity zone investor can maximize the time it has to invest the funds in good opportunity zone projects. With respect to the reinvestment of capital received by an opportunity fund, Polsinelli recommends documenting any plans for the reinvestment of the funds so that it can establish that it has complied with the rule if necessary. Polsinelli also notes penalties which may be asserted in connection with opportunity zone investments can generally be avoided upon a showing of “reasonable cause.” The COVID-19 clause may well provide a general reasonable cause defense to many penalties. Finally, at some point Treasury (or Congress) may well issue some form of blanket extension on all of the deadlines as the crisis continues.


March 30, 2020

COVID-19 Relief for Opportunity Zone Businesses, a Zoom Meeting with OZ Pros.

Congress has passed three phases of coronavirus relief packages, with a fourth potentially on the way soon. How can Opportunity Zone businesses seek relief? And how can Opportunity Zones assist with economic recovery? OZ Pros hosted a Zoom meeting with 80 of the most engaged Opportunity Zones participants in our network. The Zoom meeting included presentations from Ashley Tison (OZ Pros), Howard Matalon (OlenderFeldman), and

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April 1, 2020


DI Supply I, LLC v. Director of Revenue

Supreme Court of Missouri, en banc - March 17, 2020 - S.W.3d - 2020 WL 1270752

Limited liability company (LLC) taxpayer and its members petitioned for review of decision from administrative hearing commission, which determined that taxpayer’s room furnishing sales to hotels were not exempt from sales tax under resale exemption.

The Supreme Court held that:

Sales tax and use tax definitions of “sale,” though similar, have different requirements, and as such, employment of the use tax definition of “sale” cannot be used in sales tax resale exemption cases; abrogating Brambles Industries, Inc. v. Director of Revenue, 981 S.W.2d 568, Kansas City Power & Light Co. v. Director of Revenue, 83 S.W.3d 548, and Ronnoco Coffee Co., Inc. v. Director of Revenue, 185 S.W.3d 676. Mo. Ann. Stat. § 144.010.1(13).

Room furnishing sales to hotels managed by hospitality company were not exempt from sales tax under resale exemption, since the room furnishings that taxpayer sold to hotels were not resold to hotel guests, and consequently, there was no transfer of title or ownership of the room furnishings.


Zlotoff Foundation, Inc. v. Town of South Hero

Supreme Court of Vermont - March 20, 2020 - A.3d - 2020 WL 1325417 - 2020 VT 25

Taxpayer, a nonprofit charitable organization, appealed board of listers’ denial of its request for tax exemption for land and property used to store classic automobiles for its museum.

The Board of Civil Authority (BCA) denied the appeal, and taxpayer appealed. The Superior Court entered summary judgment for taxpayer in part, holding that property was exempt from taxation, and entered summary judgment for town in part, holding that taxpayer was not entitled to refund of property taxes already paid or owing. Taxpayer and town both appealed.

The Supreme Court held that:

Land and garage owned and used by nonprofit charitable organization for purpose of storing and maintaining collection of classic automobiles displayed at nearby museum qualified for public use property tax exemption, since garage served essential function that was directly connected to the running of the museum and furthered the museum’s charitable purposes.

Nonprofit charitable organization, a foreign corporation whose property was determined to be exempt from property taxes under the public use exemption, was not entitled to refund of property taxes paid or owed before it obtained certificate of authority allowing it to transact business in the state; exemption was based on business that organization transacted, and certificate was required for it to conduct that business.

NJ Reps. Ask Pelosi For SALT Cap Relief In Next Virus Bill.

Any additional legislation Congress prepares to mitigate the health and economic consequences of the novel coronavirus pandemic should include relief from the $10,000 cap on state and local tax deductions, House lawmakers representing New Jersey said Friday.

Lifting the $10,000 cap would help local businesses, families and first responders deal with COVID-19, the illness caused by the coronavirus, according to a letter sent to House Speaker Nancy Pelosi, D-Calif., by New Jersey lawmakers, including senior House Ways and Means Committee member Rep. Bill Pascrell Jr.

The SALT deduction limits, passed in the 2017 federal tax overhaul, have been especially burdensome for high-tax states such as New Jersey, and the negative effects are exacerbated by the coronavirus outbreak, the lawmakers said.

Continue reading.

By Dylan Moroses · April 3, 2020, 2:44 PM EDT

NABL Asks IRS to Help with TEFRA, Debt Repurchase Problems: Squire Patton Boggs

NABL has asked the IRS to issue a Notice that would allow issuers to hold TEFRA public hearings for private activity bonds by phone and that would allow issuers to purchase and sit on their own debt through the end of the COVID-19 crisis without extinguishing the debt, even if the issuer doesn’t use its best efforts to remarket it.

The text of the proposed Notice is available here. It remains to be seen whether the IRS will make significant changes to the Notice before adopting it or some other form of relief, but some highlights of the request are as follows.

Continue Reading

By Johnny Hutchinson on March 25, 2020

The Public Finance Tax Blog

Squire Patton Boggs

Fitch Ratings Updates U.S. Public Finance Tax-Supported Rating Criteria

Link to Fitch Ratings’ Report(s): U.S. Public Finance Tax-Supported Rating Criteria

Fitch Ratings-New York-27 March 2020: Fitch Ratings has published the following report: “U.S. Public Finance Tax-Supported Rating Criteria.” This report updates and replaces the prior report published on January 10, 2020. The key criteria elements remain consistent with those of the prior report, and there is no impact on outstanding ratings. Previous versions of the criteria have been retired.


Amy Laskey
Managing Director
+1 212 908-0568
Fitch Ratings, Inc.

Eric Kim
Senior Director
+1 212 908-0241

Michael Rinaldi
Senior Director
+1 212-908-0833

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

Additional information is available on


Hegar v. J.D. Fields & Company, Inc.

Court of Appeals of Texas, Austin - March 19, 2020 - S.W.3d - 2020 WL 1294917

After Comptroller of Public Accounts denied corporate taxpayer’s request for relief from assessment with respect to delinquent sales taxes, taxpayer filed action seeking recovery of taxes and interest paid under protest.

Comptroller made plea to the jurisdiction through summary judgment motion. The District Court denied the motion. Comptroller appealed.

The Court of Appeals held that sovereign immunity did not bar taxpayer’s suit.

Corporate taxpayer’s lawsuit against Comptroller of Public Accounts, seeking recovery of delinquent sales taxes paid under protest, fell within language of tax protest statute providing waiver of sovereign immunity for claims alleging that public official charged with duty of collecting the tax or fee could not legally demand or collect the tax or fee, where taxpayer alleged Comptroller failed to follow its own rules requiring it to take equitable considerations into account when deciding claims for relief when it refused to grant taxpayer’s request for relief from assessment on grounds that it failed to collect the taxes in reliance on representations made by Comptroller’s employee during an audit.

COVID-19: Impact on Financial Markets and Opportunity Zones, with Craig Bernstein

How will the ongoing coronavirus pandemic affect financial markets and Opportunity Zones? Craig Bernstein is principal of OPZ Capital, which launched the OPZ Capital Opportunity Zone Fund in 2018. Craig has over 20 years of real estate experience, and is a prominent thought leader in the Opportunity Zones industry. Click the play button below to listen to my conversation with Craig. Episode Highlights How the …

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March 23, 2020

Creating Catalytic Impact in Rural Opportunity Zones, with Chris Montgomery.

What is an OZ fund on Colorado’s western slope doing to spark catalytic impact and serve the long-term needs of rural communities? Chris Montgomery is partner at Four Points Funding, whose Opportunity Zone fund was recently awarded the Grand Prize as the Forbes OZ 20’s Top Rural Opportunity Zone Fund Catalyst by Forbes and the Sorenson Impact Foundation. Click the play button below to listen …

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March 25, 2020

Talking about The Thing: Squire Patton Boggs

Yes, The Thing touches everything.

COVID-19 affects the muni bond world in some fairly obvious ways. The general mandate is “everybody do less.” Decreasing activity in general translates to decreased business revenues and decreased tax revenues, which means less money available to repay bonds. This has set the disclosure world ablaze, as securities lawyers ponder what to say to the market about the pandemic. That very practical question is far beyond the bounds of this blog and will be dealt with ad nauseum elsewhere, such as this piece in The Bond Buyer.

There are a few less obvious ways that the disease will affect the tax requirements for tax-advantaged bonds. We’ll look at them in a series of posts. Click through for a teaser. (I guess that makes the previous sentence a meta-teaser?)

Continue reading.

The Public Finance Tax Blog

By Johnny Hutchinson on March 16, 2020

Squire Patton Boggs


Los Angeles Leadership Academy, Inc. v. Prang

Court of Appeal, Second District, Division 8, California - March 10, 2020 - Cal.Rptr.3d - 2020 WL 1149697 - 20 Cal. Daily Op. Serv. 2122

Nonprofit charter school and two related nonprofit public benefit corporations brought action against county assessor, seeking refund of property taxes and special assessments, and declaratory relief that they had no obligation to pay such taxes and assessments as long as property was held for benefit of the school at time of its operation.

The Superior Court entered judgment for assessor. Charter school and public benefit corporations appealed.

The Court of Appeal held that charter school’s property was not exempt from property taxation, nor was it impliedly exempt from special assessments.

Charter school could not be treated as a school district for taxation purposes, and thus, its property was not exempt from property taxation under the constitutional exemption for property owned by the state or a local government, nor was such property impliedly exempt from special assessments; although Charter Schools Act (CSA) provided equal eligibility with public schools for share of state and local education funding, CSA assigned no sovereign authority and exempted it from laws governing school districts.

The First OZ Fund to Deploy Capital to Businesses, with Len Mills & Natalie Elder.

What is the capital raising and investment portfolio strategy for the first Opportunity Zone Fund to deploy capital to business ventures? Len Mills is CEO of Verte OZ, a venture capital Opportunity Zone fund launched in September 2019 that invests in high-growth disruptive businesses. Natalie Elder is Verte’s head of investor relations. Click the play button below to listen to my conversation with Len and …

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March 18, 2020

NABL Submits Supplemental Letter to IRS on PLR User Fees.

On Thursday, March 4, 2020, NABL submitted a supplemental letter for consideration by the Internal Revenue Service (IRS) with respect to user fee charges to state and local governments for private letter rulings related to tax-advantaged bonds.

You can read that letter here. The original letter dated November 4, 2019, can be found here and a Bond Buyer article on the topic can be found here (subscription required).

NABL Requests Full-Time Replacement at Treasury’s Office of Tax Policy.

On March 5, 2020, NABL sent a letter to the U.S. Department of the Treasury encouraging the Office of Tax Legislative Counsel to appoint a full-time attorney with expertise in issues affecting the municipal market to fill the role vacated by John Cross at the Office of Tax Policy.

You can read the letter on our website here and a Bond Buyer article on the topic can be found here (subscription required).

Congressional Research Service Report on SALT Deduction Cap.

In a March 2 report, the Congressional Research Service provided an overview and analysis of the state and local tax deduction cap, including summarizing revenue effects and how it affects state and local governments, distributional effects, how states have responded, and legislation to modify it in various ways.

Read the Report.

Treasury Inspector General for Tax Administration Report on Exempt Bond Promoter Oversight.

Abusive tax shelter promoter penalties the IRS imposes on those who make fraudulent claims to investors on the benefits of tax-exempt bonds aren’t always warranted, the Treasury Inspector General for Tax Administration said in a March 6 report.

Read the Report.

Takeaways from Our First 100 Opportunity Zone Strategy Calls.

What are the biggest Opportunity Zone lessons we’ve discovered and Qualified Opportunity Fund best practices we’ve formed after our first 100 Opportunity Strategy Calls at OZ Pros? And how can they apply to you? Opportunity Zones Podcast host Jimmy Atkinson and OZ Consultants CEO Ashley Tison are co-founders of OZ Pros — Qualified Opportunity Fund and Qualified Opportunity Zone Business entity formation made easy. Click

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March 11, 2020


Eisele v. Town of Pine Bluffs

Supreme Court of Wyoming - February 19, 2020 - P.3d - 2020 WL 813651 - 2020 WY 22

Town, which owned and operated daycare facility, filed complaint against county treasurer and county assessor, seeking to enjoin them from assessing and collecting property taxes on daycare facility.

The District Court granted treasurer’s and assessor’s motion to dismiss for town’s failure to exhaust administrative remedies, and town appealed. The Supreme Court affirmed. Town subsequently appealed to county board of equalization after county assessor denied town’s requests for exemption from taxation for daycare facility. The county board affirmed assessor’s denial, and town appealed. The State Board of Equalization affirmed, and town appealed. The District Court reversed. County treasurer and assessor appealed.

The Supreme Court held that daycare, owned and operated by town, was not an obligatory municipal function, and thus, daycare was not exempt from taxation.

Daycare, owned and operated by town, was not an obligatory municipal function, and thus, daycare was not exempt from taxation; daycares were typically and frequently carried on by private enterprise, statutory list of governmental facilities that were tax exempt did not include daycares, and town’s daycare charged fees.

Democratic Presidential Candidates Positions on Opportunity Zones.

On the eve of Super Tuesday, where does each Democratic Presidential candidate stand on Opportunity Zones? Federal Opportunity Zones legislation initially had broad bipartisan, bicameral support. Eventually, it was packaged as part of President Trump’s landmark tax legislation. The Tax Cuts and Jobs Act (TCJA) passed along partisan lines in December 2017. And in the two-plus years since, the Opportunity Zones provision has become highly

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March 2, 2020

Novogradac’s OZ Working Group and Conference, with John Sciarretti.

What Opportunity Zones regulatory issues does the Novogradac Working Group address in their recent comment letter to the IRS? And what can you expect at the upcoming Novogradac OZ conference? John Sciarretti is a partner at Novogradac, a top 50 accounting firm and national thought leader in the Opportunity Zone industry. Click the play button below to listen to my conversation with John. Episode Highlights

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March 4, 2020


Miami-Dade County v. Eastern Partners, LLC

District Court of Appeal of Florida, Third District - February 5, 2020 - So.3d - 2020 WL 559175

Property owner brought putative class action against county challenging county’s authority to enforce special assessment liens as tax liens that survived foreclosure.

The Circuit Court denied county’s motion for protective order and granted property owner’s motion to compel discovery. County filed petition for certiorari relief.

The District Court of Appeal held that a trial court departs from the essential requirements of law, warranting certiorari relief, when the trial court compels merits discovery without first determining that a putative class representative has adequate standing.


Black v. Central Puget Sound Regional Transit Authority

Supreme Court of Washington - February 13, 2020 - P.3d - 2020 WL 719101

Taxpayers brought declaratory judgment action against regional transit authority and State, asserting that motor vehicle excise tax statute was unconstitutional.

The Superior Court granted transit authority’s motion for summary judgment. Taxpayers appealed.

The Supreme Court held that:

IRS Publishes Population Figures for Housing Credit, Private Bonds.

The IRS has published (Notice 2020-10, 2020-10 IRB 456) the 2020 resident population figures for the 50 states, the District of Columbia, Puerto Rico, and the insular areas for use in determining the state housing credit ceiling under section 42(h) and the private activity bond volume cap under section 146.

Fund Custody and Opportunity Zones, with Jeremy Christensen.

What level of transparency does your Opportunity Zone fund provide? Is it verified by a third-party fund custodian? Jeremy Christensen is director of fund custody at Millennium Trust Company, a custody firm that manages investment accounts, retirement funds, and alternative assets like Opportunity Zone funds. Click the play button below to listen to my conversation with Jeremy. Episode Highlights The role of a fund custodian…

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February 26, 2020

The 2 Hidden Benefits of Opportunity Zone Investing.

Opportunity Zone investing offers two little-known hidden benefits that almost no one talks about. First, let’s review the three main tax benefits: When you roll over capital gains into a Qualified Opportunity Fund within 180 days, you are able to defer recognition of that gain until December 31, 2026. (The tax bill on this initial gain would be due in April 2027 for most taxpayers.)…

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February 25, 2020

Connecticut Legislation Would Double Cap for Workforce Housing Credit, Make OZ Properties Eligible.

Legislation introduced in the Connecticut General Assembly would expand the state’s workforce housing tax credit program to include properties in opportunity zones (OZs) and would change definitions for workforce housing in other parts of the state. S.B. 184 would add properties in OZs to the definition of “eligible workforce housing development projects.” The bill would also redefine workforce housing as a property where 10 percent of units are for low-income renters, 40 percent are available at 20 percent of the area’s prevailing rent and the remainder are available at market rate. The legislation would double the statewide annual cap for the workforce housing tax credit to $20 million.


Thursday, February 20, 2020

Wisconsin Bill to Double Capital Gains Exclusion for OZs Goes to Governor.

A bill to conform Wisconsin’s tax code to the federal Internal Revenue Code concerning opportunity zones (OZs) and to double the exclusion for capital gains invested in Wisconsin-based OZs passed the state Senate and is on the desk of Gov. Tony Evers. A.B. 532 would allow an additional 10 percent capital gains tax reduction for investors who hold investments in a Wisconsin-centered qualified opportunity fund (QOF)–defined as a QOF that holds at least 90 percent of its assets in Wisconsin OZ projects–for five years and an additional 15 percent reduction for investors who hold their investment for seven years.


Thursday, February 20, 2020


G4, LLC v. Pearl River County Board of Supervisors

Supreme Court of Mississippi - February 6, 2020 - So.3d - 2020 WL 581905

Taxpayer appealed decision of county board of supervisors denying his petition for refund of ad valorem taxes paid for land it leased on airport property and for lots in subdivision it was developing.

The Circuit Court affirmed. Taxpayer appealed.

The Supreme Court held that:

Tenant was automatically exempted from paying ad valorem taxes on land it leased at city’s airport, since lease was entered under municipal airport law provision governing contracts and leases for airports owned by municipalities, and during period of lease, property was being used for commercial purposes.

County board of supervisors’ method for assessing ad valorem tax on lots in subdivision being developed by taxpayer, based on actual market price, was not flawed, and thus, taxpayer was not entitled to refund of ad valorem taxes it believed it had overpaid as result of board’s allegedly incorrect valuation of lots because lots were not held for sale, as subdivision plat was not yet approved, where board reasonably could have found that tax assessor determined that taxpayer intended to place the lots for sale, and there was no record of taxpayer having objected to assessment until years after such assessments were finalized, or that taxpayer had contested county tax roll equalization.

Taxpayer was not entitled to ad valorem tax refund on lots in subdivision it was developing for not receiving a developer’s discount that county had provided to others for tax assessments on unsold lots within a subdivision, since discount scheme violated state constitution requirement that all taxable property be assessed under uniform rules and in proportion to its true value by class, and fact that others had received the unconstitutional discount did not support finding that taxpayer’s equal protection rights were violated and that it now had be included in the discount.

Real Estate Technology and Opportunity Zones, with Steve Nson.

How can real estate technology, or property technology, benefit Opportunity Zone marketplace participants? Steve Nson is founder of AnySizeDeals, a matchmaking platform for real estate investors that also organizes live events. Their upcoming AnySizeDeals Week event will focus on how real estate interacts with AI and robotics, innovation, Opportunity Zones, and blockchain. Click the play button below to listen to my conversation with Steve.

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February 19, 2020

Final Tax Regulations Offer More Certainty to Opportunity Zone Fund Managers and Investors: Orrick

Opportunity Zone (or “OZ”) investment was hailed in 2018 and 2019 as the hottest and most innovative way of attracting significant private capital to distressed communities in the United States and its territories by offering significant tax deferrals, reductions and exclusions to investors with capital gains willing to make these investments. Despite its promise, OZ investment stalled in 2018 and 2019 due to significant uncertainty over how the generous tax incentives enacted by Congress under the December 2017 Tax Cuts and Jobs Act would be implemented by the U.S. Internal Revenue Service (“IRS”). The Final Regulations issued by the IRS on December 18, 2019 (the “Final Regulations”), have addressed many areas of major concern for managers of a “qualified opportunity fund” (“QOF”) and investors in those QOFs, opening the door for many more opportunities for these tax-advantaged investments. The Final Regulations are effective for tax years beginning after March 13, 2020 (but an election may be made to apply the Final Regulations retroactively, which likely will be applied in most cases). Where early application of the Final Regulations is not elected and prior to effectiveness of the Final Regulations, the rules applicable to OZ investment continue to be those under the regulations proposed by Treasury and the IRS on October 29, 2018 and May 1, 2019 (the “Proposed Regulations”).

Orrick’s November 2018 client alert on Opportunity Zones and Qualified Opportunity Funds Accelerating U.S. Community Impact Financing sets forth the key elements of the tax benefits provided by investment in Opportunity Zones. In large part, these key elements remain unchanged:

The Final Regulations

The Final Regulations are divided into six parts, corresponding with operative sections of the Internal Revenue Code: (1) Regulation Section 1.1400Z2(a)-1 deals with the procedure for deferring gains and sets forth the operative definitions; (2) Regulation Section 1.1400Z2(b)-1 deals with the inclusion of gains that have been deferred; (3) Regulation Section 1.1400Z2(c)-1 deals with issues associated with QOF investments that have been held for at least 10 years and that are eligible for the tax exemption; (4) Regulation Section 1.1400Z2(c)-1 sets forth the requirements for QOZP; (5) Regulation Section 1.1400Z2(d)-2 sets forth the QOZB Property requirements; and (6) Regulation Section 1.1400Z2f)-1 deals with the reinvestment of proceeds and establishes a number of anti-abuse rules.

The focus of this Client Alert is certain of the changes introduced by the Final Regulations, which serve to encourage investment in operating businesses and commingled funds, arguably the areas which hold the most promise for positively impacting existing communities in the Opportunity Zones.

Changes and Clarifications Introduced by the Final Regulations

Better Rules for Operating Businesses

More Flexible Qualifying Rules for QOZBs: QOF investment in operating businesses are expected to be through QOZBs. By way of review, a QOZB is a trade or business that meets each of the following requirements:

(i) First, at least 50% of the total gross income of the QOZB must be derived from the active conduct of the trade or business in the QOZ. Under the Final Regulations, (i) this test can be satisfied based on where employees (which now includes independent contractors) are located (based on hours worked or compensation), based on the location of management and key tangible assets used in the business or based on facts and circumstances, all of which invite a wider range of businesses (operating business, start-up businesses, manufacturing businesses, tech businesses and others) to be able to be capitalized with OZ investment.

(ii) Second, a substantial portion (i.e., at least 40%) of the intangible property of the QOZB must be used in the active conduct of the trade or business in the QOZ. According to the Final Regulations, intangible property is treated as used in an active trade or business if the use is normal, usual or customary in the conduct of the trade or business and the intangible property is used in the OZ in the business to contribute to the generation of gross income for the business. There may be uncertainty about the application of these principles in specific situations.

(iii) Third, less than 5% of the average of the aggregate unadjusted bases of the property of the QOZB must be attributable to nonqualified financial property (e.g., cash and cash equivalents). The Proposed Regulations provided a safe-harbor to allowing capital contributed to the QOZB to be spent to develop a property over a period of 31 months, as long as there is a written plan and schedule in place for deploying the capital and the capital is actually used in a manner substantially consistent with the plan and schedule. The Final Regulations clarify that the 31‑month spending period can be applied to a start-up operating business and provide that this period can be extended to 62 months if there are multiple tranches of capital contributions to the QOZB.

Better Rules for Commingled Funds and Multi-Tiered Investment

Sales of Property by Individual QOZBs. Under the Proposed Regulations, a QOF investor could only elect after a 10-year holding period to exclude gains from the sale of qualifying investments or capital gain property sold by a QOF operating in partnership or S corporation form, but not property sold by its QOZB. This approach had a chilling effect on the formation of commingled funds that are invested in multiple properties or businesses, because it was very hard to plan a tax-free exit by the QOF for multiple assets at the same time in the future. The Final Regulations provide that capital gains from the sale of property by a QOZB that is held by such a QOF may also be excluded from income as long as the investor’s qualifying investment in the QOF has been held for 10 years. In such event, the amount of gain from such QOFs or its QOZB’s asset sales that an investor in the QOF may elect to exclude each year will reduce the amount of the investor’s interest in the QOF that remains a qualifying QOF investment eligible for further QOF tax benefits.

Disposition by QOF Investors of Stakes in Multi-Asset Funds. As noted above, the rule of the Proposed Regulations made the tax exemption available only upon disposition by a QOF after the 10‑year holding period. However, in a typical sale by a QOF, a portion of the gain would not be capital gain and thereby would potentially reduce the QOZ tax benefits as compared to a sale by the QOF investor of its interests in the QOF which often led to structuring issues for a QOF with multiple properties or QOZBs. The Final Regulations significantly expand the proposed rules by providing for gain exclusion for asset sales. In particular, the Final Regulations permit a taxpayer that invests in a QOF partnership or S corporation to make an election for each taxable year to exclude a QOF’s gains and losses from all sales or exchanges in the taxable year, rather than just capital gains or losses. Thus, the Final Regulations more closely align the QOZ tax benefits on a sale by a QOF with the benefits on a sale by the QOF investor of its interests in the QOF, thereby providing more flexibility for multi-asset QOFs to sell underlying assets, businesses and real estate projects.

Distributions. The Final Regulations also clarify that certain distributions by a QOF to its investors may qualify for the exemption, and certain interim distributions offered prior to the end of the 10‑year holding period may be made tax free to the extent an investor’s basis has been stepped-up in an amount sufficient to cover the distribution (whether due to partnership tax allocations of profit and loss, an allocation of leverage incurred by the QOF, upon payment of deferred tax in 2026, or otherwise).

Multi-Tier Investment; Investment by Members of a Consolidated Group. Any U.S. taxpayer seeking to obtain the tax benefits offered by the OZ program must invest directly into a QOF rather than through an intermediary such as a fund-of-funds that might act to aggregate investors’ capital gains for purpose of investment in QOFs. The Final Regulations have not changed these rules but have loosened the rules relating to consolidated groups. Under the Proposed Regulations, if a consolidated group wished to invest in a QOF, it had to do so through its parent but could not do so through other members of the consolidated group. The Final Regulations have eliminated this restriction. Now, any member of a corporate consolidated group can make the investment.

Continuing Questions and Uncertainty

Although the Final Regulations have provided a great deal of useful guidance that is generally favorable to promoting OZ investment, many issues remain uncertain and will require further clarification by the IRS or through the development of practices. The preamble to the Final Regulations specifies certain areas for future guidance. Among the areas where practical issues continue are the manner for integrating partnership tax accounting rules with OZ accounting, FIRPTA withholding tax, the consequences of failing to comply with the 31‑month plan for spending capital and other violations of tax requirements (e.g., the 70%, 40% and 50% tests, and more).


The issuance of Final Regulations represents another significant step toward providing diverse place-based investment and community development for the benefit of low-income communities throughout the United States and the investors in those communities. With added rules providing flexibility to operating businesses and commingled funds, many in the industry expect a growth in QOFs attracting private capital to a variety of businesses that go well beyond the OZ real estate developments seen in 2018 and 2019.

February 7, 2020

Orrick, Herrington & Sutcliffe LLP


Clear Channel Outdoor, Inc. v. Director, Department of Finance of Baltimore City

Court of Special Appeals of Maryland - January 29, 2020 - A.3d - 2020 WL 465762

Billboard owner appealed city’s denial of its request for refund of excise taxes paid pursuant to city ordinance which imposed excise tax on privilege of exhibiting outdoor advertising displays, including the privilege of charging third parties a fee for their use of its billboard space.

The Tax Court affirmed, and billboard owner sought judicial review. The Circuit Court affirmed. Billboard owner appealed.

The Court of Special Appeals held that:

City outdoor advertising ordinance imposing excise tax on billboard owner’s privilege to charge others a fee to use billboard space did not impermissibly burden owner’s right to freedom of speech under the First Amendment and Maryland Constitution; billboard owner’s economic activity was not expressive or communicative, and ordinance was content neutral, applicable whenever an outdoor advertiser such as billboard owner charged third parties to use its space, regardless of the content displayed on the billboards or who paid billboard owner to display it.

City outdoor advertising ordinance, imposing excise tax on billboard owner’s privilege to charge others a fee to use billboard space, was constitutionally valid under rational basis review, where city had legitimate governmental interest in raising revenue, particularly for purpose of alleviating burden on city taxpayers, and ordinance was rationally related to that interest because tax imposed by the ordinance actually raised revenue, which was placed directly into city’s general fund.


Columbus City Schools Board of Education v. Franklin County Board of Revision

Supreme Court of Ohio - February 6, 2020 - N.E.3d - 2020 WL 573459 - 2020 -Ohio- 353

Limited liability company (LLC) appealed determination of the Board of Tax Appeals (BTA), No. 2016-2365, that sale price paid for transfer of LLC’s ownership constituted the tax value of real estate owned by LLC.

The Supreme Court granted LLC’s petition to transfer appeal.

The Supreme Court held that:

Limited liability company’s production of purchase and sale agreement, documenting its transfer of ownership to purchaser, in discovery with school board was sufficient to regard the document was what it facially purported to be, and thus, document was sufficiently authenticated for admission in proceedings before the Board of Tax Appeals (BTA) concerning school board’s complaint seeking increase in the tax value of real estate owned by LLC based on sale price for transfer of LLC’s ownership.

Conveyance-fee-exemption form and deed obtained by school board from the public record were sufficiently authentic, for admissibility in proceedings before the Board of Tax Appeals (BTA) concerning school board’s complaint seeking increase in the tax value of real estate owned by LLC based on sale price for transfer of LLC’s ownership, where conveyance-fee-exemption from had notarized affidavit attached, and accompanying deed bore stamps showing the auditor’s acceptance of fee-exempt status and receipt of deed by the county recorder.

Purchase and sale agreement, documenting transfer of ownership of taxpayer, a limited liability company (LLC) did not constitute inadmissible hearsay, in proceedings before the Board of Tax Appeals (BTA) concerning school board’s complaint seeking increase in the tax value of real estate owned by LLC based on sale price of transfer of LLC’s ownership, because agreement was documentary evidence of contract between the parties.

Board of Tax Appeals’ (BTA) decision that sale price paid for transfer of limited liability company’s (LLC) ownership constituted the tax value of real estate owned by that entity did not permit taxation of personal property in violation of state constitution provision providing that real property tax be based on value of land and improvements thereon, where BTA deducted an amount from the sale price relating to personal property based on appraisal evidence, and by law, BTA was justified in presuming the rest constituted real estate value.

A Graduate Tax Course in Opportunity Zones, with Jay Darby.

What are students learning in the nation’s first LLM-level tax course on Opportunity Zones? Joseph “Jay” Darby is a partner in Sullivan & Worcester’s tax group in Boston and has been a member of the adjunct faculty at Boston University School of Law since 2003. This semester, he is teaching an LLM course at BU Law titled, “No Gain No Pain? Opportunity Zones, Like Kind

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Opportunity Db

February 12, 2020

Jim Sorenson & Patrick McKenna: Investing for Impact in Opportunity Zones.

Can Catalyst Opportunity Funds serve as both a counterexample to the wave of negative OZ publicity and a model for OZ fund investing? Impact investing pioneer Jim Sorenson and tech entrepreneur Patrick McKenna are co-founders of Catalyst. Jim is also founder of the Sorenson Impact Foundation, and funding partner at the University of Utah’s Sorenson Impact Center. Click the play button below to listen to…

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Opportunity Db

February 5, 2020

Erie, OPAL, SoLa, Four Points Win Forbes OZ 20 Grand Prizes.

The Opportunity Zone Catalyst Grand Prize Winners of the Forbes OZ 20 were announced earlier today at Sorenson Impact Center’s Winter Innovation Summit in Salt Lake City, UT. The City of Erie and Opportunity Alabama emerged as the top two Community Organizations. The SoLa Impact Fund and Four Points Funding were named the top two Opportunity Zone Funds. Last year, Forbes partnered with the Sorenson…

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Opportunity Db

February 5, 2020


Willacy v. Cleveland Board of Income Tax Review

Supreme Court of Ohio - February 4, 2020 - N.E.3d - 2020 WL 535714 - 2020 -Ohio- 314

Taxpayer appealed determination of the Board of Tax Appeals affirming city board of income tax review’s denial of her claim for refunds of income tax on value of stock options she exercised as a nonresident but received as compensation during her prior employment in city.

The Supreme Court granted taxpayer’s petition to transfer appeal.

The Supreme Court held that:

Nonresident taxpayer’s exercise of stock options generated taxable “qualifying wages,” within the meaning of the municipal ordinances defining “qualifying wages” to include “compensation arising from the…exercise of a stock option,” and levying municipal income tax on “all qualifying wages, earned and/or received…by nonresidents of the City for work done or services performed or rendered within the City,” and was not nontaxable “intangible income” exempt from taxation under state and municipal law, notwithstanding fact that taxpayer was nonresident retiree at time she exercised stock options, where taxpayer received the stock options as compensation for employment services she provided to former employer in city.

City’s taxation of nonresident taxpayer’s income from exercise of stock options earned during prior employment in city did not violate due process, though there was time gap between income-producing activity and imposition of tax on compensation for that activity, and taxpayer exercised options as nonresident; income came from worked she performed in city, and thus satisfied minimum-connection requirement, and because all the stock-option income was compensation for that work, all the stock-option income was fairly attributable to her activity in city, and while income was not received until some period after income-producing work was performed, and exercise of stock options occurred after taxpayer became nonresident, that income arose from income-producing work in city.

New Form 8038-CP Just Released: Hawkins Advisory

The Internal Revenue Service just released an updated Form 8038-CP to be used by issuers claiming interest subsidy payments in respect of their outstanding tax-advantaged bonds; please see the attached Hawkins Advisory.

Indoor Vertical Farming in Opportunity Zones, with Zale Tabakman.

Why might indoor vertical farming be ideally suited for Opportunity Zones? Zale Tabakman is founder and president of Baltimore-based Local Grown Salads, an indoor vertical farming company that has its own Opportunity Zone fund. Click the play button below to listen to my conversation with Zale. Episode Highlights The benefits of locally grown indoor vertical farming versus traditional farming. Why Local Grown Salads believes Baltimore…

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January 29, 2020

Senator Mulls Bill Giving States A Mulligan On Choosing Opportunity Zones.

One of the opportunity zone bill’s original sponsors is coming around to revising the program.

Sen. Tim Scott (R-SC) said at the United States Conference of Mayors on Wednesday that he is considering a bill that would allow local and state governments to revisit a small percentage of the census tracts that were, or were not, designated opportunity zones in 2018, Bloomberg Tax reports.

Scott said he is in discussions with Sen. Cory Booker (D-NJ), his fellow co-sponsor on the original legislation, and the Senate Finance Committee’s ranking Democrat, Ron Wyden (D-OR), on a new bill.

Continue reading.


Matthew Rothstein

January 29, 2020

Federal Tax Bulletin: Final Qualified Opportunity Zone Regulations Adopt Many Changes

Read the Bulletin.

Vorys | Jan. 30


Herman E. v. Robinson

Court of Appeal of Louisiana, First Circuit - December 27, 2019 - So.3d - 2019 WL 7206881 - 2019-0213 (La.App. 1 Cir. 12/27/19)

Taxpayers sought review of decision of Board of Tax Appeals finding that their claim for refund of state income taxes from Department of Revenue was prescribed.

The Court of Appeal held that:

The burden of proving that a cause of action has prescribed rests with the party pleading prescription; however, when the face of the plaintiff’s petition shows that the prescriptive period has run, and the plaintiff is contending there is a suspension or interruption of prescription, the burden is on the plaintiff to prove suspension or interruption.

Burden was on Department of Revenue to prove taxpayers’ claim for refund of state income taxes was prescribed due to untimely filing, where taxpayers’ appeal of decision of Board of Tax Appeals alleged they filed tax return seeking refund within proper time frame.

Department of Revenue failed to prove taxpayers’ claim for refund of state income taxes was prescribed due to untimely filing, despite argument that certified mail receipt showed tax return seeking refund was received after deadline for filing, where mailing date, not date of receipt, constituted filing date, and certified mail receipt did not show when return was mailed.


In re Brookdale Physicians' Dialysis Associates, Inc.

Supreme Court, Appellate Division, First Department, New York - December 3, 2019 - 178 A.D.3d 443 - 113 N.Y.S.3d 691 - 2019 N.Y. Slip Op. 08636

Building owner, which was a not-for-profit healthcare fund, and for-profit healthcare provider brought article 78 petition to annul determination by city department of finance denying application for exemption from real property taxation.

The Supreme Court, New York County, found building qualified for tax-exempt status and granted petition, denying finance department’s cross-motion to dismiss petition. Finance department appealed.

The Supreme Court, Appellate Division, held that use of nonprofit healthcare fund’s building by for-profit lessee for dialysis was reasonably incident to fund’s purpose.

Use of building owned by not-for-profit healthcare fund and leased to for-profit healthcare provider was reasonably incident to fund’s purpose of funding its affiliated hospital and nursing institute, and, thus, building qualified for tax-exempt status, where for-profit provider provided dialysis services in building to patients of hospital and nursing institute at little to no direct cost to not-for-profit healthcare affiliates, dialysis provider was staffed exclusively by employees of hospital, majority of dialysis patients were referred by hospital and nursing institute, and fund placed profits from rent receipts back into healthcare affiliates.


Square 74 Associates LLC v. Marion County Assessor

Tax Court of Indiana - December 3, 2019 - N.E.3d - 2019 WL 6696247

Tenant of five commercial spaces appealed from determination by Indiana Board of Tax Review granting county assessor’s motion to dismiss tenant’s petitions for correction of errors in tax assessments, based on finding that purported errors in determination of leasehold interest were not objective errors that could be corrected in such proceeding.

The Tax Court held that:

Lease defining tenant spaces, real estate taxes, and respective responsibilities of lessee and lessor did not objectively exclude land underneath ground-floor commercial spaces from leasehold, and, thus, county assessor’s purported errors in assessing taxes against tenant based on land underneath commercial spaces could not be fixed by means of administrative process for correction of objective errors; lease did not directly state land was excluded or clarify whether land was among those “structural components” of overhead parking garage that were excluded from tenant’s responsibilities.

Tax statute providing that when real property that is exempt from property taxation is leased to an entity that is not entitled to a property tax exemption, the leasehold estate is to be assessed and taxed as if the lessee owns the real property did not dictate conditions of lease creating leasehold estate, and, thus, did not require assessment of commercial leasehold of ground-floor spaces, which were owned by city, to exclude land beneath spaces; statute treated leasehold estate as synonymous with term “real property,” such that it could include assessed value of land itself, building or fixture on land, appurtenance, or certain mining rights or mineral interests.

Regulation providing procedures for assessing improvements located on leased ground did not create per se rule that assessment of leasehold estates excludes the underlying land.

The OZ Regulatory Process: Behind the Scenes at Treasury, with Dan Kowalski.

What are the five most impactful changes in the final IRS regulations on Opportunity Zones? And what’s the true story behind the Opportunity Zone designation in Storey County, NV? Daniel Kowalski is counselor to Treasury Secretary Steven Mnuchin and led the Treasury Department’s efforts in issuing regulations on Qualified Opportunity Funds. Click the play button below to listen to my conversation with Dan.

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Opportunity Db

January 22, 2020

New Law Repeals Parking Tax for Tax-Exempt Organizations.

Good news for tax-exempt organizations! The “Further Consolidated Appropriations Act, 2020” (H.R. 1865 — 116th Congress (2019-2020)) (the “Act”) signed into law on December 20, 2019, retroactively repealed Section 512(a)(7) of the Internal Revenue Code of 1986, often referred to as the “parking tax.”

Section 512(a)(7) was enacted under the Tax Cuts and Jobs Act of 2017 and generally required tax-exempt organizations to include as unrelated business taxable income amounts paid for employee parking and/or qualified transportation fringe benefits (e.g., transit passes). Section 512(a)(7) was widely criticized not only for the tax and administrative burden it imposed on tax-exempt organizations, but also for its lack of clarity and uncertain application.

Because the Act retroactively repealed Section 512(a)(7), tax-exempt organizations may be entitled to file an amended Internal Revenue Service Form 990-T to claim a refund for any parking taxes paid.

Thursday, January 16, 2020

Low Bond Yields Are Killing Muni Tax Breaks.

Don’t expect to reap much of a tax break from municipal bonds anymore.

Investors have flooded into muni bond funds, expecting to reap savings by owning nontaxable bonds issued by states, municipalities and other local-government entities. But bond prices have risen so much, pushing yields down, that the savings are getting tougher to find.

“For most taxpayers, there’s no longer a significant yield advantage for muni funds after you take taxes into account,” Amy Arnott, a portfolio strategist at Morningstar, writes in an article posted Tuesday on

Continue reading.


By Daren Fonda

Updated Jan. 15, 2020

Financing Affordable Housing and Small Businesses through Opportunity Zones.


The Opportunity Zones tax incentive, created by the Tax Cuts and Jobs Act of 2017, was designed to spur investment in low-income and undercapitalized communities. How can stakeholders use the program to support affordable housing, finance small businesses, and boost job creation? The experiences of investors, developers, government officials, and business representatives show how the incentive is playing out nationally and locally in Cuyahoga County, Ohio.

Download pdf.

The Urban Institute

by Jorge González & Brett Theodos

January 14, 2020

The Obscure Reason Banks Will Finally Embrace Opportunity Zones.

Looming changes to 1970s-era law could open the lending floodgates

Banks may soon have the incentive they need to sink huge amounts of money into Opportunity Zones, the controversial Trump administration tax abatement program that has seen tepid investment levels to date.

The federal government plans to give commercial banks credit for issuing loans in low-income communities as part of a larger reform to a 1970s-era law called the Community Reinvestment Act. This is the first direct regulatory incentive for banks to lend in Opportunity Zones and could be a game-changer for the program, according to some experts.

“CRA is a big motivator for inter-activities at banks,” said Steve Glickman, one of the architects of the Opportunity Zone initiative, which gives massive tax deferments and tax breaks to those who invest in projects in designated low-income neighborhoods across the country. “They are going to have institutional interest in all of this.”

Glickman, who founded and runs Opportunity Zone consultancy firm Develop LLC, said that the reformation of the CRA and the recent finalization of the program’s rules should spur banks to direct investor money into qualifying projects. Banks’ own asset management arms could begin to deploy more money into Opportunity Zones as well, he said.

For banks, lending in Opportunity Zones would allow them to fulfill elements of a government mandate that they lend in poor communities.

Although many bankers and developers believe the combination of expected CRA reforms and finalized Opportunity Zone regulations could lead to substantial investment in poor communities, finance watchdogs are wary about the types of projects that qualify.

What the CRA is and why it matters

The CRA was crafted in 1977 under President Jimmy Carter and was designed to incentivize banks to lend in low income communities and prevent redlining, or the practice of not lending to minority communities.

A poor rating on the CRA can prevent a bank from opening new branches or completing a merger. It also invites heavier scrutiny from regulators if a bank has a bad rating.

But some bankers argue the law is out of date, especially in the age of digital banking and the lack of brick and mortar branches. Under a more banker-friendly Trump administration, two regulators, the Office of the Comptroller of the Currency and the FDIC, are now looking to revamp the rule and change how the CRA looks at geographic areas where the banks take in deposits. The regulators are also looking to combine Opportunity Zones into the CRA rules under a proposal released by the OCC and the FDIC.

This inclusion of Opportunity Zones in the revamp, however, has also drawn the most criticism from those who are skeptical of the proposed CRA changes.

One section of the proposed regulation mentions that banks can receive credit for lending to athletic facilities in Opportunity Zones. In other words, a bank could potentially receive credit on their CRA exam for financing the proposal to build the Tampa Bay Rays stadium in Ybor City, Florida, that was estimated to cost nearly $900 million.

“The Baltimore Ravens Stadium would qualify as a credit. We have got to look at the large scale projects that might not have localized community impact,” said Nikitra Bailey, the executive vice president of the Center for Responsible Lending.

Giving credit to sports stadiums in Opportunity Zone projects amplifies the argument of critics who claim that the program is effectively a tax break for wealthy developers masquerading as a benefit for the poor. Critics have pointed to Richard LeFrak’s $4 billion mixed-use project Sole Mia in an Opportunity Zone in North Miami as well as Kushner Companies plans to build a 1,100 unit-luxury apartment building in Miami’s Edgewater neighborhood.

Opportunity Zones developers have largely focused on building projects in gentrifying areas and in projects that were already planned before the Opportunity Zone legislation was released. The Department of Housing and Urban Development under Sec. Ben Carson said the agency is giving preferences on certain credits for developers who build affordable housing in Opportunity Zones. But so far, large-scale investment in affordable development in these areas has yet to materialize.

Lending in the land of OZ

The Opportunity Zone program became the arguably most talked about program in the real estate world over the last two years. Tucked away in President Trump’s tax plan, it offers developers and investors the ability to defer or forgo paying capital gains taxes for investment in one of the more than 8,700 federal Opportunity Zones across the country. Treasury Secretary Steven Mnuchin even said it could result in $100 billion in private investment.

Despite the hype, investor interest in hasn’t quite materialized.

Many funds have had trouble raising capital. Of a sampling of 103 Opportunity Zone funds that sought to raise $22.7 billion, only $3 billion was raised, according to an October report by accounting firm Novogradac & Co. One notable pullback is Anthony Scaramucci’s SkyBridge Capital, which first sought to raise $3 billion, but is now seeking just $300 million.

But there are signs that the finalization of program rules has already contributed to an uptick in investment. At least $2.3 billion was put into Opportunity Zone Funds between early December through early January, according to a survey from Novogradac, a 51 percent increase over the prior month. (It should be noted that investors had to commit their capital by the end of 2019 to receive the full benefit of the program, which is likely a bigger reason for the increase in investment.)

Brett Forman of Trez Forman, a nonbank lender based out of Boynton Beach, said he is skeptical of some of the proposed projects in Opportunity Zones. So far, some of the borrowers that have approached him are less experienced in real estate development and are sometimes ones that wouldn’t be able to land bank financing.

“They think that a nonbank lender will jump on it,” said Forman.

Avra Jain, a Miami-based Opportunity Zone developer, however, has previously told The Real Deal that the program makes financing for certain projects more accessible, such as her group’s 15-story office building in Miami’s Midtown neighborhood.

Shane Neman, who purchased a cold-storage facility in an Opportunity Zone in Miami’s Allapattah neighborhood, said he is now considering refinancing the property. Neman said the property’s position in an Opportunity Zone makes it more attractive for getting financing from lenders.

“I even have private lenders and funds that are coming to me with loans that are beating the terms of regional banks, which usually give the best deals,” said Neman.

Some banks have already started investing in Opportunity Zones themselves, such as PNC Bank which has established an Opportunity Zone fund to invest in affordable housing, economic development and revitalization projects. In July, the bank provided $15 million in funding to repurpose a vacant, nearly century-old office building into workforce housing in downtown Birmingham, Alabama.

There’s also Woodforest National Bank, of Woodlands, Texas, partnered with a Community Development Financial Institution (CDFI) and a commercial real estate group to create a $20 million Opportunity Zone fund.

John Hope Bryant, an entrepreneur and the founder of the economic empowerment nonprofit Operation HOPE has been pushing for CRA reform. He recently went on a five-city tour over the summer with Comptroller of the Currency Joseph Otting to discuss potential changes. Bryant said that adding Opportunity Zones to the CRA modernization can only help encourage lending in low-income communities.

“You are creating a magnet and pointing capital and equity there and saying, ‘Go and invest there.’”

The Real Deal

By Keith Larsen

January 13, 2020

How Foreign Taxpayers Can Invest in Opportunity Zones, with Steve Christiano.

What types of foreign investors may be ideal candidates for Opportunity Zone investing? And is there an opportunity for OZ fund sponsors to raise capital overseas? Stephen Christiano is an associate tax director of Frank Hirth’s business tax group, specializing in U.S. business taxation and Opportunity Zones. Click the play button below to listen to my conversation with Steve. Note: This podcast interview was recorded…

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Opportunity Db

January 15, 2020


City of Plainfield v. Borough of Middlesex

Tax Court of New Jersey - December 24, 2019 - N.J.Tax - 2019 WL 7421958

City brought action against borough, seeking order declaring that real property owned by city and located in borough was exempt from local property tax.

The Superior Court transferred the case to the Tax Court, and city moved for summary judgment.

The Tax Court held that city’s land was tax-exempt.

Property owned by city and located within borough’s taxing district was used actually and exclusively for public purposes, and thus, was subject to local property tax exemption for government-owned lands used for a public purpose, even though a portion of the land was retained in its natural, heavily wooded state; there was public, and only public use of the property, as other portions of the land were used to store borough’s construction equipment and vehicles, as a public walking path, and for a sewer line and sewer equipment.


Ventas Realty Limited Partnership v. City of Dover

Supreme Court of New Hampshire - January 10, 2020 - A.3d - 2020 WL 122713

Taxpayer sought abatement of real property taxes regarding parcel that contained skilled nursing facility, two garages, and parking lot, alleging that city had unlawfully taxed property in excess of its fair market value.

Following a bench trial, the Superior Court denied abatement request. Taxpayer appealed.

The Supreme Court held that:

Evidence supported trial court’s determination that appraisal of taxpayer’s expert using income capitalization method did not result in credible opinion of fair market value of taxpayer’s property, which contained skilled nursing facility, two garages, and parking lot, in proceeding seeking abatement of property taxes; evidence indicated that expert failed to analyze how property would perform on open market during relevant tax year, expert failed to utilize comparable properties as evidence of market projections, and expert’s analysis of income compared two figures from roughly the same period of time rather than figures from separate consecutive years.

Trial court was entitled to rely on taxpayer’s use of city’s property tax assessment for purposes of transfer tax arising from transfer of ownership of property in subsequent year when assessing credibility of taxpayer in proceeding to abate property tax; use of city’s assessment for transfer tax purposes cast doubt on taxpayer’s position that it was paying disproportionate amount of property taxes.


Blakely v. Arkansas Children's Hospital

Court of Appeals of Arkansas - December 4, 2019 - S.W.3d - 2019 Ark. App. 568 - 2019 WL 6520026

Financial records requestor brought action against hospital, seeking declaration that public children’s hospital was subject to the Freedom of Information Act (FOIA) and order directing compliance with FOIA requests, as well as claim against county for illegal exaction.

The Circuit Court dismissed requestor’s claims. Requestor appealed.

The Court of Appeals held that:

Lawmaker Sees State Rainy Day Fund as Lifeline For Localities Battling Big-Box Stores Over Taxes.

The Indiana legislation could assist local governments dealing with “dark-store theory” property tax appeals.

Big-box retailers and other businesses around the U.S. in recent years have been battling with local governments to get the assessed value of their stores lowered so that they can pay less in property taxes.

In some cases, where their appeals are successful, cities and counties can end up owing the companies sizable tax refunds. The localities are also forced to grapple with the long-term effects of the lost revenue, which can mean shifting tax burdens onto others or service cuts.

Earlier this week, an Indiana lawmaker filed a bill intended to provide short-term relief for some places in situations like this. Rep. Lisa Beck’s legislation would allow cities and school districts access to loans from the state rainy day fund to pay these sorts of property tax refunds.

An important caveat with the bill is that, as it’s now written, it would only apply to local governments that meet certain criteria in Lake County, which is located in Beck’s district. But it’s easy to see how the legislation could be amended so its framework applies more broadly.

The loans would be zero- or low-interest (up to 1%) and could be up to $8 million. Borrowers would have 12 years to pay them back, with no payments required in the first two years.

Indiana has in the past offered low-interest loans to local governments in other types of difficult financial situations, so Beck’s bill is to some extent a variation on an existing practice. The state’s current rainy day fund balance is fairly robust at around $519 million.

“Indiana’s not unique in being one of the states that have had multiple ongoing lawsuits related to the big-box stores,” Beck noted during an interview on Friday. She said she hopes her bill will spark further discussion about how to assist places affected by the tax appeals.

“We hope it’s not the final help that we’re going to give to these communities,” she added.

The issues that the legislation seeks to address arise from a tax-avoidance strategy that some people refer to as “dark-store theory.”

In a nutshell, this involves retailers and others appealing property tax assessments on the grounds that their active stores should be valued in line with similar property that is vacant.

The thinking goes that even though a big-box store may be valuable to its current owner, it’s worth far less on the resale market.

Among the reasons that this argument can gain traction is that the stores are often built for a business’ specific needs and aren’t easily repurposed, and because there’s a growing abundance of empty retail space available around the country.

In other words, a Home Depot, Best Buy or Walmart shouldn’t be taxed based on it’s value as an operational store, but instead by factoring in what it would be worth as a vacant hulk.

Clashes over assessed value have played out in Lake County with a large mall and a nearby Kohl’s building. The current draft of Beck’s bill appears geared toward these specific circumstances.

For a locality to access a loan under the bill, it would need to have an estimated drop in tax revenue of at least $1 million—one that stems from a court judgement requiring Lake County to refund property taxes to a taxpayer whose property in the county is worth $100 million or more. So, for now at least, the bill is narrowly tailored.

“We’re not looking at making anybody the bad guy here,” Beck said. “We’re not out against any of these box stores.” But she also said that she thinks the strategy that retailers are pursuing to lower their local property tax bills is unfair to the communities where they’re located.

“We cannot run our communities, with the police service, fire service and all the other amenities that we’ve been able to provide, with the proposed amount of tax assessments,” she added.

If a local government in Indiana takes a hit to its revenues when a retail property owner wins a tax appeal, state property tax caps make it difficult to simply offset the loss by raising taxes on other taxpayers. This ups the odds that cuts will be needed to balance the budget.

While rainy day fund loans do not promise a permanent way to backfill the losses from the appeals, they would at least provide localities with some breathing room to rework their finances.

A different bill dealing with retail store tax assessments passed out of Indiana’s state Senate last year, but later stalled.

That legislation would have created a way for local governments to ask the state to assess the value of retail properties in certain cases, and outlined guidelines for those appraisals that factor in a building’s costs. Beck said Friday that she’d heard the sponsor of that Senate bill was planning to introduce legislation on the topic again this year.

But even if the state, instead of local governments, conducts the assessments, businesses could still choose to challenge them.

Route Fifty

By Bill Lucia,

JANUARY 10, 2020


Bolton v. Town of Scarborough

Supreme Judicial Court of Maine - December 23, 2019 - A.3d - 2019 WL 7044988 - 2019 ME 172

Taxpayers brought action challenging town board of assessment review’s denial of their abatement requests based on claim that abutting lot program caused inequitable tax treatment.

The Business and Consumer Court denied appeal. The Supreme Judicial Court vacated and remanded to board. Following remand, the Superior Court vacated board’s remedial abatement and remanded to board. Following remand, the Superior Court affirmed board’s second abatement calculation. Taxpayers appealed and town filed cross-appeal.

The Supreme Judicial Court held that:

Court would not require town board of assessment review to extend benefit of abutting lot program, in which it permitted any owner of two separate but abutting parcels to request that those parcels be valued as a single lot to attain a lower overall assessment, to taxpayers who requested an abatement due to discriminatory nature of abutting lot program; appealing taxpayers suffered no greater harm than every other taxpayer in town given that all taxpayers paid slightly higher taxes as a result of improper discounts provided by program, and extending benefit to appealing taxpayers would have increased the negative effect of program on nonappealing taxpayers by several magnitudes and magnified the discriminatory effect.

Taxpayers seeking an abatement due to discriminatory nature of town’s abutting lot program, in which it permitted any owner of two separate but abutting parcels to request that those parcels be valued as a single lot to attain a lower overall assessment, would be made whole by abatements that refunded the difference between what they paid in taxes and what they would have paid had properties in the abutting lot program been assessed at just value; such remedy would correct equal protection violation by putting appealing taxpayers in position they would have occupied had all taxpayers been treated equally.

Opportunity Zones Explained: A Helpful Solar Incentive

Federal opportunity zones, which offer tax benefits to qualifying businesses, are little known and not always well understood. But they can offer important advantages to solar companies, adding to solar tax benefits such as the federal Investment Tax Credit (ITC).

Opportunity zones were created to promote economic development in low-income communities by allowing companies to defer capital gains taxes, said Roman Petra, attorney for Nelson Mullins who specializes in commercial real estate transactions.

“The zones offer tremendous value for solar,” said Jim Spano, a managing partner of Spano Partner Holdings, who has been involved in the development of more than 300 MW of solar. “Having a tax break in areas where economics don’t support solar can provide lower cost of capital and opportunities for projects to pencil out.”

Continue reading.

Solar Power World

By Lisa Cohn | January 8, 2020

Is Your Real Estate Wholesaling Business Embracing Opportunity Zones?

Despite temporary setbacks, wholesalers and investors shouldn’t be so quick to overlook opportunity zone properties. Investors, specifically, can make use of any assets they’ve been sitting on, getting more bang for their buck without shouldering a tax burden or penalty. And being open to canvassing these zones for potential deals creates a palpable ripple effect.

The Tax Cuts and Jobs Act of 2017 opened up real estate wholesaling and investment opportunities more than two years ago, but it remains relatively unknown. The legislation establishes opportunity zones where investors can put investment returns from outside investments into properties instead of paying capital gains taxes on them — as long as they do so within 180 days of cashing in the outside investment.

According to researchers from the Economic Innovation Group, more than $6 trillion could be freed up to purchase real estate in these zones because of the act. But even wholesalers and investors who learn more about their choices with opportunity zones can be reluctant to jump in headfirst. What are their main concerns? For some, finding properties in designated zones seems tough. And even those who know of properties may worry that the risks will outweigh the potential benefits.

Continue reading.


By David Lecko

January 7, 2020

U.S. Department of Transportation Releases New Interactive Opportunity Zones Map.

This interactive map provides information about the location and characteristics of significant transportation related facilities that are located in or near Opportunity Zones.

U.S. Department of Transportation | Jan. 8

How One Opportunity Zone Fund Hopes to Set an Example for Others.

As a managing partner at Catalyst Opportunity Funds, Jeremy Keele is rejecting around a dozen deals a week that come across his inbox, from developers looking to use the Opportunity Zone tax break to find investors for their projects.

“We’re not going to do luxury condos with a rooftop pool,” Keele says. “We’re just not gonna do that.”

Specific projects, developers and investors have drawn scrutiny around Opportunity Zones for taking advantage of the tax break to support projects that don’t need extra help, or for projects in neighborhoods that are already seeing a lot of investment. But there are also hundreds of Opportunity Zone funds that have formed over the past two years specifically to pool dollars from wealthy investors and make multiple investments on their behalf using the Opportunity Zone tax break.

Continue reading.



How CDFIs Can Help Raise Opportunity Zone Capital.

What is a Community Development Financial Institution, or CDFI? And how can Opportunity Zone fund sponsors, real estate developers, and QOZB business owners leverage their local CDFIs as a capital raising resource? Ruben Alonso is president of AltCap, a CDFI headquartered in Kansas City. Emily Lecuyer is managing director of Equity², an affiliate of AltCap. Click the play button below to listen to my conversation

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Opportunity Db

January 8, 2020

A New Tool Can Help Assess Opportunity Zone Investments’ Social Impacts.

The Opportunity Zone (OZ) tax incentive is intended to encourage private investment in real estate and businesses in high-poverty or low-to-moderate-income neighborhoods. The Urban Institute’s early research on Opportunity Zones revealed the promise of the incentive, as well as the risk that it could fail to make a difference in many regions and cities.

Opportunity Zones are disproportionately located in communities of color and tend to have higher poverty rates than the national average. There is also a tremendous diversity in OZs, and thus, there is a risk that investors will invest only in the most economically robust zones. The federal regulations governing the incentive allow for a broad range of uses and do not require that investments actually benefit residents.

Recognizing these shortcomings, some cities are enacting policies to help align investments with existing neighborhood plans and mitigate the potential harms of investments in Opportunity Zones, and federal legislators are considering imposing new reporting requirements.

Whether the incentive helps or harms OZ communities depends on where investments occur and the types of investments made. In response, we created a new tool to assess the potential social impacts of Opportunity Zone investments.

How the tool works
The tool begins with a “community goals and priorities” section, where users answer questions about how they engaged the community in project design and decisionmaking.

Next, users rank six impact areas (accessible and high-quality jobs; community wealth building; affordable and accessible housing; environment and open spaces; health, social services, and cultural amenities; and transportation and connectivity) based on their understanding of community priorities. This ranking determines the weight each impact area receives in the final scoring and is meant to underscore that investments should respond to community needs. For example, as valuable as it is, a project which creates affordable housing in a zone where job creation is ranked as the first priority will likely not achieve a top score.

After completing questions about the project in each of the six impact areas, users receive a scorecard that assigns a score scaled from 0 to 100. Projects receiving a high score are expected to provide strong social benefits aligned with community priorities, whereas those that receive a low score are unlikely to provide social benefits and may conflict with or undermine community priorities.

We developed and refined the questions in the tool through an iterative process that included a scan of existing impact tools, interviews with local stakeholders, a workshop with national experts working on Opportunity Zones, and testing with local leaders in five markets across the country.

The tool is currently in beta. Although we tried to account for a wide variety of community priorities and community types, it’s possible that some communities may have priorities that aren’t included in this version or that the tool’s questions don’t adequately reflect all community types. As such, we will use this version to collect information from users to improve the tool.

Who might use the tool
We designed the tool for a wide variety of stakeholders, including project sponsors, investors, community-based organizations, policymakers, local community advocates, and others interested in assessing the community impact of a local project. The tool can serve several purposes:

We hope the tool will spark conversations about how Opportunity Zone investments can support community goals and priorities and increase the ability of residents to shape their communities. Though it should not be the final word on what a good project is, our desire is that, together with other community-led decisionmaking processes, it can be a source for discussion and accountability as communities seek to attract investment to the places that need it most.


City of Chesterfield v. State

Supreme Court of Missouri, en banc - December 24, 2019 - S.W.3d - 2019 WL 7161282

City and its mayor brought action against State of Missouri, seeking declaration that statutes governing collection and distribution of countywide sales tax are constitutionally invalid special laws.

The Circuit Court entered summary judgment for State. City and mayor appealed.

The Supreme Court of Missouri held that:

Statute governing collection of sales tax in any first class county “having a charter form of government and having a population of nine hundred thousand or more” was supported by rational basis and, thus, statute was not special law violative of Missouri Constitution when applied to only county within state subjected to statute; county had large population, lacked a central city, had 90 separate municipalities within its borders, had large, unincorporated area, and county was responsible for providing municipal-type services such as police, street maintenance and zoning to unincorporated areas while simultaneously providing county-type services, including court systems, jails and roads to county as a whole.

Statute governing distribution of countywide sales tax was supported by rational basis of providing stable revenue sources and discouraging opportunistic annexations and, thus, statute was not special law violative of Missouri Constitution; classifications in statute governing tax distribution addressed need for predictable and sound revenue streams that benefited the residents of cities, towns and villages within county that did not have city sales tax at time countywide tax became effective, provided significant percentages of funding for services and benefited all county residents, and scheme discouraged opportunistic behavior such as annexations or gerrymandering that were primarily or solely motivated by sales tax distribution formulas in effect at a particular time.

Final Opportunity Zone Regulations Provide Some Much-Needed Clarity.

Section 1400Z-2, added by Public Law 115-97 (the Tax Cuts and Jobs Act), provides tax incentives for investors to make equity investments in qualified opportunity funds (QOFs) that will in turn invest in qualified opportunity zone business property (QOZ Business Property), either directly or indirectly through qualified opportunity zone businesses (QOZ Businesses) operating in qualified opportunity zones (QOZs).

On December 19, the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) released the final regulations governing the tax benefits from investing in qualified opportunity zones (QOZs). The package is 544 pages and finalizes two different sets of proposed regulations—one issued on October 29, 2018 (October 2018 proposed regulations) and the other issued on May 1, 2019 (May 2019 proposed regulations). More than 300 comments were filed in response to the two sets of proposed regulations.

The final regulations largely finalize the rules contained in the proposed regulations and also add several new rules, many of which are taxpayer-favorable rules that had been requested by commenters. Among the new rules contained in the final regulations are rules providing: (1) “gross” 1231 gains are gains eligible for investment upon the recognition of such gains; (2) expansion of additional events involving QOF interests that are inclusion events; (3) clarification on the amount of an investor’s basis in its interest in a QOF; (4) at exit, exclusion from gain for all sales of assets by a QOF or QOZ business, including hot assets but excluding inventory; (5) aggregation of the basis of assets for the substantial improvement requirement; (6) reduction of the number of years of vacancy required for property to qualify as original use; (7) expansion of the real property straddles rule to the 70% use test; (8) clarification that the working capital safe harbor can apply up to 62 months and covered tangible property qualifies as QOZ business property; (9) examples of activities that are and are not subject to the anti-abuse rule; and (10) rules providing for including QOFs in a consolidated group.

I. Provisions Relating to Initial Investment in a QOF

The final regulations made a number of changes affecting which gains are eligible for deferral under the QOZ rules.

1. Section 1231 Gains

Section 1231 gains arise when a taxpayer sells or exchanges “section 1231 property,” which generally means depreciable or real property that is used in a taxpayer’s trade or business and held for more than one year. Under general tax rules, a taxpayer calculates net section 1231 gain or loss at the end of the year. If there is a net section 1231 gain, all of such gains or losses are taxed at capital gains rates; if there is a net section 1231 loss, all of such gains or losses are taxed at ordinary rates.

Under the May 2019 proposed regulations, only net section 1231 gain was treated as eligible gain under the QOZ rules. As a result, a taxpayer’s 180-day period for investment into a QOF did not begin until the end of the year when the amount of net section 1231 gain could be determined.

Several commenters requested that the final regulations permit a taxpayer with section 1231 gains to elect a 180-day period starting from the date of the underlying sale or exchange, rather than the end of the year. Commenters also requested that a taxpayer with net section 1231 gains for a given year be permitted to treat all section 1231 gains as eligible gains for that year.

The final regulations adopt a taxpayer-favorable “gross approach” to section 1231 gains whereby eligible gains include the gross amount of eligible section 1231 gains unreduced by section 1231 losses. Furthermore, eligible section 1231 gains are not limited to the net section 1231 gains for a taxable year. As a result, it is not necessary for an investor to wait until the end of the taxable year to determine whether any eligible section 1231 gains are eligible gains, so the final regulations start the 180-day period on the date of the sale or exchange that gives rise to the eligible section 1231 gain.

2. Gains from Sales to, or Exchanges of Property with, a QOF or QOZ Business

In general, to qualify for QOZ tax benefits, an investor must invest an eligible gain into a QOF, which requires a capital gain from the sale to an unrelated party. In addition, to qualify as QOZ Business Property, the property must be acquired by the QOF or QOZ Business by purchase from an unrelated party. As a result, neither property that is purchased by a QOF from a related party, nor property that is contributed to a QOF in a transfer under section 351 or 721 may qualify as QOZ Business Property. Commenters requested Treasury and the IRS to clarify the treatment of transactions in which a taxpayer sells property to, or exchanges property with, a QOF or a QOZ Business and then contributes the proceeds of such sale or exchange to the QOF.

The preamble to the final regulations provides some guidance on this kind of transaction. The preamble notes that generally applicable federal income tax principles may require, depending on the circumstances, that this kind of transaction be recharacterized, for tax purposes, as a contribution of the property to the QOF (potentially followed by a further contribution by the QOF to the QOZ Business). If the transaction is recharacterized in this way, then the investor generally would not be treated as investing an eligible gain, and the property generally would not be QOZ Business Property in the hands of the QOF or QOZ Business.

Because the preamble frames its analysis in terms of generally applicable federal income tax principles, such as the step transaction doctrine and circular cash flow principles, the application of these rules requires a careful analysis that takes into account all of the relevant facts and circumstances. Depending on the facts and circumstances, some sales of property to a QOF or QOZ Business followed by a contribution to the QOF may or may not be recharacterized as a contribution of property.

3. Offsetting-Positions Transactions and Straddles

The October 2018 proposed regulations included rules limiting the ability of taxpayers to treat gains from certain “offsetting-positions transactions” as eligible gains under the QOZ rules. Under the proposed regulations, these rules applied to a broader set of transactions than the existing tax rules regarding so-called “straddles.” Based on concerns from commenters, the final regulations do not include the provisions that applied to offsetting-positions transactions that are not straddles and made a number of other changes to streamline and reduce the burden of these rules.

B. 180-Day Investment Period

The final regulations include a number of changes and clarifications relating to the 180-day investment period. First, as described above, the final regulations provide that the 180-day investment period for eligible section 1231 gains begins on the date of the underlying sale or exchange, rather than the end of the year.

Many investors with section 1231 gains relied on the delayed 180-day period for section 1231 gains that was included in the proposed regulations. Under the final regulations, these investors may find that the 180-day period for these gains has now expired. However, as described below, the final regulations provide that the rules contained therein are applicable for tax years beginning 60 days after the date the final regulations are published in the Federal Register. For dates prior to that time, taxpayers may choose to either rely on the final regulations or the proposed regulations, but taxpayers must choose to apply either the final or proposed regulations for each section of the regulations and cannot apply parts of both the final and proposed regulations for a particular section.

Second, the final regulations provide that the 180-day period for real estate investment trust (REIT) and regulated investment company (RIC) capital gain dividends generally begins at the close of the shareholder’s taxable year in which the capital gain dividend would otherwise be recognized. This rule is intended to facilitate the ability of RIC and REIT shareholders to make qualifying investments in QOFs even when they do not have the same taxable year as the RIC or REIT.

Third, the final regulations provide additional flexibility for qualified investment of capital gains recognized in an installment sale by allowing taxpayers to elect to choose the 180-day investment period to begin on either: (i) the date a payment under the installment sale is received, or (ii) the last day of the year the eligible gain under the installment method would otherwise be recognized.

Fourth, the final regulations modify the election for choosing a 180-day investment period for a partner’s distributive share of eligible gains earned by a partnership. Under the proposed regulations, partners could elect to either use the same 180-day period as the partnership or to use the 180-day period beginning on the last day of the taxpayer’s taxable year. Under the final regulations, the second option is changed to the 180-day period beginning on the due date for the partnership’s tax return, without extensions. This change should provide partners with additional time to receive Schedules K-1, which provide partners with necessary information about the amount of their distributive share of eligible gain.

C. Investments By Non-US Investors

The final regulations contain a number of new rules regarding the treatment of investments into a QOF by non-US investors. The final regulations clarify that deferral of a gain generally is available only for capital gain that would otherwise be subject to US federal income tax but for the making of a valid deferral election. As a result, in order to make a qualifying investment, a non-US investor must have an eligible gain that ordinarily would be subject to US federal income tax, such as a gain that is effectively connected with a US trade or business and is not exempt from tax under an applicable income tax treaty. To prevent non-US investors from benefitting from inconsistent positions, the final regulations provide that a non-US eligible taxpayer cannot make a deferral election under the QOZ rules unless the investor irrevocably waives any treaty benefits that would exempt that gain from US federal income tax at the time of inclusion pursuant to an applicable tax treaty. Although the final regulations provide an exception to the requirement that eligible gains must otherwise be subject to US federal income tax, an anti-abuse rule prevents investors from forming or availing of a partnership with a significant purpose of avoiding the requirement.

The preamble also includes a discussion of withholding under the Foreign Investment Real Property Tax Act (FIRPTA), which generally provides special rules for the US tax treatment of non-US persons investing in US real property. The preamble notes that commenters requested an exemption or other special rule for FIRPTA withholding on eligible gains from US real property investments that are deferred under the QOZ rules. The preamble states that Treasury and the IRS continue to consider these comments and other matters related to the mechanics of applying the QOZ rules in the context of a sale subject to FIRPTA withholding.

D. Rules for Carried Interests

The May 2019 proposed regulations provided that so-called “carried interests,” i.e., profits interests in a partnership that are received in exchange for services, must be treated as nonqualifying investments under the QOZ rules. In addition, the proposed regulations included rules for determining the “allocation percentage” of a partner’s qualifying and nonqualifying interests when a partner made a qualifying capital investment and also received a nonqualifying carried interest. Under the proposed regulations, the allocation percentage for a carried interest was “based on the highest share of residual profits” the partner would receive with respect to the carried interest.

The final regulations generally retain the treatment of carried interests from the proposed regulations. However, they modify the rule for calculating the allocation percentage for a carried interest, instead basing the percentage “on the share of residual profits the mixed-funds partner would receive with respect to that interest, disregarding any allocation of residual profits for which there is not a reasonable likelihood of application.” This change appears to be intended to better capture the economics of typical private-equity waterfalls—including waterfalls where a carried interest is subject to a “catch-up” provision—while preventing partnerships from artificially lowering the percentage allocation of a carried interest by including residual allocations that do not have a reasonable likelihood of actually applying.

II. Provisions Relating to Inclusion Events

The final regulations include a number of modifications and clarifications to the rules relating to “inclusion events,” i.e., events that result in an investor recognizing all or a part of their deferred gain. For example, the final regulations clarify how the inclusion event rules for QOF C corporations, S corporations, partnerships, and trusts interact with generally applicable tax rules for these kinds of entities.

A. Additional Inclusion Events

The final regulations clarified that certain additional events beyond those listed in the May 2019 proposed regulations will be treated as inclusion events, including the loss of a QOF’s status as a QOF (either through voluntary self-decertification or involuntary decertification), an entity classification change of a QOF under the check-the-box rules (i.e., a change in tax status from a partnership to a corporation or from a corporation to a partnership), and a transfer to a spouse incident to divorce.

B. Rules for QOF C Corporations

The final regulations clarify when redemptions and distributions from C corporations, as well as corporate reorganizations, will be treated as inclusion events. With respect to redemptions, the final regulations retain the proposed rule that dividend-equivalent redemptions are inclusion events with respect to the entire amount of the distribution, with an exception for wholly owned corporations. The final regulations add an exception for pro rata redemptions if the QOF corporation has one class of stock outstanding.

With respect to distributions, the final regulations retain the rule that stock distributions described in section 305(a) are not inclusion events and clarify that the stock received in the distribution is qualifying QOF stock. In addition, the final regulations clarify that extraordinary distributions taxed as gain under section 1059(a)(2) are inclusion events.

Finally, the final regulations simplified the rules regarding reorganizations. In general, reorganizations are treated as inclusion events to the extent of any boot received, including recapitalizations and section 1036 exchanges. Under the May 2019 proposed regulations, recapitalizations and section 1036 exchanges were subject to different rules, and boot was treated differently depending on whether gain or loss was recognized.

C. Rules for QOF Partnerships

The final regulations clarify when distributions and mergers of QOF partnerships will be treated as inclusions events. However, the final regulations declined to adopt a general rule excluding divisions of QOF partnerships as inclusion events, as had been requested by some commenters. The final regulations also declined to adopt changes to the special rule for partnerships calculating the amount includible for partnerships and S corporations that commenters had requested to facilitate low-income housing tax credit investments made by QOF partnerships.

D. Rules for QOF S Corporations

The final regulations eliminate a special proposed rule from the May 2019 proposed regulations that would have treated an S corporation’s qualifying investment in a QOF as disposed of if there were a greater-than-25% aggregate change in ownership of the S corporation. The final regulations further confirm that conversion from a qualified subchapter S trust (QSST) to an electing small business trust (ESBT), or vice versa, generally is not an inclusion event.

E. Basis Adjustments

The QOZ statute and May 2019 proposed regulations provided that a taxpayer’s basis in its qualifying investment is increased by the amount of gain recognized in an inclusion event. The final regulations provide a number of clarifications regarding how these basis adjustments will be made, including clarifications to how these adjustments are made when a shareholder in a QOF corporation disposes of less than all of its qualifying QOF stock. Specifically, the basis adjustments are made only to the shares that are sold.

The final regulations clarify that the five-year and seven-year basis step-up for QOF partnerships and QOF S corporations will be treated as basis for all purposes, including for purposes of using suspended losses. The election to apply the 10-year basis step-up is generally not available for QOF interests with respect to which an inclusion event has occurred. However, the final regulations clarify that inclusion events resulting from distributions (e.g., under section 301(c)(3) or 731) do not preclude a subsequent 10-year basis step-up, as long as the investor continues to own the QOF interests.

The preamble states that Treasury and the IRS have determined that the section 1014 basis step-up upon death does not apply to adjust the basis of an inherited qualifying investment to its market value as of the deceased owner’s death (though it does apply to the basis of non-qualifying investments). This rule will complicate estate planning for QOF investors.

F. Applicable Tax Rate

The final regulations clarify that gain recognized in an inclusion event is subject to taxation at the applicable federal income tax rates for the year of inclusion, not the year of deferral.

III. Provisions Relating to Exit

The QOZ statute anticipated that investors will exit from an investment in a QOF by selling their interest in the QOF. However, this is not how exits from an investment fund are typically structured. Instead, the typical investment fund disposes of all or a portion of its assets (either by selling equity interests in a portfolio company or causing the portfolio company to sell its assets) and distributes the proceeds to its investors.

Recognizing this, the May 2019 proposed regulations provided some flexibility to structure exits as sales at the QOF level. The proposed regulations provided relief by allowing a QOF investor who has held its investment in a QOF for at least 10 years to make an election to exclude from gross income capital gain from the sale or disposition of QOZ Property by the QOF that is reported on the investor’s Schedule K-1 (the “K-1 Rule”). Just as important, the K-1 Rule preserved the investor’s increase in the basis of its QOF interest from such gain, which would prevent a subsequent distribution of the sales proceeds from generating additional gain to the investor.

The May 2019 proposed regulations also mitigated the potential negative consequences of the so-called “hot asset” rules. In general, the hot asset rules require recognition of ordinary income instead of capital gain upon the sale of a partner’s interest to the extent the amount received is attributable to hot assets of the partnership. Hot assets are generally assets of a partnership that would generate ordinary income, including inventory, unrealized receivables, and depreciation recapture. Under the QOZ statute, there was a concern that, even if there would be no gain on exit from a QOF partnership in the absence of the hot asset rules, an investor still would recognize its share of ordinary income on any hot asset and would be deemed to have an offsetting capital loss. The application of the hot asset rules to the sale of a QOF interest or QOZ Property could undermine the benefit of the 10-year basis step-up rule, because many taxpayers cannot make current use of the offsetting capital loss, effectively leaving them with full or partial inclusion of the 10-year appreciation. The May 2019 proposed regulations addressed this issue by providing that, when an investor sells a qualifying investment in a QOF partnership after the 10-year holding period, a special deemed adjustment is made to the inside basis of QOF partnership assets immediately before the sale so as to mimic a cash purchase of the investment when a section 754 election is in effect, with the result that ordinary income is not triggered (the “Deemed Section 754 Election”).

However, several significant questions remained unanswered, including: (1) how sales of property by QOZ Businesses after the 10-year holding period are treated under the K-1 Rule; (2) whether the Deemed Section 754 Election applies to the sale of a QOF interest if the hot assets are held at the QOZ Business level; and (3) whether ordinary income from hot assets sold by the QOF or QOZ Business could be excluded by the investor under either the K-1 Rule or the Deemed Section 754 Election.

In addition, the May 2019 proposed regulations provided that, when a QOF partner’s basis in a qualifying QOF partnership interest is adjusted under section 1400Z-2(c), the basis of the partnership interest is adjusted to an “amount equal to the fair market value of the interest, including debt.” Commenters also requested that the final regulations clarify that the phrase “including debt” in results in a step-up in basis of the full amount realized by an investor (including the investor’s share of partnership debts) so that no gain or loss would be recognized on exit based upon a reduction in an investor’s share of partnership debt.

The changes in the final regulations appear to address many of the recommendations made by commenters seeking to improve the flexibility of investors and QOFs to structure exits from investments after 10 years without reducing or eliminating QOZ tax benefits.

A. Expansion of Proposed Rules for Asset Sales by QOFs and QOZ Businesses

The final regulations significantly expand the proposed rules for gain exclusion for asset sales by QOFs and QOZ Businesses. In particular, the final regulations permit a taxpayer that invests in a QOF partnership or QOF S corporation to make an election for each taxable year to exclude a QOF’s gains and losses from all sales or exchanges in the taxable year, rather than just capital gains or losses. The only exception is for gains or losses from the sale of inventory by the QOF in the ordinary course of business.

This expanded rule generally should permit investors in a QOF partnership or QOF S corporation to structure exits as asset sales at the QOZ Business level without reducing the benefit of the 10-year basis step-up. In addition, this expanded rule generally should prevent the hot-asset rules from reducing the QOZ tax benefits for exits structured in this way.

In order to prevent the duplication of the tax benefits provided by the 10-year basis step-up, the final regulations treat—solely for the purposes of determining the amount of an investor’s qualifying investment and non-qualifying investment—QOFs and investors electing to take advantage of this rule as making a deemed distribution and recontribution of net proceeds from the asset sales on the last day of the QOF’s taxable year.

B. Clarification and Enhancement of Deemed Section 754 Election

The final regulations also clarify that the Deemed Section 754 Election generally applies to the sale of a QOF interest even with respect to hot assets held at the QOZ Business level. Furthermore, the preamble states that the 10-year basis step-up “is designed to result in no gain or loss to the transferor QOF partner.” To ensure this result, the final regulations provide that, to the extent existing rules for basis adjustments operate in a manner that results in recognition of gain or loss on a sale of a QOF partnership interest after 10-years, basis adjustments will be made to the extent necessary to eliminate any such gain or loss.

C. Clarification of “Including Debt”

The final regulations include a rule that more clearly states that the basis of a QOF partnership interest will be adjusted to an amount equal to the net fair market value of the interest, plus the partner’s share of partnership debt. This clarification should prevent a reduction in an investor’s share of partnership debt upon selling a QOF partnership interest from reducing the QOZ tax benefits provided by the 10-year basis step-up.

D. Exits After December 31, 2047

The October 2018 proposed regulations preserved the ability of taxpayers to make an election under the 10-year basis step-up rule until December 31, 2047. Although the final regulations do not make any changes to this rule, the preamble notes that Treasury and the IRS will continue to consider whether an automatic basis-step up to fair market value should be made immediately before the end of 2047 if a QOF interest is not sold and how best to value investments absent a sale to an unrelated person.

IV. Provisions Relating to QOF Requirements

A. Certification

The final regulations generally retain the rules for self-certification of a QOF from the proposed regulations. In particular, the final regulations do not adopt recommendations to require fund managers or sponsors to make a “clean hands” certification or to provide anti-abuse safe harbors for QOFs that apply for and receive an independent third-party certification. The preamble explains that Treasury and the IRS considered a variety of suggestions from commenters to make the certification process more robust but believed that the proposed regulations strike an appropriate balance between providing taxpayers with a flexible and efficient process for organizing QOFs, while ensuring that investments in such vehicles will be properly directed toward the economic development of low-income communities.

B. Decertification

The October 2018 proposed regulations announced an intention to publish additional guidance regarding QOF decertification. The final regulations include a voluntary self-decertification process. Furthermore, the preamble states that Treasury and the IRS continue to consider the circumstances under which involuntary decertification of a QOF would be warranted, but the final regulations themselves reserve on this issue. However, the final regulations provide an example under the anti-abuse rule that recharacterizes an entity as not a QOF if it fails the 90% test year after year. This is effectively a decertification.

C. 90 Percent Investment Standard

The QOZ statute provides that a QOF must maintain an average of 90% of its assets in QOZ property, measured on specified semiannual testing dates. The proposed regulation provided that, to meet this 90% investment standard, a QOF may value its assets on a semiannual basis using (i) the values listed on an applicable financial statement (AFS) if the QOF has one, or (ii) an alternative valuation method based on the basis of assets.

The final regulations clarify that a QOF may determine whether the 90% investment standard is satisfied by valuing its assets on the semiannual testing dates specified in the statute. In addition, the final regulations provide that the alternative valuation method may be used to value only assets owned by a QOF that are acquired by purchase or constructed for fair market value. The final regulations also provide some clarifications to the rules for valuing leased property.

The final regulations generally retain the proposed rules permitting a QOF to disregard recently contributed property for purposes of the 90% investment standard, expressly rejecting any change to avoid an undefined mathematical result if all of the QOF’s property were being disregarded under this rule. The final regulations provide that a QOF has until the fifth business day after a contribution of property to exchange such property into cash, cash equivalents, or short-term debt in order to qualify for the rules. Treasury and the IRS declined to adopt recommendations to expand this rule from six months to 12 months, at least during a QOF’s initial start-up period, and also declined to adopt recommendations to provide a wind-down period safe harbor for applying the 90% investment standard.

V. Provisions Relating to QOZ Business Property Requirements

1. Buildings

The final regulations provide aggregation rules for the substantial improvement requirement. Buildings on a single deeded property may be treated as a single property. Buildings on contiguous parcels of land may be treated as a single property as long as they are:

For two or more buildings treated as a single property, the amount of basis required to be added will be the total basis of each building.

2. Operating Assets

With respect to other assets, the aggregation rules look at the functionality of the aggregated assets. The cost of purchased property that qualifies as QOZ Business Property (i.e., original use property) may be added to the basis of purchased non-original use assets to meet the substantial improvement requirement for the non-original use assets, if the original use property:

The final regulations provide an example of a QOF that purchases an existing, non-original use hotel. The QOF may count the basis of purchased original use items such as mattresses, gym equipment, and furniture as well as renovations of the in-hotel restaurant towards the substantial improvement of the hotel property. However, improvements made to an apartment building that is not used in conjunction with the hotel do not count towards the substantial improvement of the hotel.

The final regulations also clarify that any costs that are added to the basis of property will count for purposes of substantial improvement, including equipment installed in a building, demolition costs, capitalized fees for development, required permits, necessary infrastructure, brownfield site remediation, professional fees, and site preparation costs.

3. Land

The final regulations retain the rule that land is not required to be substantially improved. However, the regulations also retain the rule that land should be improved by more than an insubstantial amount. Treasury and the IRS declined to assign a specific percentage for “more than insubstantial” because it is a fact intensive inquiry. When applying the functionality aggregation rule to non-original use land, the original use property must improve the land by a more than insubstantial amount.

Improvements to the land, including grading, clearing of the land, remediation of contaminated land, or acquisition of related QOZ Business Property that facilitates the use of the land in a trade or business of the eligible entity, will be taken into account in determining whether the land was improved by more than an insubstantial amount. The preamble gives an example of an irrigation system for a farming business that is more than an insubstantial amount of improvement.

4. Substantial Improvement Period

The final regulations clarify that during the 30-month substantial improvement period, property in the process of being improved is treated as meeting the substantial improvement requirement for the 90% asset test.

B. Self-Constructed Property

In general, the QOZ statute requires tangible property owned by a QOF or QOZ Business to have been acquired by purchase from an unrelated party after December 31, 2017. Prior to the issuance of the final regulations, it was unclear how this rule was meant to apply to self-constructed property.

The final regulations include rules for self-constructed property similar to those previously adopted under section 168. Treasury and the IRS concluded that tangible property is not disqualified from constituting QOZ Business Property solely because it is manufactured, constructed, or produced, rather than purchased, by a QOF or QOZ Business. However, to qualify as QOZ Business Property, the property must be constructed with the intent to use the property in a trade or business in a QOZ, and the materials and supplies used in construction must be QOZ Business Property.

The final regulations also provide rules for determining the date on which self-constructed property is treated as purchased. The final regulations provide that self-constructed property will be treated as acquired on the date physical work of a significant nature begins. Physical work of a significant nature does not include preliminary activities such as planning or designing, securing financing, exploring, or researching. The final regulations provide a safe harbor under which a QOF or QOZ Business may choose the date on which it paid or incurred more than 10% of the total cost of the property—excluding the cost of any land and preliminary activities.

C. Original Use Requirement

1. No Rule for “Overwhelmingly Improved” Property

The preamble to the May 2019 proposed regulations noted that Treasury is studying circumstances under which property has not been purchased but has been “overwhelmingly improved” by a QOF or a QOZ Business may be treated as satisfying the original use requirement. Commenters recommended that Treasury consider adopting a rule similar to the so-called “80-20 Rule” from renewable energy tax credit guidance for this purpose. In particular, commenters recommended that tangible property owned by a QOF or QOZ Business should be treated as QOZ Business Property meeting the purchase and original use requirements even though it incorporates some nonqualifying property, provided the fair market value of such nonqualifying property is not more than 20% of the tangible property’s total value (the additions to basis of the new property plus the value of the nonqualifying property). However, Treasury and the IRS declined to adopt any rules permitting overwhelmingly improved property to be treated as satisfying the original use requirement.

2. Newly Constructed Buildings

Commenters sought clarity that a building that was newly constructed and purchased by the QOF or QOZ Business prior to being placed in service in the QOZ would satisfy the original use requirement. The final regulations add an example clarifying this.

3. Vacant Property and Brownfield Sites

The May 2019 proposed regulations provided that, where a building or other structure has been vacant for at least five years prior to being purchased by a QOF or QOZ Business, the purchased building or structure will satisfy the original use requirement. The final regulations make several taxpayer-favorable changes to this proposed rule. First, with respect to property that was vacant on the designation date of a QOZ through the date on which the QOF or QOZ Business purchased the property, only a one-year vacancy period will be required. Second, a three-year vacancy period is required for property that was not vacant at the time of the QOZ designation. Third, the final regulations provide that real property is considered to be vacant if it is “significantly unused.” A building or land will be considered significantly unused if more than 80% of the square footage of usable space is not being used. Fourth, the final regulations provide that a QOF or QOZ Business that purchases real property from a local government that the local government holds as the result of an involuntary transfer (including through abandonment, bankruptcy, foreclosure, or receivership) may treat all property composing the real property (including the land and structures thereon) as satisfying the original use requirement.

The final regulations also provide special rules for buildings located on “brownfield sites” under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA). In particular, the final regulations provide that all real property composing a brownfield site, including land and structures located thereon, will be treated as satisfying the original use requirement. The QOF or QOZ Business must make investments in the brownfield site to ensure that the site meets basic safety standards for human health and environment.

D. Rules for Leased Property

The final regulations include some modifications to the proposed rules for leased tangible property. For example, the final regulations exempt State and local government, as well as Indian tribal governments, from the market-rate requirement for leased tangible property. The final regulations also include a rebuttable presumption that leases between unrelated parties satisfy the market-rate requirement. The final regulations also contain additional examples to clarify the application of the leased property rules.

E. Inventory

The final regulations include several taxpayer-favorable changes to the rules for inventory. First, the final regulations extend the rule that permits QOFs or QOZ Businesses to treat inventory in transit as used in the QOZ for purposes of the substantially all of the use requirement to the 90% investment standard at the QOF level and the 70% assets test at the QOZ Business level. For purposes of these tests, the final regulations provide that a QOF or QOZ Business may choose to either: (i) include inventory in both the numerator and denominator; or (ii) exclude inventory entirely from both the numerator and denominator. In addition, the final regulations clarify that the distance traveled in the course of transit and the fact that inventory is briefly warehoused while in transit will not affect the application of the inventory transit safe harbor included in the May 2019 proposed regulations. Finally, the final regulations provide that inventory is deemed to satisfy the original use and substantial improvement requirements.

F. “Substantially All” Requirements

1. 70 and 90 Percent Thresholds

The final regulations retain the 70% and 90% thresholds established by the May 2019 proposed regulations for the various “substantially all” requirements in the QOZ statute. Treasury and the IRS specifically rejected comments to increase the 70% threshold to 90%, because they believed that the 70% standard achieves an appropriate balance between providing proper flexibility to potential investors in QOZs and limiting the potential for abuse. They also rejected comments to adopt a higher threshold for real estate, because different rules for different businesses would be burdensome.

The final regulations added specific rules clarifying the application of the 70% use test. The final regulations provide that use of tangible property in a trade or business is determined based on the amount of time during which the property is (i) located within the geographic borders of a QOZ, and (ii) in connection with the ordinary conduct of the trade or business, utilized in the QOZ in the performance of an activity of the trade or business that contributes to the generation of gross income for the trade or business.

For mobile tangible property, the final regulations provide a couple of safe harbors, which are intended to strike an appropriate balance between allowing flexibility for business development and ensuring that such business development primarily benefits low-income communities in QOZs. One safe harbor permits up to 20% of the tangible property of a trade or business to be treated as satisfying the 70% tangible property standard if (i) the tangible property is utilized in activities both inside and outside of the QOZ, (ii) the trade or business has an office or other fixed location located within a QOZ, (iii) the tangible property is operated by employees of the trade or business who regularly use the office and are actively managed by one or more employees at the office, and (iv) the tangible property must not be operated exclusively outside of the geographic borders of a QOZ for a period longer than 14 consecutive days. A second safe harbor is provided for short-term leases of tangible property by a trade or business located within the QOZ to a lessee that utilizes the tangible property outside of a QOZ, if (i) the tangible property is parked or otherwise stored at a location within a QOZ when the tangible property is not subject to a lease, and (ii) the lease duration (including any extensions) must not exceed 30 consecutive days.

The final regulations also clarify that the 70% use test is determined on an aggregate basis when tangible property is used in multiple QOZs. However, Treasury and the IRS declined to adopt recommendations to add a separate 90% threshold for the location of real property.

2. 90-Percent Holding Periods

The final regulations provide that the determination of whether the 90% holding period requirement is satisfied is made on a semiannual basis, based on the cumulative amount of time the QOF or QOZ Business has held the property. Similarly, stock or partnership interests will satisfy the 90% holding period requirement if during 90% of the QOF’s holding period for the stock or partnership interest, beginning on the date that its self-certification as a QOF is effective and ending on the relevant semiannual testing date, the corporation or partnership qualified as a QOZ Business. The final regulations acknowledge that taxpayers may encounter difficulties when a QOF’s semiannual testing date falls before the end of the entity’s taxable year and provide a safe harbor testing period that starts with the beginning of the QOF’s status as a QOF and lasts until the last day of the entity’s latest taxable year and ends on or before the relevant testing date.

3. Cure Period for QOF Investing in an Entity that Fails to Meet QOZ Business Requirements

Commenters noted that, under the proposed regulations, no relief was available to a QOF that discovered that the entity in which it invested failed to qualify as a QOZ Business. In response to these comments, the final regulations adopt a six-month cure period for an entity in which a QOF has invested to cure a defect that caused the entity to fail to qualify as a QOZ Business. The preamble notes that, in addition to this six-month cure period, a QOF can assert a defense of reasonable cause if the QOF becomes subject to a penalty for failure to satisfy the 90% investment standard.

G. Real Property Straddles

The final regulations expanded the real property straddling rule to be applicable for determining whether property qualifies as QOZ Business Property. The May 2019 proposed regulations only applied this rule for the safe harbors of the gross income test. The final regulations provide that real property that straddles contiguous QOZ and non-QOZ tracts and is substantially located in a QOZ tract qualifies for purposes of the 70% use test. Property is treated as substantially within a QOZ if the amount of property within the QOZ is greater than the amount of the property located in the non-QOZ tract. The final regulations provide that for purposes of determining whether property is substantially located within a QOZ, the QOF or QOZ business may use either the square footage or the unadjusted cost basis of the property.

H. “Sponsor-Like” Arrangements

The final regulations added rules to address the qualification of property purchased in certain “sponsor-like” arrangements as QOZ Business Property. In particular, the final regulations provide that, in the case of real property that is purchased by a QOF or QOZ Business, if at the time of the purchase there was a plan, intent, or expectation for the real property to be repurchased by the seller of the real property for an amount of consideration other than the fair market value of the real property, the purchased real property is not QOZ Business Property. Under this rule, the “fair market value of the real property” refers to the fair market value of that property at the time of the repurchase by the seller. It is unclear how this rule will apply to situations where there is a plan to repurchase real property based on a formula that is intended to act as a proxy for fair market value, such as a repurchase at a multiple of a specified financial ratio.

VI. Provisions Relating to QOZ Business Requirements

A. Gross Income Test

Commenters requested clarification that the gross income test could be met through income arising from more than one QOZ. Consistent with this, the final regulations include rules to aggregate the income from activities in all QOZs for purposes of meeting the gross income test.

Commenters also requested that Treasury apply the gross income test to activities conducted directly as the QOF level. Treasury and the IRS declined to do so, noting that the section 1397C requirements apply only at the QOZ Business level.

For the safe harbors of the gross income test that look to the performance of services or amounts paid, the final regulations provide that hours worked by or amounts paid to a partner of the partnership qualify to the extent the amounts paid would constitute guaranteed payments within the meaning of section 707(c).

B. Intangible Property

The final regulations provide clarification on meeting requirements for the use of intangible property. Intangible property will be treated as used in the active conduct of a trade or business if:

The use of the intangible property is normal, usual, or customary in the conduct of the trade or business, and
The intangible property is used in the QOZ in the performance of an activity of the trade or business that generates gross income for the business.

C. Working Capital Safe Harbor

While the May 2019 proposed regulations permitted multiple, overlapping 31-month safe harbor periods, it was not clear whether the QOZ Business was required to be engaged in an active trade or business at the end of the first 31-month period. This lack of clarity presented issues for start-up businesses as well as for very large, transformational projects

The final regulations retain the rule from the May 2019 proposed regulations that a single business can have multiple sequential or overlapping 31-month safe harbor periods. However, the final regulations provide that a single unit of tangible property may only benefit from two such periods for a total of 62 months. Tangible property that is purchased, leased, or improved during this 62-month period will count towards the 70% tangible property test, and intangible property purchased or licensed during that period will count towards the 40% intangible property use test.

The May 2019 proposed regulations provided for an allowable delay in meeting the working capital safe harbor resulting from waiting for government action on a permit application. Commenters requested an expansion of the events that can delay meeting the working capital safe harbor to other events outside of the taxpayer’s control. The final regulations provided a modest expansion of the scope of events that will delay the safe harbor. If the QOZ business is located in a QOZ designated as part of a federally declared disaster area, the QOZ business may receive an additional 24 months to consume its working capital assets.

D. Active Conduct

The May 2019 proposed regulations provided that “merely” entering into a triple-net lease is not the conduct of an active trade or business. Commenters requested clarification as to whether any activity involving triple-net leases may rise to the level of an active trade or business. The final regulations provide an example showing that a business can have some activity with triple net leases and still be an active trade or business. The example demonstrates that having one triple net lease and other active leases will not disqualify a business. However, the regulations do not answer the question of whether multiple triple-net leases may rise to the level of a trade or business.

E. Sin Businesses

Commenters recommended that final regulations provide that sin businesses may not be operated directly by QOFs. Treasury and the IRS declined to adopt this recommendation, noting that the statutory language is explicit in prohibiting QOZ Businesses from operating sin businesses, but does not prevent operation of sin businesses by QOFs. The final regulations do adopt recommendations to prevent businesses from leasing to sin businesses as well as recommendations to adopt a de minimis exception, providing that a QOZ Business cannot lease more than five percent of its real property to a sin business.

F. Investment in Subsidiaries

Commenters requested an exception to the non-qualified financial property limitation to allow QOZ Businesses to hold interests in subsidiary businesses. Treasury and the IRS declined to adopt this recommendation, noting that the statutory definition of non-qualified financial property explicitly includes stock and partnership interests.

VII. Provisions Relating to the 90 Percent Penalty and Anti-Abuse Rules

A. 90 Percent Test Penalty

If a QOF fails to meet the 90% asset test, the QOF must pay the penalty described in section 1400Z-2(f) for each month that it fails to meet the 90% test, subject to a reasonable cause exception. Commenters requested Treasury to provide factors to consider in determining whether a QOF has reasonable cause for failure to meet the 90% test. Treasury and the IRS declined to do so, reasoning that there are appropriate standards for reasonable cause in Internal Revenue Manual section 20.1. Treasury will consider whether guidance on the 90% penalty or the reasonable cause exception is necessary in the future.

B. Anti-Abuse Rules

Commenters requested that Treasury provide a statement of the general purpose of section 1400Z-2 and examples to illustrate what behavior is considered abusive and not abusive. The final regulations provide such a statement—that the purposes of the statute of encouraging making longer-term investment of new capital into QOZs and increasing the economic growth of QOZs. The preamble to the regulations states that holding land for speculative purposes does not further the purposes of section 1400Z-2.

The final regulations also provide several examples to illustrate the anti-abuse rule. To illustrate the level of improvement needed for land, the following examples are provided:

The final regulations also add an anti-abuse rule for using partnerships to create eligible gains and circumvent the rule that eligible gains must be subject to income tax. This rule provides an example of a partner not subject to tax contributing property to partnership to have the partnership make the deferral election. This is deemed to violate the anti-abuse rule and the partnership is disregarded for purposes of the statute.

Treasury and the IRS declined to follow recommendations to provide a good faith safe harbor from the anti-abuse rule, reasoning that the purposes of section 1400Z-2 are not so “elusive” that a good faith attempt to comply with the rules could be subject to the anti-abuse rule. Treasury and the IRS also declined to adopt an independent certification standard.

Commenters requested that Treasury implement a robust reporting regime. In the preamble, Treasury and the IRS noted that reporting was outside of the scope of these regulations but will continue to be studied. We note that the IRS updated its forms to make them more robust. Form 8996, Qualified Opportunity Fund, must be filed by QOFs, and Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments, must be filed by investors. The regulations did add a “penalty” for failure to file Form 8997 relating to how much deferred gain remains deferred, in the form of a rebuttable presumption that the investor suffered an inclusion event.

VIII. Provisions Relating to Consolidated Groups

The May 2019 proposed regulations declined to permit a QOF C corporation to be a subsidiary member of a consolidated group, although it could be a common parent. This was because Treasury and the IRS believed that the consolidated return regulations are incompatible in many respects with the rules of section 1400Z-2, and special rules would be necessary to harmonize them. In response to comments, the final regulations allow subsidiary QOF C corporations to join in the filing of consolidated returns, and the regulations provide rules to harmonize the consolidated return and QOZ rules. The consolidated group member that makes the direct investment in the QOF member must generally maintain a direct equity investment in the QOF, and all QOF investor members must be wholly owned, directly or indirectly, by the common parent of the consolidated group. The final regulations also provide that the basis rules of section 1400Z-2 generally trump the basis adjustment rules of Treas. Reg. § 1.1502-32. To deal with negative basis issues, the final rules provide that the investor member must take into account its excess loss account pursuant to Treas. Reg. § 1.1502-19 before its basis in the QOF member stock is adjusted to fair market value under section 1400Z-2(c). The final regulations also provide rules regarding the deconsolidation of QOF members.

Under the May 2019 proposed regulations, the requirements in section 1400Z-2 applied separately to each member of a consolidated group. Thus, the same member of the consolidated group must both sell the capital asset giving rise to eligible gain and timely invest the proceeds in a qualifying investment. In response to comments, the final regulations include an election to treat the investment by one member as a qualifying investment by another member. If the consolidated group makes this election, for all Federal income tax purposes, the first member is treated as making an investment in the QOF and immediately selling the qualifying investment to the second member for fair market value, subject to the rules of Treas. Reg. § 1.1502-13.

IX. Applicability Dates and Effective Dates

The final regulations provide that the rules contained therein are applicable for tax years beginning 60 days after the date the final regulations are published in the Federal Register.[1] For dates prior to that time, taxpayers may choose to either rely on the final regulations or the proposed regulations, but taxpayers must choose to apply either the final or proposed regulations for each section of the regulations and cannot apply parts of both the final and proposed regulations for a particular section.

Steptoe & Johnson LLP – Lisa M. Zarlenga, John Cobb and Caitlin R. Tharp

December 27 2019

Milken Institute Issues Call for Vignettes Aimed at Resilient Infrastructure and OZ Financing.

Read the Press Release.

The Milken Institute | Jan. 3


Iwan Ries & Co. v. City of Chicago

Supreme Court of Illinois - December 19, 2019 - N.E.3d - 2019 IL 124469 - 2019 WL 6907322

Tobacco industry entities brought action against city for declaratory and injunctive relief, alleging city’s tax on certain tobacco products was preempted by state law.

The Circuit Court granted summary judgment to industry entities. City appealed and the Appellate Court reversed. Industry entities filed petition for leave to appeal, which was granted.

The Supreme Court held that statute permitting home rule taxes on sales of cigarettes and other tobacco products, but stating that a home rule municipality that had not imposed a tax based on the number of units of cigarettes or tobacco products before specified date “shall not impose such a tax after that date,” allows only those municipal taxes on cigarettes or other tobacco products enacted prior to specified date, rather than grandfathering in certain municipalities which previous imposed any of a broad category of taxes on any product containing tobacco.

New Markets Tax Credit Receives One-Year, $5 Billion Extension.

Spending Bill Signed Into Law Today Authorizes $1.5 Billion Increase in Allocation

WASHINGTON, Dec. 20, 2019 /PRNewswire/ — The Fiscal Year 2020 appropriations bill , H.R. 1865, signed into law today by President Trump, includes a one-year, $5 billion extension of the New Markets Tax Credit (NMTC). The NMTC, which faced expiration on December 31, instead received a $1.5 billion increase in allocation that will go far to meet the demand for this important resource that revitalizes communities, creates jobs, increases economic opportunity and improves lives.

The projected impact of $5 billion in New Markets Tax Credits includes an estimated 138 manufacturing and industrial projects, 55 mixed-use projects, 51 health care projects and 115 community facility projects. It will also generate an estimated 118,000 jobs.

Established in 2000 in the Community Renewal Tax Relief Act (P.L.106-554), the New Markets Tax Credit is a bipartisan effort to stimulate investment and economic growth in low-income urban neighborhoods and rural communities. Since then, the New Markets Tax Credit has financed more than 6,000 projects and created over one million jobs in all 50 states, the District of Columbia and Puerto Rico. The NMTC was provided a five-year authorization in The PATH Act. (P.L. 114-113) in December 2015.

“As we celebrate the 20th anniversary of the New Markets Tax Credit in 2020, this extension and additional allocation for the next year is vital for many of America’s urban neighborhoods and rural communities, providing access to billions of dollars for high-impact, community revitalization projects,” said Bob Rapoza, spokesperson for the NMTC Coalition. “No other the federal tax incentive is generally available to economically distressed rural and urban communities to promote economic revitalization. We appreciate our champions in Congress who worked to introduce the extension into the spending package, including Sens. Roy Blunt (R-MO) and Ben Cardin (D-MD) and Reps. Terri Sewell (D-AL), Tom Reed (R-NY), who introduced legislation last February to make the NMTC permanent. We also are grateful to Ways and Means Committee Chairman Richard Neal (D-MA) who is a longtime supporter of NMTC.”

The NMTC works by providing a shallow federal tax credit of 39 percent, taken over seven years, for investments made in census tracts where the individual poverty rate is at least 20 percent or where median family income does not exceed 80 percent of the area median. In 2019, more than 80 percent of all NMTC investments were in communities exhibiting severe economic distress with extremely low-incomes, high unemployment, or high poverty.

“The NMTC, despite its impressive track record in revitalizing communities, has been set at $3.5 billion since 2007, resulting in a 30 percent decrease in buying power. The $5 billion authorization is not only an increase above the current rate for NMTC from $3.5 billion, but also an increase above inflation of over $500 million,” adds Rapoza. “This much needed increase will go far to meet the exceptionally high demand, with is four to five times the availability on average.”

The Coalition notes that communities have come to count on the NMTC as a source of low-cost capital for challenging projects that would not have been possible but-for the NMTC. Since its inception, the Credit has delivered well over $100 billion in flexible capital to farming towns and urban neighborhoods left outside the economic mainstream.

For examples of how the NMTC is making an impact in each state, see the NMTC Coalition’s State Impact Map or check out its Project Database.

New Markets Tax Credit Coalition

Dec 20, 2019, 23:17 ET

About New Markets Tax Credit Program

The New Markets Tax Credit (NMTC) was enacted in 2000 in an effort to stimulate private investment and economic growth in low-income urban neighborhoods and rural communities that lack access to the patient capital needed to support and grow businesses, create jobs, and sustain healthy local economies. Since its inception, the NMTC has generated more than one million jobs. Today due to NMTC, more than $100 billion is hard at work in underserved communities in all 50 states, the District of Columbia, and Puerto Rico. For more information, visit

Contact: Ayrianne Parks
[email protected]
(202) 393-5225

Senate Passes Tax Extenders Deal That Includes Extension of Renewable Energy Incentives.

The US Senate yesterday passed a package of tax extenders as part of the year-end appropriations act that the US House of Representatives passed on December 17, 2019. President Trump is expected to sign the legislation before the end of the today to avoid a government shutdown. The package includes a one-year extension of the production tax credit (PTC) under section 45 for wind and other technologies. It also includes limited extension of other energy tax incentives that were set to expire and a retroactive extension for some credits that had already expired in 2018. Most of the credits will now expire at the end of 2020, setting up the prospect of a broader tax extenders deal during lame duck session after the 2020 election. The bill also included a one-year extension through 2020 of the new markets tax credit under Section 45D at $5 billion.

Extension of Energy Tax Credits

Many energy tax credits and incentives are scheduled to expire or begin to phase out at the end of 2019 or have already expired. The Further Consolidated Appropriations Act will extend the expiration date to the end of 2020 for many credits. The package did not include an extension or expansion of the Investment Tax Credit (ITC), disappointing the solar industry. The extenders package also did not include the proposed expansion of the ITC for energy storage technology or the extension of energy credits for offshore wind facilities.

Production Tax Credit

The PTC provides a credit for each kilowatt hour of energy production for qualified renewable energy facilities. The PTC expired for non-wind technologies at the end of 2017, while a reduced credit of 40% was available for wind facilities through the end of 2019, expiring for years 2020 and beyond. As we reported previously in House Passes PTC, NMTC Extension, under the tax extenders package, projects that begin construction in year 2019 are eligible for the 40% credit, and projects that begin construction in 2020 will be eligible for a 60% credit. This potentially leaves taxpayers in a frustrating position to the extent they already took steps to begin construction on a wind project in 2019 to take advantage of the 40% credit in anticipation of its expiration at the end of 2019. Taxpayers seeking the increased 60% PTC for wind projects will need careful planning to ensure any work done in 2019 does not attach to the 2020 project, thus dropping the credit to 40%.

Additionally, the full PTC would be retroactively revived and extended through 2020 for:

Under current law, those technologies are generally only eligible for the PTC to the extent construction began before 2018 (other than certain closed-loop biomass and qualified hydropower technologies, which must be placed in service before 2018). Under the extenders package, those dates would all be extended out to the end of 2020.

Investment Tax Credit

The Investment Tax Credit (ITC) allows taxpayers to claim a credit for the cost of investment in qualified energy property. The ITC for solar is scheduled to phase down from a 30% credit where construction begins before December 31, 2019, to a 26% credit where construction begins in 2020, and a 22% credit where construction begins in 2021. The ITC drops to 10% where construction begins before January 1, 2022, and the project is not placed in service before January 1, 2024. A similar phase down applies to fiber-optic solar equipment, fuel cell property, micro-turbine property, combined heat and power property, and certain small wind projects, although those projects are ineligible for any ITC if not placed in service by January 1, 2024.

The tax extenders proposal extends the ITC in lieu of the PTC for wind facilities where construction begins in 2020. Those projects would be eligible for 60% of the ITC (mirroring the phase down to 40% then up again to 60% for wind PTC). Otherwise, the extenders package does not affect the ITC.

December 20, 2019

McDermott Will & Emery

Cities and States Look to Tap More Tax Revenue From Expensive Real Estate Sales.

“It basically allows for luxury housing to pay for affordable housing,” said a Boston city council member describing a “transfer” tax proposal there.

Taxes targeting big-dollar and speculative real estate deals are proving to be attractive for politicians in a number of states and cities, offering them a way to generate additional tax revenue when luxury homes and office buildings change hands.

These “transfer” or “mansion” taxes—which are kind of like sales taxes on property transactions—are not a new concept and are on the books in various forms in about three dozen states. But some city and state leaders, particularly in places with hot real estate markets, are now looking to make changes in how the taxes are structured and used.

Policymakers are eyeing the taxes not only to fill budget holes, but also to address issues they see as tied to rising income inequality. In the Boston area, for example, politicians are seeking to tap the revenue stream from these taxes to address the challenges associated with skyrocketing housing costs, like the lack of affordable rentals.

Continue reading.

Route Fifty

by Bill Lucia

DECEMBER 21, 2019

State Tax Changes as of January 1, 2020.

Key Findings

Continue reading.

Tax Foundation

Katherine Loughead

December 20, 2019

Wind PTCs Get One-Year Extension, Other Tax Extenders Signed Into Law.

On Dec. 20, 2019, President Trump signed into law the Further Consolidated Appropriations Act of 2020, which extended or renewed certain expired or expiring tax credits and other tax incentives. Of importance in this act is a one-year extension to the production tax credit (PTC) for wind projects under Section 45 of the Internal Revenue Code.

Notably, wind projects that begin construction in 2020 are eligible for 60 percent of PTCs, whereas wind projects that began construction in 2019 are eligible only for 40 percent of PTCs. As enacted, the PTC schedule is as follows:

The IRS “begin construction” rules would still apply, including the four-year continuity safe harbor to place a project in service after construction has begun.

The act also revived PTCs for certain orphaned technologies that lost qualification at the end of 2017 if those projects had not already begun construction. The following electrical facilities once again qualify for PTCs so long as they “begin construction” before the end of 2020:

McGuireWoods LLP – Durham C. McCormick Jr., Marvin L. Rogers, Ashlin C. Aldinger, Emily J. S. Winbigler, Daniel M. Chung and James E. Gross

Congress Passes FY 2020 Funding Bill with Tax Benefits for Energy, Health Care, and Retirement Plans.

In a rare display of bipartisanship, after intense last minute negotiations between congressional leadership and the Executive Branch, President Donald Trump today signed into law legislation passed this week by Congress to appropriate US$1.4 trillion in spending for Fiscal Year 2020.

Included along with the funding legislation was a package of tax provisions that represented wins for the health care industry, retirement planners and energy companies. Among the items in the tax package were:

Complete repeal of three health care taxes from the 2010 Affordable Care Act:

  1. The Medical Device Tax (which had been deferred through the end of 2019)
  2. The “Cadillac” Health Plan Tax (which also had been deferred through the end of 2019)
  3. The Health Insurance Industry Fee (repeal effective in 2021)

The Secure Act, including many changes to retirement related tax laws, such as:

  1. Changes to the minimum distribution rules, including limits on “stretch” IRAs
  2. Enhanced ability to offer annuities in 401(k) plans
  3. Repeal of the maximum age for traditional IRA contributions
  4. Allowing long-term part-time workers to participate in 401(k) plans

A tax extenders package, extending a host of tax incentives – in particular for alternative energy technologies – that had expired in 2017 or are expiring in 2019. These included (extensions to the end of 2020 unless otherwise noted):

  1. Biodiesel and renewable diesel credits (extended to 2022)
  2. Alternative vehicle fuels – excise tax credits
  3. Refueling/Recharging property credit
  4. Wind PTC – One additional year (to end of 2020) to begin construction and qualify for 10 years of the production tax credit at 60 percent of full credit value (under construction in 2019 is at 40 percent of full credit value)
  5. Production Tax Credits for electricity produced from:

6. Short line rail maintenance credit (extended to 2022)

7. Empowerment zone tax incentives

8. New markets tax credits

9. Work opportunity credit

10. Reduction in beer, wine excise taxes

11. CFC look-through

Among notable items that did not make it into the final bill:

For medical device manufacturers, health insurance companies and employers with self-insured plans, the repeal of the three major ACA taxes represent major victories as this eliminates the risk of significant future taxes on them. We do not expect these taxes to re-enacted any time in the near future.

For the retirement industry and retirement savers, the Secure Act is also significant in providing – for the most part – greater flexibility of retirement options.

For alternative energy technologies, in particular the biodiesel and renewable diesel industry, and wind and other renewable electricity providers benefitting from the production tax credit (other than solar), this bill represents a positive holiday surprise, as many in Washington doubted the ability of Congress to compromise and pass the extensions of these incentives (notably, in many cases reinstated retroactive to the beginning of 2018).

The enactment of this bill also makes clear that even in the midst of what could be called the most polarized U.S. Government since the Civil War, compromise is still possible, and tax extenders can still find their way to enactment, year after year.

As many tax items were left on the cutting room floor, however, we expect a strong push by many in Washington to move yet another tax bill in early 2020. Stay tuned.

Hogan Lovells – James Wickett and Kurt L.P. Lawson

December 20 2019

How Opportunity Zones Can Help Solve the Climate Crisis, with Jack Sullivan.

Does the climate change mitigation industry pose a huge OZ business opportunity? Jack Sullivan is founder and CEO of RedCarbon, a Qualified Opportunity Zone Business that focuses on carbon sequestration technologies and processes. Click the play button below to listen to my conversation with Jack. Episode Highlights Marrying the Opportunity Zone law with one of the greatest challenges that humanity has ever faced. A brief …

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Opportunity Db

December 23, 2019

IRS Final Regulations on Opportunity Zones, with Tony Nitti.

Final regulations on Opportunity Zones have been issued by the IRS. What are the most meaningful changes and additions to be aware of? Tony Nitti is an Aspen-based real estate tax law expert, CPA, and tax services partner at RubinBrown. He serves on the editorial advisory board for The Tax Adviser. He’s also a regular contributor at, where his latest article breaks down Opportunity

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Opportunity Db

December 26, 2019

Opportunity Zone Regulations: Putting It All Together.

Ah…opportunity zones. Not since my private message pursuit of Kristen Bell have I invested so much time and effort into something only to receive nothing in return.

To be honest, the whole opportunity zone thing has been a bit of a phenomenon. Once an overlooked eight pages of sloppily-written text buried deep within the Tax Cuts and Jobs Act, over the last two years, the opportunity zone tax break – or at least talking about the opportunity zone tax break – has become big business. Not a week goes by that there isn’t an conference or three on the topic somewhere in the country. Over the summer, I arrived home from work one day to find the inaugural issue of Opportunity Zones Magazine in my mailbox. And to top it all off, in the past year, I’ve been interviewed by two opportunity zone podcasts, which is worthy of note only because it establishes that there are multiple opportunity zone podcasts.

I’ve gotten caught up in the excitement as much as anyone. This is now the sixth time I’ve published an article detailing the tax benefits afforded by Section 1400Z-2, and I’ve taught the topic more times than I can count. But rather than explain from my own perspective why this time has proved fruitless, allow me to share the words of a guy who stood – yes stood – in the back of my four hour workshop on opportunity zones for the AICPA this past November. About two hours into my class, as I explained the critical differences between QOZB, QOZP, and QOZBP, he’d finally heard enough. His hand shot up, and I asked if he had a question. He did.

Continue reading.


by Tony Nitti

How OZ Funds Are Adhering to Policy Intent, with Greg Genovese and Steve Sego.

Are Qualified Opportunity Funds living up to the spirit and intent of the Opportunity Zone initiative? And how should social impact reporting be conducted? Greg Genovese is president of Sound West Realty Capital, a real estate development group based in the Seattle area. Steve Sego is president of the Waterman Group, a community redevelopment, investment, and mitigation company. Click the play button below to listen.

Read More »

Opportunity Db

December 11, 2019

Filing Frenzy Shows Companies Lining Up for Opportunity Zones.

There wouldn’t be much of an economy in Center, Texas, without Tyson Foods Inc. The company has a sprawling chicken-processing plant in town and employs about 1,600 people in a city of slightly more than 5,000 near the Louisiana border.

So, when Tyson signaled two years ago that it wanted to build a $50 million feed mill, Center’s economic development director, Jim Gibson, was eager to find a location and suggest tax abatements.

Before long, Tyson keyed in on a new benefit: a tax break signed into law by President Donald Trump, aimed at luring new investments to thousands of low-income areas across the country dubbed “opportunity zones.” Center and most of the surrounding area sat squarely in one.

“One of the people from Tyson said, ‘I think we’re going to make a run at doing these,'” Mr. Gibson recalled.

That was in private. Tyson — the country’s biggest meat processor, with roughly $40 billion in annual revenue — announced its plans for the feed mill in February as it began to seek a separate local tax abatement. News reports and minutes from two county meetings where the project was addressed make no mention of opportunity zones.

The company wasn’t required to say anything publicly about its plans to use the federal subsidy. But like scores of businesses and investors in recent months, Tyson left a faint paper trail. It beat a path to Delaware — where more than two-thirds of Fortune 500 companies have a legal home — to lay the groundwork for claiming one of the most controversial and generous benefits in Trump’s 2017 tax overhaul.

Once heralded as a novel way to help distressed parts of the U.S., opportunity zones are now being slammed as a government boondoggle. The perks are being used to juice investments in luxury developments from Florida to Oregon. And several reports have shown how politically connected investors influenced the selection of zones to benefit themselves.

While Tyson’s feed mill fits more squarely with what lawmakers intended, it still highlights the lack of comprehensive data on who’s claiming the benefits. Congress is now calling for changes to the legislation to boost transparency.

In the meantime, supporters can point to anecdotal evidence that the benefits are spurring development in areas that really need it, and detractors can cite examples of waste.

An analysis of almost 400,000 Delaware Division of Corporations records since the start of 2018 provides a fresh glimpse into what’s going on. After starting slowly last year — as states selected zones and the U.S. Treasury Department wrote regulations — the number of filings referencing opportunity zones accelerated dramatically. There were at least 356 entities containing acronyms or phrases associated with the tax breaks in June alone, and more than 1,800 through the end of September.

Paper trail

Real estate investors and developers, a group that gravitated to the tax breaks early, make up a big portion of the list. But the records show that the appeal is broader, extending to previously unreported efforts by Tyson, AT&T and NextEra Energy. Billionaire hedge fund managers Steve Cohen and Bill Ackman have also made filings.

Tyson said it weighs a variety of factors when looking to expand, including the availability of workers and infrastructure. Government incentives often play a role, too, and were part of the equation for the new feed mill, said Derek Burleson, a spokesman for the Springdale, Ark.-based company.

“Opportunity zones were created to help spur private development in economically challenged areas, and we believe this project will do just that,” Mr. Burleson said in an email. “We see this as a significant investment in the community that will create new jobs with great benefits and make a positive impact on the local economy.”

A spokeswoman for AT&T, which changed the names of two entities after an inquiry from Bloomberg News in July, scrubbing references to opportunity zones, said the company is evaluating programs to invest in the areas. NextEra, the world’s largest utility company by market value, declined to comment, as did spokesmen for Ackman and Cohen.

Lack of transparency

The filings underscore the lack of transparency surrounding a federal subsidy that could cost billions of dollars, said Brett Theodos, a senior researcher at the Urban Institute who has studied opportunity zones. And it shows why the government should gather more information both about individual projects and the impact on communities as a whole.

“These are the exact types of investments that we will never learn about, absent more disclosure,” Mr. Theodos said. “We should know how the government is spending our money, and it shouldn’t fall to investigative journalists to figure this out.”

That there’s any record owes in part to jargon Congress used when drafting the law. Taxpayers who want to claim the benefits must hold their investments in a “qualified opportunity fund,” a corporation or partnership that has most of its assets in “qualified opportunity zone” property.

Keeping track

Lawyers often use shorthand such as QOF or QOZ in naming the entities, even though it’s not required, said Jessica Millett, head of the tax practice at Duval & Stachenfeld LLP in New York who has structured dozens of opportunity zone deals.

“It just helps you remember what’s what,” she said, adding that Delaware was probably seeing a large share of the filings because of its longstanding reputation for being business-friendly.

Even so, the filings are just clues to what’s going on, often giving little more than a name and date of formation. Many entities have names that are too generic or opaque to scrutinize, such as SM QOZB 3 LLC, created in September. Owners couldn’t be identified in such cases.

Among those that can be are prominent developers or their projects. More than four dozen entities are tied to Starwood Capital Group, Brookfield Asset Management or RXR Realty, which are raising hundreds of millions of dollars to build in the zones.

Socially minded investors are also represented, including a $200 million effort started by retired Tennessee Titans linebacker Derrick Morgan and another called Arctaris Impact, which has pledged to report publicly on its investments and pursue projects that benefit poor communities.

But, so too, are entities that likely stretch what lawmakers intended for the tax breaks. In July, someone used the Corporation Trust Co., a registered agent that handles many Delaware filings and can help obscure the identities of filers, to create a business called QOZ ART STORAGE QOF 2019, LLC.

Creating the companies or partnerships is no guarantee that a taxpayer will claim the incentives. Both Messrs. Cohen and Ackman formed entities in June that were intended to allow them to invest in the zones, but neither has done so yet, according to people familiar with the filings who asked not to be identified discussing the hedge fund managers’ plans.

Just because investors and corporations aren’t broadcasting their plans doesn’t mean they’re doing something untoward, said John Lettieri, chief executive officer of the Economic Innovation Group, a Washington non-profit that helped conceive of and promote opportunity zones. Companies often hold back information for competitive reasons, he added, and sometimes even philanthropic efforts are undertaken anonymously.

Effectiveness of incentives

“On its face, it doesn’t concern me,” Mr. Lettieri said. “When you make a charitable contribution, you can choose to get your name plastered on a building or choose not to.” Even so, he added, the government needs to be gathering more information about investments in the zones so that it can better evaluate whether the incentives are effective.

In October, the Treasury Department and the Internal Revenue Service released new forms that will require funds to say in which opportunity zones they have property and declare the value of those assets. Treasury Secretary Steven Mnuchin called it an “important step toward a thorough evaluation” of the incentives.

But researchers were quick to point out the shortcomings of the forms, which won’t provide information such as the types of projects being funded or their precise locations. And because the disclosure is part of a tax return, the data may never be made public, said Samantha Jacoby, a senior tax law analyst at the Center on Budget and Policy Priorities.


Both Democrats and Republicans in Congress are advancing measures to gather more information. Among them is a bill introduced last month by Sen. Ron Wyden, D-Ore., that would bar certain kinds of investments, including stadiums, and require funds to file detailed public reports each year.

More transparency would allow the public to determine whether the incentives actually work as intended and discourage bad actors, Mr. Wyden said.

“This is kind of Sunshine 101,” he said. “What I keep coming back to is: Are the investment dollars largely benefiting those who are well-off in affluent communities? Or are they to support new projects in truly low-income communities?”

Center is the kind of place that could use the money. The poverty rate hovers around 30% in the Census tract where it sits, making it a shoo-in for the opportunity zone designation. But investors haven’t exactly been beating down the doors.

“It’s just not the happening spot in Texas right now,” said Mr. Gibson, the economic development director.

The community lacks the skilled workforce that attracts businesses and real estate development to bigger cities, he said, adding that he couldn’t think of an opportunity zone project in the area, other than the Tyson feed mill.

Construction of the facility on a site outside town and adjacent to a rail line has already begun, according to Mr. Gibson. When it opens in 2021, it will churn out chicken feed for nearby poultry farms. About 40 people will work there, with an annual payroll of about $3 million.

In addition to the opportunity zone benefits, Tyson is getting a five-year break on its county taxes for the mill. But the company decided to forgo another program that would have allowed it to cut payments to the local school district, Mr. Gibson said.

“It’ll be really good for the schools,” Mr. Gibson said. But, in the end, the number of jobs is pretty minimal, compared with the size of the investment, he added. “It’s not one of those transformational game-changers.”


December 12, 2019 09:13 AM

Expiring Tax Breaks Set Off Year-End Scramble.

Industry groups are pressing lawmakers to include their tax priorities in year-end legislation, setting off a last-minute scramble.

A number of tax breaks, particularly in the energy sector, have already expired or are set to expire at the end of this year, and groups want Congress to renew or update those tax preferences.

The pressure goes beyond expiring tax breaks. Industry groups are also urging Congress to add other tax provisions to legislation, such as a bipartisan retirement bill that has already passed the House, and to repeal or delay ObamaCare taxes.

But it still remains to be seen whether any year-end tax package comes together this year, since Democrats and Republicans have some differing priorities and there’s little time remaining to put together a deal.

It’s not uncommon for Congress to pass a tax package at the end of the year, taking action to renew expired and expiring tax breaks known as “tax extenders.” But Congress hasn’t passed extenders legislation since early 2018, and some tax breaks, including in the renewable energy area, have been expired since the end of 2017. Other tax breaks are set to expire at the end of this year, including a couple of provisions created by President Trump’s tax-cut law.

But the pressure this year from industry groups for action is intense, with many offering dire warnings that companies could go out of business without extensions.

For the energy industry, the tax breaks that expired at the end of 2017 include incentives for energy efficiency improvements and biodiesel. A tax credit for wind energy is slated to go away at the end of the year, and a tax credit for investment in solar energy is slated to be reduced next year.

“One thing Congress can do before the end of the year to help rural economies and provide some policy stability is extend the expired biodiesel and renewable diesel tax incentive,” a group of biodiesel and agricultural groups wrote in a letter to House and Senate leaders earlier this month.

Some groups are arguing that extensions of their tax incentives would be a way for Congress to help tackle climate change.

“Energy efficiency is the most effective solution we have for climate change,” said Ben Evans, vice president of government affairs at the Alliance to Save Energy. “It’s a huge hole in the tax code that we don’t currently have any energy efficiency incentives.”

Alcohol industry groups, meanwhile, are pushing Congress to extend tax relief for brewers, winemakers and distillers that was included in the 2017 tax law but is slated to expire at the end of the year. Groups held a day of action last week to mobilize people to contact Congress on the issue.

“We could see businesses shutting down as a result of this not being passed,” said Chris Swonger, president and CEO of Distilled Spirits Council.

Tax extenders, though, are only one item on the docket as the legislative year draws to a close and groups seek a host of other changes.

The House in May passed a bipartisan bill with a host of provisions aimed at boosting retirement savings that also included a fix to an area of Trump’s tax law that had the unintended consequence of raising taxes on certain income received by children, such as survivor benefits for the children of deceased military members and first responders. The bill has stalled in the Senate, but it has bipartisan support in the chamber and retirement-industry groups want it to become law by the end of the year.

“If anything has a good chance of passing in spite of the clock, it’s this bill for everyday Americans,” said Susan Neely, president and CEO of American Council of Life Insurers.

Groups are also pushing for the repeal or further delay of several taxes created by ObamaCare, including the repeal of the “Cadillac tax” on high-cost health plans.

“This tax does not hit ‘overly-generous’ plans,” said James A. Klein, president of the American Benefits Council, which is pushing for repeal of the Cadillac tax. “It disproportionately affects health plans that are expensive because they cover large numbers of older workers, women, and families with chronic or catastrophic health conditions. Congress must act now!”

Many of these priorities have support among at least some lawmakers in Congress, and a number of them — including repeal of the Cadillac tax, passage of the retirement bill and extension of the alcohol excise tax relief — have bipartisan backing.

Earlier this week, a group of Senate Democrats wrote a letter to the chamber’s leaders urging them to prioritize clean energy tax extenders in any tax bill.

But it’s not clear whether there will be any year-end tax legislation this year, and some lawmakers and observers think that a package is unlikely.

“If I had to handicap the prospects for an end-of-year tax deal right now, I would be more pessimistic than optimistic,” said Todd Metcalf, a former aide to Democrats on the Senate Finance Committee and now at PricewaterhouseCoopers.

Tax legislation would likely move along with a spending bill that isn’t just a short-term stopgap measure, Metcalf said. Lawmakers are still negotiating on spending bills ahead of a Dec. 20 deadline.

Metcalf also said that some of the tax provisions that used to motivate Congress to pass end-of-year tax extenders are now permanent. The remaining temporary tax provisions “don’t have the same kind of political juice,” he said.

And the parties have their own priorities. House Democrats are interested in pairing a renewal of tax breaks benefiting businesses with expansions of refundable tax credits that benefit low- and middle-income families, such as the earned income tax credit and the child tax credit. But that’s a tough ask for Republicans, and any year-end tax package would need to be bipartisan to be enacted.

House Ways and Means Committee Chairman Richard Neal (D-Mass.) on Wednesday reiterated his interest in expanding the tax credits and said he thinks there’s room to reach an agreement with Republicans.

“I think that the extenders bill ought to include an expansion of the earned income tax credit and a more robust child credit,” he told reporters.

The top Republican on the Ways and Means Committee, Rep. Kevin Brady (R-Texas), told reporters Wednesday that Democrats and Republicans are trading offers to try to reach a consensus but don’t have a deal yet. He said that if talks fall through, he doesn’t think there will be a package to simply extend expired provisions.

Brady said that the sizable refundable tax credit expansions Democrats are seeking are a “non-starter.”

“We continue to have concerns about the fraud within those programs,” he said, adding that the amount of spending Democrats are seeking is “not realistic.”

As the clock ticks down, industry groups are remaining upbeat about the chances their priorities will be addressed.

Jim McGreevy, president and CEO of the Beer Institute, said he feels that there is energy at the end of the year for Congress to tackle a number of items.

“I hope extenders is one of them,” he said.


BY NAOMI JAGODA – 12/11/19

Repealing “SALT” Cap Would Be Regressive and Proposed Offset Would Use up Needed Progressive Revenues.

A bill from House Ways and Means Chairman Richard Neal and others would modify and then repeal for two years the 2017 tax law’s cap on the federal deduction for state and local taxes (SALT) and offset the cost over ten years by returning the top individual tax rate to 39.6 percent. By itself, repealing the SALT cap would overwhelmingly benefit high-income households, since most low- and middle-income taxpayers don’t face the SALT cap. In addition, paying for repeal by raising the top rate would use up a source of progressive revenue that would no longer be available to fund other, more critical priorities.

As a result, the Ways and Means bill would not address two central flaws of the 2017 tax law overall: its steep cost and its heavy tilt toward wealthy individuals and profitable corporations. Chairman Neal and the Ways and Means Committee have separately advanced legislation, the Economic Mobility Act, that would expand refundable tax credits to help low- and moderate-income families, as a down payment on beginning to restructure the 2017 law.[1] Given the steep cost of full repeal of the SALT cap, however, more modest proposals to modify the SALT cap offer a superior approach; such proposals can be designed to exempt the vast share of taxpayers from the cap and at far less cost.

The 2017 tax law imposed a $10,000 cap on the state and local taxes that filers can deduct on their federal tax returns. The Ways and Means bill would raise the cap in 2019, to $20,000 for married couples, and repeal it altogether in 2020 and 2021; the bill would offset the cost by reversing the 2017 tax law’s reduction in the top income tax rate from 39.6 percent to 37 percent.[2]

Continue reading.



DECEMBER 10, 2019

IRS Issues Private Letter Ruling Allowing Tax Equity Financing with a Regulated Utility Taxpayer.

In Private Letter Ruling 201946007, the Internal Revenue Service (IRS) allowed a tax equity investor to participate with a regulated utility in a tax equity financing arrangement for wind investments without being subject to the tax normalization rules.

In Depth

Investments in renewable energy facilities can reduce reliance on fossil fuels, boost energy security and provide tax benefits, such as accelerated depreciation, the investment tax credit (ITC) under IRC § 48 and the production tax credit (PTC) under IRC § 45. The PTC incentivizes certain wind and other renewable energy projects by granting a per kilowatt-hour tax credit based on the amount of electricity produced; and the ITC provides a tax credit based on the amount of investment in solar facilities. Accelerated depreciation allows for greater tax deductions in the earlier years of a project’s lifecycle at a faster pace than depreciation under regulatory or financial accounting standards. For many years, tax equity investors have partnered with non-regulated energy producers to obtain these tax attributes. Under a safe harbor established by Revenue Procedure 2007-65, a tax equity investor and an energy producer may enter into a partnership that holds renewable energy assets, and they can share the PTCs, depreciation deductions, any other tax items and cash that may be generated by the assets.

Before PLR 201946007, there was significant uncertainty as to whether a tax equity investor could enjoy the full benefit of accelerated depreciation from an investment partnership with a regulated utility due to the possible application of the tax normalization rules. The Code provides that tax normalization rules apply to utilities that can recover costs through rates set by a public utility commission. The tax normalization rules provide that, for purposes of recovering costs from customers, depreciation of public utility property cannot be recovered more rapidly than depreciation allowable for accounting purposes. ITCs are also subject to the tax normalization rules. The normalization rules allow a regulated utility to enjoy the full benefit of depreciation deductions and the ITC without having to immediately pass the benefits on to its ratepayers. The regulated utility can take these benefits over the useful life of the asset for regulatory purposes. If a regulated utility is not permitted by its public utility commission to use a normalized method of accounting, the utility is ineligible for accelerated depreciation and ITCs.

If a regulated utility partner entered into a tax equity partnership, it was unclear whether the partnership’s wind assets would be public utility property, and therefore whether the tax equity investor could take accelerated depreciation. Because of this uncertainty, regulated utilities have generally not participated in tax equity structures.

In PLR 201946007, the Service addressed whether a new wind generation facility would be public utility property for purposes of determining whether the depreciation deductions from the facility would be subject to the normalization rules. The taxpayer planned to form a joint venture with an independent tax equity investor to invest in a wind facility. The joint venture would sell the electricity generated by the wind facility to a disregarded affiliate of the taxpayer (Affiliate), a regulated utility, pursuant to a wholesale power purchase agreement (PPA). Affiliate would then sell the electricity to its customers. Rates under the PPA would be determined based on a competitive bidding process and market-based method, and not on a rate-of-return or cost basis. The taxpayer requested a ruling that the wind facility would not be Public Utility Property, so that the normalization rules would not apply.

The IRS looked at the rules under section 168(i)(10) and related regulations, which provide that a facility will only be treated as public utility property if the following three factors are met:

  1. The facility must be predominately used in the trade or business of the furnishing or sale of electric energy;
  2. The rates for such sale must be established or approved by one of the enumerated agencies or instrumentalities; and
  3. The rates set by that agency or instrumentality must be established or approved on a rate-of-return basis.

In the ruling, the IRS analyzed the factors at the partnership level. The wind facility clearly met the first two factors, but failed to satisfy the third because the PPA’s rates were set on a market basis, and not a rate-of-return basis. As a result, the IRS ruled that the wind facility would not be public utility property. Therefore, the tax normalization rules will not apply.

This ruling is significant because it confirms that the normalization rules will not apply to wind generation facilities held by a partnership where the electricity is sold to the regulated utility investor at market rates, even though the utility sells the power at regulated cost-of-service or rate-of-return rates.

Practice Point: Regulated utilities can participate in tax equity structures, generating accelerated depreciation for tax equity investors.

Practice Point: Because the normalization rules also apply to the ITC, the IRS’s letter ruling presents a road map for structuring solar investments with regulated utilities to fully maximize tax benefits.

McDermott Perspective: McDermott submitted the above ruling request on behalf of a Firm client.

December 3, 2019

McDermott Will & Emery

Leveraging Opportunity Zones to Boost Affordability in Hot Markets.


The Opportunity Zones tax incentive, created by the Tax Cuts and Jobs Act of 2017, was designed to spur investment in low-income and undercapitalized communities. How can stakeholders use the program to benefit disinvested neighborhoods and expand access to affordable housing? The experiences of investors, developers, government officials, and philanthropy representatives show how the incentive is working at the national and local level in King County, Washington.

Download article.

The Urban Institute

by Brett Theodos & Jorge González

December 4, 2019

Treasury Submits Updated Opportunity Zones Rules to OIRA.

Read the Updated Rules.

Office of Information and Regulatory Affairs | Dec. 9

Sens. Scott, Grassley, Colleagues Introduce Expanded Bill on Opportunity Zone Reporting Requirements

Read the Expanded Bill.

U.S. Senate | Dec. 6

Over $3.9 Billion Raised by Opportunity Zone Funds, with Michael Novogradac.

Are Opportunity Zone funds having success raising enough capital? Will capital raising reach federal government estimates? Find out why one prominent tax accountant thinks so. Michael Novogradac is managing partner of Novogradac, a top 50 accounting firm and thought leader in the Opportunity Zone industry. Click the play button below to listen to my conversation with Michael. Note: This is Part 1 of my two-part…

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Opportunity Db

December 4, 2019

Pairing Tax Credits with the Opportunity Zone Tax Incentive, with Michael Novogradac

How can different real estate tax credits (New Markets, Low Income Housing, Renewable Energy, and Historic) be paired with the Opportunity Zones tax incentive? Michael Novogradac is managing partner of Novogradac, a top 50 accounting firm and thought leader in the Opportunity Zone industry. Click the play button below to listen to my conversation with Michael. Note: This is Part 2 of my two-part conversation…

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Opportunity Db

December 4, 2019

Key Dates & Deadlines for Opportunity Zone Investing.

As 2019 winds down and the full benefit of the Opportunity Zones tax incentive expires, here are some key dates for investing in Opportunity Zones — past and future. Note: as IRS regulations are not yet finalized, these dates are subject to change. February 2, 2017: The Investing in Opportunity Act is introduced in the Senate and House. December 22, 2017: The Tax Cuts and …

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Opportunity Db

November 27, 2019

Taxing Online Sales Won’t Save Cities From the Retail Apocalypse.

The Supreme Court’s year-old Wayfair decision allows most U.S. states to collect sales tax from online shopping. Can cities expect a revenue bump?

As the holiday shopping season approaches, more governments than ever will reap the benefits of all that spending. That’s because in 2018, the U.S. Supreme Court overturned the ban on governments taxing online sales. More than a year after the South Dakota v. Wayfair decision, states have now started collecting, and some have already seen a slight boost in sales tax revenue. That bump could be even greater as the Black Friday/Cyber Monday shop-a-thons kick off the end-of-year spending spree.

But it’s unlikely that cities will see much of it.

States saw a 7 percent bump in sales tax revenue between June and September of this year over the corresponding period in 2018, according to data compiled by the Urban Institute’s State and Local Finance Initiative. That’s a few percentage points higher than average, and the Institute’s Lucy Dadayan says it’s most likely due to the increased collections from online sales.

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NOVEMBER 26, 2019


City of Philadelphia v. Jones

Commonwealth Court of Pennsylvania - November 20, 2019 - A.3d - 2019 WL 6138376

Property owner filed a petition to open, strike, stay or set aside sheriff’s sale and deed arising from tax sale.

The Court of Common Pleas affirmed the tax sale. Property owner appealed.

The Commonwealth Court held that:

Can An Unfinished But ‘Usable’ Basement Space Be Taxed? Berkeley Says ‘Yes’ And The Courts Have Agreed.

A group of Berkeley property owners has taken to emails, phone calls, social media and even the courts to challenge the way the city calculates special, voter-approved taxes.

The property owners — it’s hard to know how many, but at least several — question the accuracy and legality of the city finance department’s way of measuring square footage, which is the basis of the city’ special taxes, used for such services as the library, parks, and emergency medical serves, and the schools.

They claim they’re being overtaxed to the tune of thousands of dollars a year.

There is “potential for the city to be forced to issue a large amount of refunds (perhaps in the millions) and have reduced tax collections going forward,” said David Kellogg, a tax-questioning property owner who is asking the city to reimburse him for back taxes.

Continue reading.


By Kate Darby Rauch

Nov. 27, 2019, 11 a.m.

When Summer Reading and Public Finance Tax Intersect – Tax-Exempt Bonds, Pop Culture, and the Town of Windthorst

Early in my career, I learned to dread telling people that I was a lawyer because when I explained the niche practice of public finance tax law, their eyes started to get sleepy, then their eyes started to glaze over. That was usually when I would blurt out “I help finance airports, hospitals, schools, and infrastructure across the country.” So when I came across the D Magazine article, The Tiny Town Bankrolling Texas Institutions during my summer beach reading,[1] I nearly spilled my Aperol Spritz[2] all over my Excel spreadsheets.

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By Taylor Klavan on November 25, 2019

The Public Finance Tax Blog

Squire Patton Boggs

MSRB Investor Guide to ABLE Programs.

Read the MSRB’s new investor guide for a better understanding of how ABLE programs work.

State Tax Debates Could Use Some (Customized) State Economic Data.

Politicians love to make claims about tax policy. This tax cut will create jobs! That one forced the school district to fire teachers!

But too often such claims are not supported with evidence. So the State and Local Finance Initiative made an interactive tool that gives you—whether you’re a policymaker, journalist, researcher, or voter—the power of data. The updated State Economic Monitor lets users graph, analyze, and share statistics on state employment, earnings, gross domestic product (GDP), and housing—and for just the states you’re interested in.

Before you take it out for a spin, I’ll show you how the updated tool can provide evidence for three tax policy issues. Hopefully, you’ll then use it to make customized graphs for your next memo, presentation, or tweet about state tax policy.

Continue reading.

Tax Policy Center

by Richard C. Auxier

November 12, 2019


Virginia International Gateway, Inc. v. City of Portsmouth

Supreme Court of Virginia - October 31, 2019 - S.E.2d - 2019 WL 5607827

Taxpayer, believing that assessments for its real and personal property were above fair market value, filed separate applications to correct the real estate and personal property assessments.

City filed counterclaim to the real property application, contending that fair market value was actually several hundred thousand dollars more than the assessment. The trial court consolidated the two cases for trial. The Circuit Court dismissed both of taxpayer’s applications, as well as the city’s counterclaim, and taxpayer appealed.

The Supreme Court held that:

In taxpayer’s action, contesting city’s real estate and personal property assessments, trial court abused its discretion when it excluded real estate appraiser’s expert testimony; appraiser held active New York real estate appraisal license, he secured temporary Virginia appraisal license, and during this period of active licensure, he updated his initial valuation and brought it into compliance with standards governing real estate appraisals in Virginia, he completed his final appraisal report within period of active licensure, and his testimony addressed only the appraisal for which he was licensed.

There was sufficient evidence to support trial court’s ruling that taxpayer did not rebut the presumption of correctness of city’s valuation of taxpayer’s personal property, and accordingly, trial court did not err in declining to adjust the personal property assessment; city assessed taxpayer’s personal property at 50% of original value, city not only came forward with evidence of the assessment’s correctness in the form of expert’s independent appraisal, it also presented evidence that taxpayer’s appraisal of the property was flawed, and city put on evidence that taxpayer’s methodology was flawed because of its failure to adhere to recognized valuation approaches.

IRS Publishes 2020 Pension Plan Limitations: Day Pitney

IRS recently announced the cost-of-living adjustments applicable to certain dollar limitations for employee pension benefit plans for 2020. The resulting dollar limits are as follows:

A complete list of applicable pension plan limitations can be found here.

If you have any questions about the cost-of-living adjustments or any other employee benefits or executive compensation matter, please contact a member of Day Pitney’s Employee Benefits and Executive Compensation practice group.

Publisher: Day Pitney Alert

Day Pitney Author(s) David P. DoyleKathy A. LawlerLiza J. HechtThomas F.J. O’Mullane

November 7, 2019

EIG Opportunity Zones Activity Map.

View the map.

The Biggest Misconceptions About Opportunity Zones.

What are some of the biggest misconceptions, inconsistencies, and disconnects surrounding the Opportunity Zone tax incentive? Bob Richardson is managing partner of Blue Cardinal Capital, a real estate private equity firm with Opportunity Zone projects in upstate New York. Click the play button below to listen to my conversation with Bob. Episode Highlights The key differences between tax credits and the Opportunity Zone tax incentive….

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Opportunity Db

November 20, 2019

How OZ Communities, Sponsors, and Investors Can Connect, with The Opportunity Exchange.

Can an Opportunity Zone marketplace connect communities, OZ project sponsors, and investors to advance capital deployment and community impact? Peter Truog is founder of The Opportunity Exchange — a marketplace that connects impactful Opportunity Zone projects to capital sources. Also joining today’s podcast episode from The Opportunity Exchange are Leo Peña and Ayat Amin. Click the play button below to listen to my conversation with…

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Opportunity Db

November 13, 2019

Federal Tax Bulletin: Key Timing Issues for Qualified Opportunity Fund Investments

Time is running out to clearly maximize the tax benefits available under the qualified opportunity zone (QOZ) program. Under current guidance, it seems that you must invest in a “qualified opportunity fund” (QOF) by December 31, 2019 to be eligible for all possible QOZ tax benefits (though most QOZ tax benefits will still be available for QOF investments made after 2019). Additionally, if your capital gain this year is from the sale of property used in a trade or business, you must wait to make the related QOF investment until the last day of the taxable year (which for most taxpayers is December 31, 2019). These two critical timing requirements are woven into the QOZ rules, which are discussed in more detail below.


Under QOZ program, QOZ tax benefits are available to a taxpayer who recognizes capital gain on the sale of property to an unrelated buyer, makes a qualifying equity investment in a QOF up to the amount of that capital gain, and holds the QOF equity interest for a certain specified period of time. Such a taxpayer has the ability to defer and partially eliminate federal tax on that capital gain, as well as to avoid all federal tax on the taxpayer’s eventual sale of their QOF equity interest.

A QOF is an investment vehicle created to invest in QOZs. Any corporation or partnership (including an LLC treated as a corporation or partnership for tax purposes) can be a QOF, so long as it follows the applicable QOZ rules and self-certifies by filing a Form 8996 with its federal income tax return. The QOZ requirements (which are beyond the scope of this Bulletin) primarily are designed to ensure that QOF investments result in new or significantly refurbished assets deployed and used in QOZs.

There are 3 potential tax benefits available to taxpayers who make qualifying QOF investments. A taxpayer’s eligibility for 1 or more of these benefits depends on when the taxpayer invests in a QOF, and how long the taxpayer holds their QOF equity interest. These 3 tax benefits include:

  1. Deferral of Capital Gain Recognition. A taxpayer who invests capital gain into a QOF in compliance with the QOZ rules is not subject to immediate tax on that capital gain. Rather, taxation of that capital gain is deferred, and no federal income tax is required to be paid on the gain until the end of 2026 (or upon the investor’s disposition of the QOF equity interest, if earlier).
  2. Reduction of the Deferred Capital Gain. When a taxpayer is required to pay federal tax on their deferred capital gain, if they have held their QOF equity interest long enough by that point, a portion of the deferred tax will be eliminated. Specifically, if the QOF interest has been held at least 5 years, then 10% of the deferred tax liability will be eliminated, and if the interest has been held at least 7 years, an additional 5% of the deferred tax liability will be eliminated. Thus, the maximum reduction of the deferred federal tax liability is 15%.
  3. No Federal Tax on Ultimate Sale of QOF Equity Interest. Any increase in value of a QOF equity interest that a taxpayer holds for at least 10 years prior to disposition is not subject to federal tax upon the sale of that QOF equity interest.


When a taxpayer recognizes capital gain in a qualifying sale, the taxpayer has a 180-day window in which to make a corresponding equity investment in a QOF. Generally, that 180-day window begins on the day of the sale; however, there are exceptions to this rule.

  1. Sale of Business Property. If the capital gain that you wish to invest in a QOF resulted from the sale of property used in a trade or business, special rules apply. Firstly, only your net capital gain for the year from sales of business property is eligible for QOF investment. Secondly, because that net gain amount cannot be determined until the end of the year, the 180-day QOF investment window for this gain does not begin until the last day of the year. Although this delay in the start of the 180-day window can be a benefit to many taxpayers by providing a later deadline for investment in a QOF, it can also be a potential trap. If a taxpayer were to recognize gain from the sale of business property and unwittingly make a QOF investment before year-end, that investment would not be eligible for any QOZ tax benefits.
  2. Flow-Through Entities. When capital gain is recognized by a flow-through entity (e.g., an entity taxed as a partnership or an S corporation), either the entity itself may invest that capital gain in a QOF, or (in the event that the entity elects not to so invest) the entity’s owners may directly invest their respective shares of the capital gain in QOFs. Where a flow-through entity invests in a QOF, normal rules relating to the 180-day window apply. Where an owner invests, however, their 180-day window begins on the last day of the flow-through entity’s taxable year (though an owner may make an election to use the 180-day window of the flow-through entity).


As stated above, in order to obtain the maximum 15% elimination of federal tax on deferred capital gain, a taxpayer must have held their QOF interest for 7 years by the time they are required to pay federal tax on that gain. The latest date that any taxpayer can defer tax on capital gain is December 31, 2026. Only QOF interests acquired on or before December 31, 2019 will satisfy the 7-year holding period on December 31, 2026. Therefore, under current guidance, it seems that taxpayers must invest in a QOF no later than December 31, 2019 to be eligible for the total maximum 15% federal tax elimination.

Taxpayers making QOF investments on or before December 31, 2021 would still be eligible for the 10% federal tax exclusion. Additionally, QOF investments made on or before December 31, 2028 will be eligible for the permanent exclusion from tax on the sale of those QOF interests, described above.

The foregoing rules create a tight timetable for most taxpayers hoping to maximize their QOZ benefits from the sale of business property this year. Those taxpayers have just one day—December 31, 2019—to achieve their desired tax results. Happy New Year’s Eve!



Note that the above discussion is based upon QOZ rules currently described in proposed regulations, which may be modified when released in final form. Until such time, the Treasury Department has indicated that taxpayers may rely on these proposed regulations. If you have any questions about these QOZ rules or the QOZ program generally, please contact your Vorys tax attorney.

What You Need to Know About the New Opportunity Investment Draft Form.

In October, the U.S. Treasury Department released a draft form designed to help it and the IRS collect information about how opportunity zone investments — a concept established by the 2017 Trump tax cuts — are affecting the economy. If implemented, it will gather data about whether these investments are living up to the project’s original goal, which is to spur economic development in undercapitalized American communities.

What Are Opportunity Zones?

The opportunity zone concept comes from the Trump tax cuts — introduced in Congress as the Tax Cuts and Jobs Act (or TCJA) — passed in December of 2017. The zones are designed to encourage investment in areas that are federally certified as economically distressed.

Investors can sell stocks or other investments and assets and delay the capital gains tax they would normally pay on those investments, so long as they invest the proceeds into an opportunity zone. Profits made from projects in these zones can be written off entirely and results in reduced or no federal tax. These projects can include stock or partnership interests held in local businesses, as well as direct ownership of companies in opportunity zones.

The first set of opportunity zones, designated shortly after the passage of the tax breaks, only covered 18 states. Now, there are more than 8,700 opportunity zones across all 50 states — roughly 12 percent of all census tracts.

The opportunity zone investment idea was one of the few components of the tax cuts that were met with bipartisan support.

However, even the idea’s supporters were concerns that the concept didn’t have much in the way of guidelines. As the legislation was written, the IRS and Treasury were not required to collect information on where the opportunity zone investment money was going. It was not clear what sorts of projects were being constructed as a result of the tax break.

Treasury outlined new regulations on opportunity investment since the spring. There has also been pressure from Congress. The draft form comes after a bipartisan group of lawmakers — including presidential candidate Cory Booker — introduced legislation that would require the IRS to collect information about opportunity zone investment. It’s not clear when the bill will be voted on, but the Treasury has already moved to start collecting information about opportunity zone investments.

Breakdown of the Opportunity Investment Draft Form

The draft form is designed for the 2019 tax year, but it’s not clear when Treasury will begin requiring taxpayers to disclose this additional information about their opportunity zone investments. The form primarily requires corporations and partnerships to do so.

Under the form, corporations and partnerships would be required to report employer identification numbers for each business in which they hold stock or partnership interest. They would also be required to report the census tract number the investment is in, as well as its overall value.

The form would also collect information about businesses in which corporations and partnerships hold a direct stake.

Because no instructions have been published for the form yet, it’s not clear what noncompliance will mean for taxpayers. The IRS may leverage a penalty or fine if a corporation or partnership fails to properly disclose all its opportunity zone investments.

Treasury noted that the information collected as a result of the draft form would be available to lawmakers.

What Investors Need to Know About Opportunity Zones

It’s not clear when the IRS will begin requiring taxpayers to report additional information about their opportunity zone investments. The draft form is designed for the 2019 tax year, but taxpayers may not have to worry about providing more details just yet.

Lawmakers, in the meantime, will likely continue to push for stricter regulations on opportunity zones and look to pass laws that require the IRS and Treasury to ensure compliance with the provisions established under TCJA.

Tech Bullion

By Kayla Matthews

November 14, 2019


B.C. Grand, LLC v. FIG, LLC

Court of Appeals of Georgia - October 29, 2019 - S.E.2d - 2019 WL 5558651

Property owner filed action against purchasers of tax executions for delinquent ad valorem taxes on property, asserting claims for negligence, unjust enrichment, conversion, and conspiracy, alleging that purchasers bought tax executions on property to collect higher interest amounts and penalties than were due because executions were based on initial tax assessments that were later reduced.

The trial court granted purchasers’ motions to dismiss for failure to state claim. Property owner appealed.

The Court of Appeals held that:

Tax executions for delinquent ad valorem taxes on property were validly issued by County Tax Commissioner, where property owner failed to pay taxes after 30-day notice period while pursuing appeal of assessment and awaiting refund.

Property owner failed to establish that purchasers of validly issued tax executions for delinquent ad valorem taxes were not authorized to levy executions and demand payment, in property owner’s action against purchasers, asserting negligence and other claims; property owner failed to allege that County Tax Commissioner cancelled tax executions, or that tax executions were void as a matter of law based on post-issuance reduction in tax assessment.

This Tax-Free 5.1% Dividend Is Hiding In Plain Sight.

I’m going to show you my favorite (perfectly legal) way to pay 0% tax on your dividend income.

To show you the big savings this could mean, let’s look at two fictional investors who are nearing retirement: Jane and Janet.

We’ll assume both are single, are earning $50,000 per year and live in a state with no income taxes. Now let’s assume Janet has taken the so-called “right” path, as suggested by her financial advisor, while Jane has steered her own course. A quick look at both will show how that “right” path can create a hefty tax problem.

Let’s say Janet put a million dollars in the Vanguard S&P 500 ETF (VOO) because she’s been told that a low-cost index fund is best for retirement. VOO is giving her $14,100 in annual dividends as a result, but because Janet is still working, she’ll have to give Uncle Sam $1,864 in taxes on her dividends for just one year—and that doesn’t include tax she’ll pay when she eventually sells her shares.

Over to Jane. Instead of following the herd and buying VOO, she’s put her million in a lesser-known fund called the Nuveen Municipal High Income Opportunity Fund (NMZ), which pays a 5% dividend yield, giving her an income stream of $50,000 from her investment. Not only is her nest egg now entirely replacing her work income, but she’s also getting all of it.

That’s right. Of that $50,000 a year NMZ is giving Jane, zero is going to Uncle Sam. And it doesn’t matter if she gets a promotion at work and makes more, or if NMZ starts paying her more (which it did for its shareholders at the start of the year; more on that later).

She will not have to pay any of her income from this fund to the tax man.

Of course, the more Janet gets paid, the more taxes she’ll have to pay out. If her work pay rises 20%, for instance, the tax on her dividends will climb to $2,115 per year, meaning her tax burden has gone up by almost as much as her raise!

Municipal Bonds: Your Tax-Free Income Option

Municipal bonds, the investments NMZ holds, are popular because they’re one of the few ways Americans can legally get paid without having to pay taxes. It’s all thanks to a 1913 law exempting municipal bonds from federal income tax. Since then, investors have been using “muni” bonds to generate a high income stream—and keep all of it.

Dispelling the Biggest Muni Myth

How popular are muni bonds? Right now, the market is worth nearly $4 trillion in the US, which is about 13% of the size of the total stock market. Considering municipalities aren’t in the business of making a profit, it’s surprising that muni bonds are as big as they are.

While many muni bonds are gobbled up by wealthy investors looking to cut out the tax man, the middle class often ignores them. One reason why is fear: headlines about municipalities going bankrupt and leaving investors in the cold result in paranoia—and many bad investment decisions.

Here are the facts: according to Moody’s, the total default rate of muni bonds since 1970 is 0.09%. In other words, for every 10,000 muni bonds issued, nine go into default. Put another way, you’re 1,442 times more likely to get in a car crash than to hold a muni bond that defaults.

The Power of Diversification

Here’s another crucial point: when a municipality defaults, it doesn’t mean investors get nothing. In reality, municipalities will restructure their debts on new terms, which could mean a small loss for bondholders. But one way to limit this risk even further is to hold a fund like NMZ.

With $1.5 billion in assets, NMZ can diversify across many bonds (it currently holds 598 of them) to slash the risk of being exposed to a default.

This doesn’t just make NMZ safer, it’s also made the fund’s returns impressive. Thanks to NMZ’s unique market access and expertise, it’s crushed a muni-bond index fund like the iShares National Muni Bond ETF (MUB).

It’s rare to get superior returns and greater safety, but NMZ delivers both.

Finally, a Word on Rates

There’s one last reason why Jane would be smart to buy NMZ: the Federal Reserve.

In 2019, the Fed cut interest rates three times, which has had two effects on muni bonds. The first is that they’re more attractive to investors than before. From 2015 to the start of 2019, when the Fed was raising interest rates, muni bonds were struggling to make headway.

There are two reasons why munis stalled in this period: first, many investors thought they could get higher income streams elsewhere as rates rose. Second, and more important, bonds fall in value as interest rates go up, which meant the resale value of these bonds dropped with the Fed’s aggressive rate-hike cycle.

Fortunately, the opposite is also true: lower rates mean muni bonds go up, which is why you see that huge hockey stick at the end of the chart above. It’s also why NMZ raised its dividend earlier in 2019, and why it may raise it again. The Fed’s aggressive rate cuts have been a blessing for munis this year, and with the central bank likely to continue lowering rates, that hockey stick will get bigger.


by Michael Foster

Nov 12, 2019

Michael Foster is the Lead Research Analyst for Contrarian Outlook. For more great income ideas, click here for our latest report “Indestructible Income: 5 Bargain Funds with Safe 8.5% Dividends.”

Are Taxable Advance Refundings Leaving Money On The Table?

The 5% non-callable-10 structure, which has been the standard for municipal bonds, was tailor-made for advance refunding. Prior to 2018, borrowers could demonstrate substantial savings by advance refunding them immediately after issuance (See The Allure of 5% Bonds: Coupon Levitation Creates Magical Savings). Not surprisingly, most 5% NC-10 bonds were advance refunded well before they were actually called in Year 10.

With the elimination of advance refunding, the churning came to a brief halt — today only a single tax-exempt issue can support a qualifying project. However, there is still a huge amount of high-coupon not-yet-callable bonds outstanding. In fact, 5% NC-10s continue to be issued almost daily. With interest rates being at historical lows, there is an opportunity to realize savings by advance refunding high-coupon tax-exempts with taxable bonds.

Let’s take a closer look at the economics of advance refunding a $100 million 5% muni with 22 years to maturity and two years to call, with a 22-year 2.80% taxable bond sold at par. The proceeds of the refunding issue are invested in an escrow portfolio of Treasuries yielding 1.5%, structured to pay the debt service of the refunded bond through the call date.

The reported savings are impressive — assuming a 1% issuance cost, they amount to $29.8 million in present value terms over 22 years. Of course, nobody expects 5% bonds to remain outstanding beyond the call date, and our analysis should incorporate this. By advance refunding today, the issuer forfeits the valuable option to call the bond in the future. But how valuable is this option?

The value of the option of the outstanding bond, based on the issuer’s current tax-exempt 5% NC-10 yields — 1.60% for 10 years, 2.10% for 20 years, etc., is $36 million. Thus the efficiency of the taxable advance refunding is only 83% ($29.8 million/$36 million). Looking at this from a different angle, $6.2 million of the option value has been wasted, at the expense of the municipality’s constituents. We leave it to the readers to figure out who was the beneficiary of the lost option value.

Let’s discuss the practical ramifications of this result. A refunding efficiency below 100% signals that waiting is preferable to acting now. The alternative to refunding today with a taxable 2.80% bond is to wait for two years, and then call and refund with a tax-exempt bond. For a specified shift of the borrower’s yield curve, we can determine the savings from calling, in today’s dollars. To break even with today’s $29.8 million savings, the yield curve would have to increase 75 basis points. In that case, the yield of a 5% 20-year 5% NC-10 bond would rise from its current 02.10% to 2.85%. As long as the yield curve does not rise more than 75 basis points, waiting would be preferable taxable advance refunding today.

Direct comparison of a 5% NC-10 muni to an essentially non-callable taxable bond is complicated. For an apples-to-apples comparison, we have to estimate the issuer’s non-callable 20-year par rate. Today, when the 20-year 5% NC-10 yield is 2.10%, the rate of a 20-year muni bullet is roughly 2.49%. If the 5% NC-10 yield curve increases by 75 basis points to the break-even point, the bullet rate rises 42 basis points, to 2.91%. Callable yields and optionless rates don’t move in tandem — the former are yields to the 10-year call, the latter are yields-to-maturity.

Although finance theory cannot predict where the muni yield curve will be two years from now, it can help you play the odds. By advance refunding with taxable bonds, you are making a bet that within two years the tax-exempt curve will rise more than 75 basis points.

It is interesting to contemplate what the possibilities are when advance refunded bonds are redeemed on their call date. Could the borrower economically refund the taxable bonds, at the make-whole price, with the proceeds of a new tax-exempt issue? A topic for another day.

By Andy Kalotay


Raising Opportunity Zone Capital for Business Investment, with Len Mills.

For business owners, what are some tips for approaching investors and raising Opportunity Zone capital? Len Mills is CEO of Verte OZ, a venture capital Opportunity Zone fund launched in September 2019 that invests in high-growth disruptive businesses. Click the play button below to listen to my conversation with Len. Episode Highlights The characteristics that make the Verte OZ Fund unique among Opportunity Zone funds.

Read More »

Opportunity Db

November 6, 2019

IRS Opportunity Zone Form Doesn’t Quell Transparency Concerns.

A new draft tax form for investors taking advantage of opportunity zone incentives affirms the need for Congress to bolster reporting requirements for the perks, according to those advising on and studying them.

The incentives, part of the 2017 tax act, were meant to spark economic development in nearly 9,000 mostly low-income census tracts across the U.S. by offering investors the ability to defer and reduce capital gains taxes. The tax law didn’t include any data reporting requirements, which advocates say are needed to paint a more holistic and objective picture of whether the tax breaks are helping communities or accelerating gentrification to the benefit of wealthy investors.

The IRS Oct. 31 released a proposed Form 8996 that would require opportunity funds to disclose the employer identification numbers, census tract numbers, and assets of the businesses in which they invest, as well as the funds’ own structures and assets. The IRS went about as far as many observes expected: The form would give the agency enough information to ensure investors are following the program’s rules, but doesn’t require more granular information, like job creation and poverty alleviation data requested by numerous organizations.

“This will be unlikely to satisfy many of us who are just looking for a more comprehensive data regime,” said John Lettieri, president of the Economic Innovation Group, which helped develop the incentives.

IRS Authority
The data the IRS is seeking makes sense in light of the authority the IRS has and its ability to enforce the tax law and its opportunity zone regulations, according to Michael Novogradac, managing partner of Novogradac & Co. LLP. The San Francisco-based accounting and advisory firm focuses on real estate and affordable housing.

“This demonstrates what information is needed to assess compliance,” Novogradac said.

The original opportunity zones legislation, authored by Sens. Cory Booker (D-N.J.) and Tim Scott (R-S.C.), included data reporting requirements for investors. However that language wasn’t included in the 2017 tax law in order to ensure the package complied with the Senate’s procedural rules.

The new form was released days after House lawmakers met to discuss ways to improve the opportunity zones program through congressional action. There is some interest in Congress of adding those requirements to the tax code. Booker and Scott introduced a bill (S. 1344) to establish opportunity zone reporting requirements, while a House companion (H.R. 2593) was introduced by Reps. Ron Kind (D-Wis.) and Mike Kelly (R-Pa.).

Lettieri, who attended the congressional meeting to discuss improvements to the program, said that the IRS document could help inform any related legislation Congress considers.

There may not be much information to collect just yet, as the pool of funds using the capital gains tax breaks is still small and growing, said Steve Glickman, who helped create the incentives and now advises investors as CEO of Develop LLC.

“We’re still very much in the early days here,” he said. “There’s always going to be anecdotal investments that don’t meet the spirit and intent of the program.”

Will Public See Data?
Absent congressional action, transparency advocates are concerned that the public may not ever get to see the data collected by the Internal Revenue Service and Treasury Department because the federal government is prohibited from publicly disclosing tax return information under tax code Section 6103.

“I worry this information won’t ever be shared with the general public,” said Brett Theodos, a senior fellow at the Urban Institute who has researched the incentives and requested detailed data collection and disclosure on them. “We need more data. I would like additional detail to be able to evaluate the program.”

A Treasury spokesperson said the department “intends to publish all of the Opportunity Zone data that it gathers through this form as soon as possible in a manner consistent with the law.”

Booker, in an Oct. 31 statement, emphasized the need for public disclosure of more detailed data.

“For starters, this information needs to be public, not available only to the Treasury Department,” he said. “Additionally, there needs to be transaction-level reporting so that we can properly evaluate the impact of the program and ensure that investments are being effectively allocated to low-income communities.”

There may also be concerns of taxpayer privacy and identity theft when it comes to employer identification numbers, said Lisa Zarlenga, a partner at Steptoe & Johnson LLP and a former Treasury official. Even publicizing the number of funds investing in a particular census tract could lead to privacy problems if there are only one or two in that area, she said.

And while the IRS is likely reluctant to make these kinds of public disclosures on its own, the issue could be a thorny one for lawmakers to navigate as they seek to boost the incentives’ transparency.

“It’s a hard thing to balance,” Zarlenga said. “I don’t envy the lawmakers trying to figure this out.”

Bloomberg Tax

by Lydia O’Neal

Oct. 31, 2019, 1:39 PM; Updated: Nov. 1, 2019, 6:46 AM

To contact the reporter on this story: Lydia O’Neal in Washington at [email protected]

To contact the editors responsible for this story: Patrick Ambrosio at [email protected]; Colleen Murphy at [email protected]

Bill Introduced in Senate to Require QOF Reporting, Change Designation of Some OZs.

Read the Detailed Summary.

Tearing Down Tax Walls Pitched as Way to Spur Green Muni Bonds.

Banker Alfredo Quintero just finished working on the New York subway operator’s first green-bond sale when he considered the paradox that’s kept environmentally minded investing from taking off in the $3.8 trillion municipal-securities market.

States and cities routinely sell debt for mass-transit systems, water-treatment plants and other projects that do good for the environment, so they would seem like the perfect pipeline to feed the latest fixed-income trend. Yet they rarely go through the steps to market their bonds as green for a good reason: it doesn’t seem to save them money.

But those savings could emerge, Quintero realized, if one could tear down the tax-law barriers that largely keep the $400 billion of municipal bonds sold each year in their home states. So the senior managing director at investment bank Samuel A. Ramirez & Co. has been pitching California officials on a plan to extend the state’s tax exemption to New York’s green bonds, and vice versa, marking a first step toward creating a national market that could vastly increase demand and cut the yields governments pay.

Continue reading.

Bloomberg Markets

By Romy Varghese

October 29, 2019, 10:30 AM PDT

How to Form Your Own Opportunity Zone Fund.

How can you form your own Opportunity Zone fund? What are the most important considerations when structuring your entity, and what are some best practices for regulatory compliance? Opportunity Zones Podcast host Jimmy Atkinson and OZ Consultants CEO Ashley Tison have teamed up to create OZ Pros — Qualified Opportunity Fund and Qualified Opportunity Zone Business entity formation made easy. Click the play button below…

Read More »

Opportunity Db

October 29, 2019

How to Form Your Own Qualified Opportunity Zone Business (QOZB).

Are you considering starting your own Qualified Opportunity Zone Business or converting an existing business into a QOZB? Or perhaps you need a QOZB for your Qualified Opportunity Fund? In today’s episode, we highlight some of the most important considerations when structuring your QOZB entity, and best practices for regulatory compliance. Opportunity Zones Podcast host Jimmy Atkinson and OZ Consultants CEO Ashley Tison have teamed…

Read More »

Opportunity Db

October 31, 2019

Big Opportunities in Indian Country: How Tribal Nations Can Leverage Opportunity Zones for Economic Growth

The Opportunity Zone (OZ) program, a community development program created out of the Tax Cuts and Jobs Act of 2017, presents the largest potential capital equity infusion into tribal nations in the history of the United States. With an estimated $6 trillion of unrealized capital gains in the U.S. stock market, the legislation could transform development in these designated areas. Consider that almost 8,700 census tracts have been approved as designated Opportunity Zones, more than 300 of which are in Indian Country, according to the Native American Finance Officers Association (NAFOA).

The OZ program presents tribal nations with the opportunity to attract investors who may have never otherwise considered projects within those spaces. It could also encourage financial institutions that have solely worked on debt financings to also consider equity investments in Indian Country. While there are some concerns about the negative aspects of unchecked development, I believe that with smart planning and strategic thinking, the opportunities this program presents for tribal communities far outweigh the risks.

To take full advantage of the legislation, tribal nations need to develop strategic project plans that range in scale from large master-planned concepts down to neighborhood-level community investments. As part of that strategic effort, tribal nations will need to combine three actions to optimize potential OZ deal offerings that will attract investors:

Continue reading.

Faegre Baker Daniels

October 28, 2019

A Tailored Opportunity Zone Incentive Could Bring Greater Benefits to Distressed Communities and Less Cost to the Federal Government.


Brett Theodos, senior fellow, testified before a subcommittee of the US House Committee on Small Business about Opportunity Zones and how the OZ incentives could be tailored to provide greater benefits to distressed communities at less cost to the federal government. His testimony noted the promising aspects of Opportunity Zones and detailed the limitations and challenges to the program as it currently exists. He also provided options for both the Congress and Administration to act to help redefine Opportunity Zone incentives to bring clearer investments to communities.

Download PDF.

The Urban Institute

Brett Theodos

October 17, 2019

CityLab University: Tax Increment Financing

Behind the dry-as-dust name is a powerful (and controversial) tool for financing urban redevelopment. Here’s a quick guide to understanding TIF.

It’s time again for CityLab University, a resource for understanding some of the most important concepts related to cities and urban policy. If you have constructive feedback or would like to see a similar explainer on other topics, drop us a line at [email protected]

Urban development professionals, neighborhood activists, and diligent readers of local newspapers have very likely come across the term “Tax Increment Financing” (TIF). Whether all of these groups understand what it means is another matter.

This mechanism for financing redevelopment is a powerful and controversial force in American urbanism. Every state except Arizona currently allows it, as does the District of Columbia, and it has become the most popular incentive tool for economic development in the United States as the federal government has decreased its urban development spending. TIF plays a role in megaprojects such as Chicago’s Lincoln Yards and Amazon’s HQ2 in Arlington, Virginia, as well as in smaller-scale neighborhood improvements, affordable housing, and transit projects.

Continue reading.



OCT 24, 2019


Shadid v. City of Oklahoma City

Supreme Court of Oklahoma - October 14, 2019 - P.3d - 2019 WL 5106715 - 2019 OK 65

Objector brought action, seeking assumption of original jurisdiction, for declaratory and injunctive relief, challenging constitutionality of ordinance creating temporary term of excise tax.

The Supreme Court held that:

Supreme Court would exercise its discretion to assume original jurisdiction over objector’s action for declaratory and injunctive relief, challenging constitutionality of excise tax ordinance; decision could significantly affect municipal finance statewide, and matter was urgent as special election was set for just a few months from filing of objector’s petition.

Even if contents of resolution of intent, which accompanied ordinance creating temporary excise tax, set out projects that were not of same subject, this did not render ordinance in violation of constitutional or statutory single subject mandate, where subject matter contained in ordinance itself was clearly germane to excise tax.


Joiner v. Pinellas County

District Court of Appeal of Florida, Second District - September 25, 2019 - So.3d - 2019 WL 4666376 - 44 Fla. L. Weekly D2397

County brought action against appraiser for a second county seeking declaratory and injunctive relief concerning first county’s immunity from paying ad valorem taxes on its ranch property situated in second county and reimbursement of previous years’ tax payments.

The Circuit Court granted first county’s motion for summary judgment. Appraiser appealed.

As a matter of first impression, the District Court of Appeal held that first county’s ranch property was not immune from taxation by second county.

County’s ranch property situated in another county was not immune from taxation by the other county; a county’s immunity from taxation in its sovereignty did not eliminate its obligation to pay taxes on property in another political entity’s jurisdiction.

The First Venture Capital Opportunity Zone Fund.

It’s been nearly six months since the IRS issued its second tranche of regulatory guidance on Qualified Opportunity Funds. How are business Opportunity Zone funds proceeding? Brian Phillips is managing partner of The Pearl Fund, the first Opportunity Zone fund to focus exclusively on business, using a venture capital model. Click the play button below to listen to my conversation with Brian. Episode Highlights Advantages…

Read more.

Opportunity Db

October 9, 2019


Tesoro Logistic Operations, LLC v. City of Rialto

Court of Appeal, Fourth District, Division 2, California - October 2, 2019 - Cal.Rptr.3d - 2019 WL 4853124 - 2019 Daily Journal D.A.R. 9493

Liquid fuel wholesalers, after administrative appeals and refund claims regarding tax paid were denied, brought actions against city, seeking judgment that tax on wholesale liquid fuel storage facilities, calculated based on storage capacity by volume, was unconstitutional real property tax and unlawfully amended voter-adopted ordinance.

Wholesalers moved for judgments on the pleadings, summary judgment, and summary adjudication, and city cross-moved for judgments on the pleadings. The Superior Court denied wholesalers’ motions and entered judgment on pleadings in favor of city on ground that tax was valid business license tax. Wholesalers appealed. Appeals were consolidated.

The Court of AppeaL held that:

City guidelines purporting to implement voter-adopted ordinance imposing tax on operators and owners of wholesale liquid fuel storage facilities unlawfully amended voter-adopted ordinance, where guidelines changed scope and effect of ordinance by limiting application of tax to only those persons operating storage facilities where liquid fuel was actually stored during a calendar year, rather than any persons engaged in the business of owning, operating, leasing, supplying, or providing storage facilities regardless of whether fuel was actually stored, as required under ordinance, changed effect of ordinance from taxing storage capacity, as intended by voters, to taxing business operations, and ordinance did not provide that city could amend or repeal ordinance.

Tax on storage capacity of liquid fuel storage tanks was tax on real property, not excise tax; storage tanks were fixtures or improvements to real property, such that they themselves constituted real property, tax was based on volume of tanks regardless of whether tanks were used in business or how much fuel was stored in them, and mere act of owning fuel storage facility, rather than any incident of ownership such as use of tanks to store fuel or privilege of storing fuel in tanks, triggered liability for tax.

Language in voter-adopted ordinance describing tax imposed on owners and operators of liquid fuel storage facilities based on storage capacity as “business license tax” was incompatible with meaning and effect of ordinance as a whole, and, thus, did not reflect voters’ intent that tax be a business license tax instead of a property tax, where ordinance as a whole taxed volume of storage tanks, which were fixtures or improvements to real property, regardless of whether tanks were used in any business, and mere ownership of tanks triggered tax liability.

Voter-adopted ordinance imposing tax on owners and operators of liquid fuel storage tanks violated constitutional provision restricting real property taxes, where tax was assessed based on storage capacity of tanks, which were fixtures or improvements to real property, regardless of their use, mere ownership triggered tax liability, and tax did not come within constitutional exceptions to general prohibition on property taxes.


Trilisky v. City of Chicago

Appellate Court of Illinois, First District, Fourth Division - September 26, 2019 - N.E.3d - 2019 IL App (1st) 182189 - 2019 WL 4696926

Taxpayer, individually and on behalf of others similarly situated, brought action against city, claiming city had been improperly collecting transfer tax on sales to and from Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac).

The Circuit Court granted city’s motion to dismiss. Taxpayer appealed.

The Appellate Court held that:

A Tailored Opportunity Zone Incentive Could Bring Greater Benefits to Distressed Communities and Less Cost to the Federal Government.


Brett Theodos, senior fellow, testified before a subcommittee of the US House Committee on Small Business about Opportunity Zones and how the OZ incentives could be tailored to provide greater benefits to distressed communities at less cost to the federal government. His testimony noted the promising aspects of Opportunity Zones and detailed the limitations and challenges to the program as it currently exists. He also provided options for both the Congress and Administration to act to help redefine Opportunity Zone incentives to bring clearer investments to communities.

Continue reading.

The Urban Institute

Brett Theodos

October 17, 2019

How Governors Are Shaping the Opportunity Zone Landscape.

Over the past two years, Opportunity Zones (OZs) have become the most discussed piece of federal economic development policy. Now, as the policy rolls out in earnest, the focus once again shifts to the nation’s governors. Given the open-ended nature and limited federal accountability written into the law, state-level policymaking has significant power to shape how Opportunity Zones play out in practice.

Governors must decide whether and how Opportunity Zones fit into their priorities. Given competing demands for state funds, it is critical that governors consider the benefits of creating and modifying programs and policies against their costs to ensure they are worthwhile.

We don’t recommend states jump on the OZ bandwagon without carefully considering what they want the incentive to accomplish and how their supports will encourage that.

To this end, we’ve proposed a five-step process governors can use to maximize the potential benefits of Opportunity Zones for their state’s communities and minimize unintended harms.

  1.  select state-level guiding principles for making decisions about OZs
  2.  create support and accountability systems for OZ projects and investments
  3.  assist aspiring Opportunity Fund managers
  4.  engage with Opportunity Fund investors
  5.  recruit other mission-driven financial actors

But what have governors actually done so far?

A handful of states have taken concerted action to support local community-planning efforts and project matchmaking. Additionally, there are several noteworthy state-level, OZ-paired incentives either recently enacted or currently under consideration.

Continue reading.

The Urban Institute

by Brett Theodos & Brady Meixell

October 7, 2019

OZ Lessons from Opportunity Alabama, with Alex Flachsbart.

How can Opportunity Zones ignite a place-based economic development revolution in one of the nation’s poorest states? Alex Flachsbart is president and CEO of Opportunity Alabama, the nation’s first nonprofit organization to create a marketplace for Opportunity Zone investment in a particular state. Click the play button below to listen to my conversation with Alex. Episode Highlights Alabama’s capital gap and how Opportunity Zones can…

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Opportunity Db

October 16, 2019

IRS TE/GE FY 2019 Program Letter.

Read the Program Letter.

New Private Delivery/Express Mail Address for Exempt Organizations Submissions (Forms 1023, 1024, 1024A, 1028, 8940 and Group Exemption Requests)

Use the following address for private delivery or express mail for the forms shown above:

Internal Revenue Service
Mail Stop 31A: Team 105
7940 Kentucky Drive
Florence, KY 41042

The P.O. Box address for regular mail remains the same:

Internal Revenue Service
P.O. Box 12192
Covington, KY 41012-0192

If you recently submitted an item to another address, it will be forwarded. You do not have to resubmit.

Help for Victims of Hurricane Dorian
IRS is providing tax relief to those affected by Hurricane Dorian. Visit the Hurricane Dorian page for the latest updates, videos and resources for clients who are victims of Hurricane Dorian.

The IRS offers online training for charitable organizations that assist with disaster relief. Disaster Relief – Parts I and II discuss how charities may provide disaster relief, tax law, deductibility of contributions and tax treatment of relief recipients. Organizational leadership and volunteers should attend the Tax-Exempt Organization Workshop for important information on the benefits, limitations and expectations of tax-exempt organizations.

Taxable Muni-Bond Sales Surge as Window Opens for Refinancings.

A window of opportunity has led state and local governments to flood the muni-bond market with refinancings.

State and local governments issued $11 billion of refunding bonds in September, nearly matching the $12.9 billion sold in August when rates fell to record lows. More than a third of the sales during the past two months were taxable debt, showing that rates have fallen so much that states and cities can still capture lower borrowing costs even though President Donald Trump’s tax cut law bars sales of tax-exempt debt for a key type of refinancing.

It’s unusual for state and local governments to issue taxable bonds to replace tax-exempt debt, which cost them less, but “the numbers just work right now,” said Ben Barber, head of municipals at Goldman Sachs Asset Management. “What’s happened is that the rates have come down so much, that issuers are able to sell taxable munis at much lower rates than they were a year ago,” he said.

Taxable Muni-Bond Sales Surge as Window Opens for Refinancings
By Danielle Moran
October 1, 2019, 10:23 AM PDT
Muni issuers sold $11 billion of refunding bonds in September
‘The numbers just work right now’ to sell taxable muni bonds

A window of opportunity has led state and local governments to flood the muni-bond market with refinancings.

State and local governments issued $11 billion of refunding bonds in September, nearly matching the $12.9 billion sold in August when rates fell to record lows. More than a third of the sales during the past two months were taxable debt, showing that rates have fallen so much that states and cities can still capture lower borrowing costs even though President Donald Trump’s tax cut law bars sales of tax-exempt debt for a key type of refinancing.

It’s unusual for state and local governments to issue taxable bonds to replace tax-exempt debt, which cost them less, but “the numbers just work right now,” said Ben Barber, head of municipals at Goldman Sachs Asset Management. “What’s happened is that the rates have come down so much, that issuers are able to sell taxable munis at much lower rates than they were a year ago,” he said.

Continue reading.

Bloomberg Markets

By Danielle Moran

October 1, 2019, 10:23 AM PDT

White House Opportunity and Revitalization Council Introduces

New website will serve as comprehensive tool for the Opportunity Zones initiative

Secretary Ben Carson, on behalf of the White House Opportunity and Revitalization Council, announced a new website that will serve as a hub of information for the array of audiences that work with the Opportunity Zones initiative. Visit the Opportunity Zones website.

Opportunity Zone residents, State and local leaders, investors, and entrepreneurs can all utilize the website to get the latest information about the initiative and the actions of President Trump’s White House Opportunity and Revitalization Council. Secretary Ben Carson serves as chairman of the Council, which is led by Executive Director Scott Turner.

The Opportunity Zones website includes an interactive map of the 8,764 Opportunity Zones nationwide; links to the Opportunity Zone-focused website of each State and Territory; comprehensive Federal tools and resources that support Opportunity Zone residents and complement Qualified Opportunity Fund investments; and the completed action items of each White House Opportunity and Revitalization Council member agency.

“Working together, we are unleashing a wave of investment, innovation, and revitalization into economically distressed areas, many of which have suffered from a lack of opportunity for decades,” Secretary Ben Carson said.

“We are proud to launch and look forward to continuing to spread the positive message of opportunity and revitalization in the underserved communities of America,” said Scott Turner, Executive Director of the Council.

Since President Trump signed an Executive Order creating it, the White House Opportunity and Revitalization Council has taken nearly 170 actions to align existing Federal resources, policies, and programs to Opportunity Zones. To date, the Council has traveled to more than 40 urban, rural, and Tribal areas designated as Opportunity Zones throughout the country to listen to stakeholders about how the initiative can enhance the economic opportunity in their communities.

Multihousing Pro

October 1, 201

D.C. Gears Up to Guide Opportunity Zone Investments.

Opportunity Zones aren’t for everyone.

For starters, the new federal tax break is only available to 7.3 percent of taxpayers. In 2016, that percentage represented 11 million individual and corporate tax returns with positive capital gains income totaling $634 billion. Those billions would be eligible for a tax break under the Opportunity Zone provision of the Tax Cuts and Jobs Act of 2017.

If you’re one of the estimated 35 million United States residents of designated Opportunity Zone census tracts — 60 percent are people of color — the projects and businesses financed through the new Opportunity Zone tax break may create jobs or new amenities or new housing for you, or they may drive up rents or property taxes or otherwise push you out of your neighborhood. As others are reporting, the tax break is already subsidizing projects that probably didn’t need it and won’t do much to help poor communities, though it’s early days yet and cities still have a chance to sway the incoming dollars into projects that will be more beneficial for more people.

A lot will depend on what your city does (or fails to do) in response to the tax break. Some have already done quite a lot, including Washington, D.C. While all other local U.S. governments had to make suggestions to a governor’s office, D.C. Mayor Muriel Bowser submitted D.C.’s Opportunity Zone census tract designations to the U.S. Department of the Treasury in mid-2018.

Continue reading.



OCTOBER 1, 2019

How America’s Poorest ZIP Code is Attracting Opportunity Zone Capital.

Erie, Pennsylvania is home to the nation’s poorest ZIP code, and the nation’s first organization dedicated to promoting a municipality’s Opportunity Zones. Erie Downtown Development Corporation is led by CEO John Persinger and VP for finance and development Matt Wachter. Click the play button below to listen to my conversation with John and Matt. Episode Highlights How Erie’s Opportunity Zone Investment Prospectus has helped enable

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Opportunity Db

October 2, 2019


Village of Georgetown v. Brown County Board of Elections

Supreme Court of Ohio - September 26, 2019 - N.E.3d - 2019 WL 4686730 - 2019 -Ohio- 3915

Village sought writ of prohibition to prevent county board of elections from placing a tax-levy-reduction measure on an upcoming general-election ballot.

The Supreme Court held that:

County board of elections did not abuse its discretion in reversing its prior decision to invalidate 12 printed signatures submitted in support of petition proposing a ballot measure to reduce tax levy that paid for equipment and personnel relating to firefighting and emergency medical services; there was no longer a requirement that signatures be in cursive, discrepancies between cursive signatures on voter-registration forms and printed petition signatures could be resolved by evidence that the printed signatures were authentic, and a signed declaration attesting that the signatures were authentic was the only evidence in the record on the issue.

Tax levy of 9.5 mills that paid for equipment and personnel relating to firefighting and emergency medical services was proper subject of reduction in a proposed ballot measure seeking to reduce the levy to 2.5 mills; ballot measure did not seek to reduce the tax rate to zero, as was otherwise impermissible under statute governing decreases of levies by voters of a subdivision, and, while the levy had not been increased, as required for a levy to be decreased under the statute, a separate statute permitted voters to decrease any levy approved for firefighting and emergency medical services, even if the levy had not previously been increased.

Taxable Advance Refunding Bonds and the World’s Most Boring Ice Cream Cone: Squire Patton Boggs

Taxable debt tempts us to put the Internal Revenue Code back on the library shelf and the tax lawyers back into their pen. But if you use taxable debt to refund tax-exempt debt, or if you might ever refund that taxable debt with tax-exempt debt, then we regret to inform you that we ought to be involved. In a series of posts, we’re going to take a look at some of the questions and complications that arise when issuers and borrowers incorporate straight taxable debt into the same lineage as tax-exempt debt. First up: a taxable advance refunding of tax-exempt bonds.

It might seem odd that an issuer would consider issuing taxable debt, which generally has a higher interest rate than tax-exempt debt, to fund a long-term escrow at the low reinvestment rates that have prevailed for the past 15 years (what fancy folks call “negative arbitrage”) to retire tax-exempt debt. In certain rate environments, such as the present, where shorter-term interest rates applicable to refunding escrow securities are almost equal to the longer-term interest rates that apply to the refunding bonds, it can make sense. The prohibition against the issuance of tax-exempt debt to advance refund tax-exempt bonds enhances the incentive to issue taxable advance refunding bonds in this type of interest rate market.

When you’re assembling the working group to issue the taxable advance refunding bonds, you might be tempted to ignore the tax-exempt bond rules and the public finance tax lawyers on your team. Don’t. Let’s discuss why.[1]

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By Johnny Hutchinson and Michael Cullers on September 25, 2019

The Public Finance Tax Blog

Squire Patton Boggs

Options for Existing Opportunity Zone Property Owners (Podcast Listener Questions)

You’ve got Opportunity Zone questions. We’ve got Opportunity Zone answers. This is the inaugural edition of Opportunity Zones Podcast Listener Questions. Today’s listener questions deal with options for existing Opportunity Zone property owners, incentives for Opportunity Zone businesses, and more. If you’d like to submit your own question or comment, leave a voicemail on the Opportunity Zones Podcast hotline — call (682) 800-1505.

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Opportunity Db

September 25, 2019


Griswold v. National Federation of Independent Business

Supreme Court of Colorado - September 23, 2019 - P.3d - 2019 WL 4581487 - 2019 CO 79

Organization that represented interests of small business owners brought action against state of Colorado and its Secretary of State, alleging that funding mechanism whereby Colorado’s Department of State charged for some of its services to then fund its general operations was unconstitutional under the Taxpayer’s Bill of Rights (TABOR).

The District Court granted summary judgment in favor of state. Organization appealed. The Court of Appeals reversed and remanded. Parties filed cross-petitions for certiorari.

The Supreme Court held that:

Court of Appeals erred in remanding for further development of factual record, on appeal from trial court’s grant of summary judgment in favor of state of Colorado and its Secretary of State, in action brought by organization that represented interests of small business, alleging that funding mechanism whereby Colorado’s Department of State charged for some of its services to then fund its general operations was unconstitutional under Taxpayer’s Bill of Rights (TABOR), where the Court mistook absence of evidence as to whether post-TABOR increase in revenues collected by Department resulted from any government action to support organization’s case for genuine dispute of material fact, even though parties stipulated to facts and denied there was genuine dispute of material fact.

Funding mechanism whereby Colorado’s Department of State charged for some of its services to then fund its general operations was not unconstitutional under the Taxpayer’s Bill of Rights (TABOR), absent showing that post-TABOR adjustments to the charges constituted new tax, tax rate increase, or tax policy change.


Downtown Development District of City of New Orleans v. City of New Orleans

Court of Appeal of Louisiana, Fourth Circuit - May 8, 2019 - 272 So.3d 917 - 2018-0726 (La.App. 4 Cir. 5/8/19)

Special taxing district located within city brought claims alleging city illegally withheld money from tax assessed to benefit district.

The District Court granted district’s request for preliminary injunction and denied district’s request for writ of mandamus. City appealed.

The Court of Appeal held that:

Special taxing district contained within city was political subdivision of State and a separate juridical entity with capacity to sue city; district had separate source of tax revenue used for enhanced services to district’s geographic area, district board had hiring and employment authority, power to enter into contracts with city, and authority to acquire and dispose of property, and district did not appear in charter of city.

City’s obligations to special taxing district were not extinguished under doctrine of confusion, even though city collected special tax in same manner as other ad valorem taxes, where the special tax proceeds were to be turned over to district and used exclusively to benefit district, and thus did not become city funds.

Special taxing district did not need city council approval to bring action against city for illegally withheld money from tax assessed to benefit district, where district’s enabling statute did not require city council approval to hire attorneys or file suit.

Unlawful conduct exception applied, entitling special taxing district to injunctive relief without the requisite showing of irreparable injury in its action against city for illegally withholding money from tax assessed to benefit district, where city’s act of withholding portion of dedicated special tax to defray city’s pension obligations violated district’s enabling statute, and the preliminary injunction issued by the district court restrained city conduct and thus was not a mandatory injunction.

City could not use proceeds of special tax to fund state retirement systems, where enabling statute of special tax district prohibited city from using dedicated special taxes for purposes other than to benefit district.

Preliminary injunction issued by district court enjoining city from withholding proceeds of special tax dedicated for exclusive benefit of special tax district was not vague or overly broad; the parties to the injunction were identified and the acts enjoined, restraining city from withholding more than a two percent collection fee from the special tax, were sufficiently described.

Special taxing district was not entitled to writ of mandamus in its action against city for illegally withholding money from tax assessed to benefit district, where district acknowledged another remedy was available; district combined its request for mandamus with alternative claims for declaratory judgment and damages through which district could seek relief through ordinary procedure.

Opportunity Zone Deal Packaging and Capital Raising.

What are some best practices for packaging an Opportunity Zone real estate deal and raising capital from investors? What are some examples of good deals and bad deals? Gabriel Fernandez is a real estate investment manager in Brooklyn, NY. Click the play button below to listen to my conversation with Gabriel. Episode Highlights Reaction to the recent New York Times article on Opportunity Zones.

Continue reading.

Opportunity Db

September 18, 2019

Georgia Opportunity Zones: Driving Peach State Investment (2019)

October 10, 2019 | Atlanta, GA

Join the Georgia Opportunity Zones: Driving Peach State Investment conference, in partnership with GEDA, on October 10, 2019 for a special one-day conference hosted at the offices of Seyfarth Shaw LLP in Atlanta. This event will feature a number of economic development finance experts from around the state discussing Opportunity Zones and the development finance tools, authorities, resources and approaches, and how these can affect the Georgia economy going forward.

Register today to reserve your spot at the Georgia Opportunity Zones: Driving Peach State Investment conference.


New York & New Jersey: Opportunity Zones & Beyond (2019)

October 3, 2019 | New York, NY

oin the New York & New Jersey: Opportunity Zones & Beyond conference on October 3, 2019 for a special one-day event hosted at the offices of BNY Mellon in New York City. This event will feature a number of economic development finance experts from around the state discussing Opportunity Zones and the development finance tools, authorities, resources and approaches, and how these can affect the New York/New Jersey economy going forward.

Register today to reserve your spot at the New York & New Jersey: Opportunity Zones & Beyond conference.


Catalyzing Opportunity Zone Investments in New England (2019)

October 22, 2019 | Boston, MA

Join CDFA for the Catalyzing Opportunity Zone Investments conference in New England on October 22, 2019 for a special one-day event hosted at the Federal Reserve Bank of Boston. This event will feature a number of economic development finance experts from Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont discussing Opportunity Zones and the development finance tools, authorities, resources and approaches, and how these can affect the New England economies going forward.

Register today to reserve your spot at the Catalyzing Opportunity Zone Investments in New England conference.



Veolia Energy Boston, Inc. v. Board of Assessors of Boston

Supreme Judicial Court of Massachusetts, Suffolk - September 11, 2019 - N.E.3d - 2019 WL 4282265

City board of assessors applied for direct appellate review of decision of Appellate Tax Board abating taxes on certain personal property, specifically, pipes used to produce, store, and deliver steam, owned by and assessed to taxpayer for certain fiscal year, and application was granted.

The Supreme Judicial Court held that Appellate Tax Board’s decision was based on both substantial evidence and correct application of the law.

Appellate Tax Board’s decision abating taxes on pipes taxpayer used to produce, store, and deliver steam was based on both substantial evidence and correct application of the law, where energy system operations expert offered extensive testimony that taxpayer’s pipes and appurtenant equipment formed essential part of single integrated machine.

Opportunity Zones Knock Where They’re Needed Least.

Places like Chapel Hill are poor areas on paper because they’re filled with jobless college kids.

If you stroll down Franklin Street, the main drag here in this wealthy college town, you aren’t likely to think you’ve landed in a disadvantaged place. Just a few blocks from the main campus of the University of North Carolina, groups of happy-looking young people crowd the sidewalks and patronize businesses including Starbucks, Chipotle, Cold Stone Creamery, several national bank branches, a bike shop, a craft-beer brewery and a wine bar.

But like many commercial areas adjacent to major colleges, this section of Chapel Hill is primed to attract millions of additional dollars in new investment thanks to changes that were part of the 2017 tax law. Investors around the country are racing to take advantage of one of the hottest tax-planning strategies in wealth management: sticking money into “opportunity zones.”

The program allows investors to reduce and defer paying capital-gains taxes until 2026 by investing in high-poverty communities. But because of the way the federal government wrote the rules, some census tracts—including Chapel Hill’s—appear on paper to be high-poverty areas but are actually populated by college students with no income. As a result, a tax benefit intended to help poor areas is channeling money to places that are already relatively well-off.

It’s true that Chapel Hill’s opportunity zone has a poverty rate of 47%, three times the state average. But the zone’s median age is 22, 99.8% of residents have high-school diplomas and 49% say they’ve moved in the past year. The tract has a lot of apartments and rental units—including nearly a dozen fraternity and sorority houses—but the median value of owner-occupied housing is $500,000, or triple the state average.

Money is already pouring in. In April a Charlotte-based real-estate firm spent $23.5 million to buy a 119,000-square-foot Franklin Street office building with a ground-level CVS pharmacy and adjacent parking lot. “It is a bit of a head-scratcher why it is an opportunity zone,” the company’s vice president admitted to the Raleigh News & Observer, which noted: “Most people aren’t likely to think of Franklin Street as a disadvantaged area.” The company plans a $12 million renovation to refresh the offices and to convert them to a technology hub. It might include a co-working space.

Many of the country’s 8,700 opportunity zones are in legitimately distressed communities in need of revitalization. Still, as investors have begun announcing deals taking advantage of the tax breaks, some of the projects in opportunity zones appear to fall short of the goal of spurring new investment that lifts up struggling areas.

Developers broke ground in Kentucky last year on a $50 million, 10-story apartment building near the University of Louisville that offers “a unique, unobstructed view of race track Churchill Downs,” according to the trade publication of the National Apartment Association. The developer said: “We planned to build at University of Louisville, anyway, and this financing certainly made that decision even easier.”

In Florida, a Fort Lauderdale developer broke ground this spring on a $40 million apartment building located in an opportunity zone. Monthly rents are expected to go for as much as $1,900. “A lot of these people who are going to live there have a high income,” the developer confessed to a local business publication. The complex will feature amenities including a dog park, a fitness center with a yoga and cycling studio, a full-time concierge and a fourth-floor pool with cabanas.

A Pittsburgh-based real-estate investment firm announced in May that it purchased and plans to upgrade a student-housing community across a pedestrian bridge from the University of Louisiana at Lafayette. The complex already “features a 24-hour fitness center, swimming pool with LED lighting, cybercafe with free printing and a host of other amenities,” the company said in a news release.

A study last year by the Brookings Institution identified 33 college towns with opportunity zones in which more than 85% of residents are college students. The top three were the University of Southern California, Indiana University of Pennsylvania and Illinois State University—each of which has nearby opportunity zones composed of 99% college students.

“There were some obvious flaws in the way this was designed,” Brookings economist Adam Looney says. “You can build anything for any purpose and get the tax break.” He says he has heard of opportunity-zone projects that include building self-storage facilities and solar-power generation, both of which—like renovating luxury student housing—have tenuous connections to community revitalization.

In Chapel Hill, the town’s economic development officer, Dwight Bassett, says the opportunity zone is leading other investors to sniff around the college town—a development he welcomes. Asked if he’d describe the area as impoverished, he says, “No, I wouldn’t.” He adds, however, that a North Carolina Commerce Department official told him last year that the town had two census tracts eligible to become opportunity zones. The official asked Mr. Bassett to recommend one. “We looked where we could get the most economic benefit out of it,” he says, “and that’s the one we nominated.”

The Wall Street Journal

By Tony Mecia

Sept. 13, 2019 6:10 pm ET

Mr. Mecia is editor of the Charlotte Ledger, a business publication in Charlotte, N.C.

OZ Criticisms and How to Strengthen Local Communities (Weekly News Roundup)

Here are five of the most intriguing Opportunity Zones articles from the past week or so. Several articles, notably the big New York Times piece from August 31, were critical of the OZ program and how little it has helped low-income communities so far.

Read More »

Opportunity Db

September 10, 2019

Is There a Big Problem With the Opportunity Zones Program?

Is there a big problem with the Opportunity Zones program?

Thomas Morgan is a real estate developer, broker, and investor who specializes in impact investing and 1031 exchange strategies. On today’s episode, we discuss the recent New York Times article and the challenges of raising Opportunity Zone capital for projects in blighted locations.

Read More »


Rare Air Limited, LLC v. Property Tax Administrator

Colorado Court of Appeals, Division II - August 29, 2019 - P.3d - 2019 WL 4064961 - 2019 COA 134

Taxpayer, a lessee of land owned by political subdivision of State, appealed order of the Board of Assessment Appeals (BAA) upholding tax assessment on aircraft hanger facility which taxpayer had constructed on the land.

The Court of Appeals held that:

Lessee of land owned by airport authority, a political subdivision of State, upon which lessee constructed an aircraft hanger facility at its own expense, possessed a taxable ownership interest in the hanger facility, where lease vested in lessee significant benefits of ownership in the facility, including exclusive use of the facility, right to all depreciation and tax advantages, retention of all profits generated, and rights to encumber improvements and assign or transfer them with proper authorization, lessee also had duty to maintain the facility at its own expense, to pay any assessed taxes pursuant to the terms, and to insure the facility at its own expense, and lessee held title to the facility.

Lessee’s possessory interest in aircraft hanger facility on land owned by airport authority, a political subdivision of State, was subject to taxation; lessee owned a significant interest in the property from which it derived profits for private benefit, and lessee had exclusive right of possession to the property.



The Great Tax Break Heist.

The many, many fiascos of policy by tax cut.

Tax scams are the tribute policy vice pays to policy virtue.

A few days ago The Times reported on widespread abuse of a provision in the 2017 Trump tax cut that was supposed to help struggling urban workers. The provision created a tax break for investment in so-called “opportunity zones,” which would supposedly help create jobs in low-income areas. In reality the tax break has been used to support high-end hotels and apartment buildings, warehouses that employ hardly any people and so on. And it has made a handful of wealthy, well-connected investors — including the family of Jared Kushner, Donald Trump’s son-in-law — even wealthier.

It’s quite a story. But it should be seen in a broader context, as a symptom of the Republican Party’s unwillingness to perform the basic functions of government.

Continue reading.

The New York Times

By Paul Krugman

Sep. 20, 2019

Developing OZ Owner Occupied Housing on a Massive Scale, with NeighborBuilt.

Is the development of owner occupied housing on a massive scale achievable in blighted Opportunity Zone neighborhoods? First, you have…

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Opportunity Db

September 4, 2019

Review of Department of Commerce Policy in Opportunity Zones.

Read the review.

CDFI Fund Opens CY 2019 Round of New Markets Tax Credit Program.

The U.S. Department of the Treasury’s Community Development Financial Institutions Fund (CDFI Fund) released today the Notice of Allocation Availability (NOAA) for the calendar year (CY) 2019 round of the New Markets Tax Credit Program (NMTC Program). The NOAA makes up to $3.5 billion in tax credit allocation authority available for the CY 2019 round. The CDFI Fund provided the NOAA on its website in anticipation of its publication in the Federal Register on September 6, 2019.

The NMTC Program spurs investment of private sector capital into distressed communities by providing a tax credit to corporate or individual taxpayers who make Qualified Equity Investments (QEIs) in designated Community Development Entities (CDEs). The CDEs, in turn, invest the capital raised into businesses in low-income communities. The credit provided to the investor totals 39 percent of the investment in a CDE and is claimed over a seven-year credit allowance period.

The CDFI Fund has made 1,178 awards—totaling $57.5 billion in tax credit allocation authority—to CDEs through the NMTC Program since the program’s inception. More information about the NMTC Program can be found on the program’s webpage,, or in the program’s fact sheet.

Continue reading.

Wednesday, September 4, 2019


City of Lawrenceburg v. Franklin County

Court of Appeals of Indiana - August 28, 2019 - N.E.3d - 2019 WL 4050295

County brought action against city for breach of contract, stemming from city’s alleged failure to make payments to county under agreement to share gaming tax revenue.

The Superior Court entered summary judgment in favor of county. City appealed.

The Court of Appeals held that:

City did not waive its argument that agreement to share gaming tax revenue was void by statute, in county’s breach of contract action against city, though city did not assert that agreement was void by statute in its answer and raised argument for the first time in summary judgment proceedings; county had ample time to respond and did respond to city’s arguments made at summary judgment, county designated no evidence showing prejudice from timing of city’s arguments, and argument was a purely legal argument that did not necessitate a fully developed factual record to address.

City’s agreement to share gaming tax revenue with county was void by statute, in county’s breach of contract action against city, though revenue sharing statute allowed city to share its gambling revenue with county without county having to provide actual consideration; statute governing obligations of city beyond amount of money appropriated required city to appropriate all necessary funds to fulfill agreement at time it was executed, and city did not appropriate any money to fulfill agreement at time it was executed.

San Francisco Assessor Sues Over Ballpark Tax Win.

(TNS) — San Francisco Assessor Carmen Chu is suing both the San Francisco Giants and the city’s own Assessment Appeals Board over a multimillion-dollar property tax assessment break granted to the team’s Oracle Park.

At issue is the assessed taxable value of the 42,000-seat waterfront stadium, which sits on land leased from the Port of San Francisco.

Chu set the park’s assessment at $415 million for 2015, $421 million for 2016 and $430 million for 2017.

The Giants countered with an estimate of $309 million for 2015, $306 million for 2016 and $298 million for 2017.

Why the difference? The assessor’s office argues the ballpark is like a house or office building — its value has risen during the real estate boom. But the Giants argue that the ballpark may need to be upgraded in the future — so it was less valuable.

After hearing both sides, the Assessment Appeals Board, which is independent of the Assessor-Recorder’s Office, decided the park’s value had risen, but at a far slower rate than set by the assessor. The board set the park’s value at $385 million for 2015, $405 million for 2016 and $437 million for 2017.

The difference would mean San Francisco losing out on about $543,000 in property taxes over the three years in dispute.

The taxes for 2018 are still under appeal.

“A single legal error in the board’s analysis caused a reduction of approximately $185 million each year,” the assessor states in the lawsuit, filed Friday in San Francisco Superior Court.

“The single error is that they double counted the current depreciation of the ballpark and gave credit for future depreciations that may or may occur in the future,” said Vivian Po, spokeswoman for the assessor. “We don’t want the Giants to get property tax deductions that nobody else can get.”

Assessment Appeals Board Administrator Dawn Duran stands by the decision.

“The board handles all of the large conflicts, including the big hotels and office buildings and the three who heard the (ballpark) case are all seasoned board members,” Duran said. “I really don’t have a comment, as I have yet to see the lawsuit,” she added.

The Giants didn’t respond immediately to a request for comment.

As for the oddity of one city office filing suit against another, Duran said, “It’s rare but it does happen. The assessor has the right to file suit, just as any taxpayer has the right to take (the board) to court.”

It’s not the first tax go-round among the assessor, the Giants and the appeals board. Since Oracle Park opened in 2000 as Pac Bell Park, the Giants have consistently challenged the city’s annual tax assessments.

For example, Chu set the 2014 value of the ballpark at almost $407 million, while the Giants pegged it at more like $158 million and then upped the estimate to $254 million just before the hearing.

The Assessment Appeals Board eventually ruled that the ballpark’s value was about $365 million, way below the assessor’s estimate, earning the Giants at $548,343 refund.

Oracle Park isn’t the only stadium where different parties see the tax valuations differently.

Santa Clara County Assessor Larry Stone sued his county Assessment Appeals Board in late May for its assessment of the 49ers’ Levi’s Stadium in Santa Clara.

That board ruled the 49ers were responsible only for half of the assessed value on the $1.2 billion Levi’s Stadium, because the football season is only half the year long.

Stone argued that the 49ers use the facility year-round for concerts and other sporting events “that have a value that the Assessment Appeals Board is ignoring.”

The board didn’t buy the argument and, as a result, the 49ers got a one-time, $36 million tax refund and a $6 million tax cut in their annual taxes.

Meanwhile, the Santa Clara suit is making its way through Superior Court.

“These sports stadium tax deals are quite complex, and teams all across the nation are paying significant attention to these cases,” Stone said.

Triple play: It was a good night for San Francisco Mayor London Breed and a bad night for the progressives at the Democratic County Central Committee Wednesday evening.

Not only did the committee vote to back Breed’s re-election this November, it also voted to endorse Breed’s hand-picked replacement on the Board of Supervisors, Vallie Brown, over Democratic socialist Dean Preston.

Preston’s campaign manager, Jen Snyder, reacted by flipping the DCCC members the bird.

“That was me, an uppity, outspoken Democratic socialist who shows her mind when the DCCC endorses a candidate backed by the real estate industry,” Snyder said.

Former prosecutor, Suzy Loftus, Breed’s pick in the district attorney’s race, also got the nod from the panel.

Park it: San Francisco Recreation and Park Department General Manager Phil Ginsburg has been tapped by Gov. Gavin Newsom for a seat on the California State Park and Recreation Commission.

Ginsburg has been general manager of Rec and Park since 2009. He also served as chief of staff for a spell when Newsom was mayor.

During Ginsburg’s tenure, San Francisco has raised more than $150 million in private donations to help fund scholarships, renovate soccer fields, playgrounds and parks, and the Golden Gate Park Tennis Center

He also has been a key player in bringing big concerts, like the Outside Lands music festival, to San Francisco’s Golden Gate Park and Paul McCartney to Candlestick Park for its final event. But Ginsburg said he had no plans to push for big festivals at state parks.

When asked if Newsom had given him any mandate, Ginsburs said “yes, to show up at the meetings.”

The job pays $100 a meeting.

SEPTEMBER 6, 2019 AT 3:05 AM

©2019 the San Francisco Chronicle. Distributed by Tribune Content Agency, LLC.


Reservoir v. Township

Superior Court of New Jersey, Appellate Division - August 22, 2019 - A.3d - 2019 WL 3949208

Taxpayer which operated a reservoir brought multiple actions challenging township’s assessment of property taxes.

After trial, the Tax Court affirmed the assessments but also awarded taxpayer a functional obsolescence deduction. Taxpayer appealed and township cross appealed.

The Superior Court held that:

Original construction costs of a reservoir were reliable for purposes of ascertaining true value of taxpayer’s reservoir, and thus Tax Court could use trended cost analysis to determine value in taxpayer’s action challenging tax assessments; the reservoir constituted special purpose property, there were detailed cost compilations available regarding reservoir’s construction, and employee responsible for estimating the original construction costs testified as to these costs.

Soft or indirect costs such as engineering and architect’s charges, environmental site planning, interior design, the expenses of a landscape architect, the cost of bringing utilities to the site, project supervision, a traffic consultant, financing charges, interest and taxes during construction, insurance and legal fees are all properly included in the cost of improvements for the purpose of establishing real property’s true value.

Tax Court’s choice to trend under trended cost analysis the costs incurred by taxpayer in settling claims with a contractor, public relations, and installation and maintenance of a bubble for continuation of construction work on taxpayer’s reservoir during the winter did not constitute reversible error reservoir in taxpayer’s action challenging property tax assessments; as a matter of law, the Court could consider public relations a reasonable expense incidental to construction of a controversial project such as the reservoir and record showed that the construction-related costs were those that any prudent person replacing the reservoir would have payed.

Evidence was sufficient to establish that the original costs incurred by taxpayer in constructing a reservoir were reasonable and reliable, supporting Tax Court’s decision to award taxpayer a deduction for functional obsolescence based on increased construction costs; although the project stayed within budget, the record showed that bad weather and a poorly performing project manager imposed additional expenses on taxpayer.

The Multi-Asset QOZB that Combines Entertainment and Real Estate.

How can real estate and a unique entertainment product combine into a Qualified Opportunity Zone Business to deliver long-lasting social

Read More »

Opportunity Db

August 28, 2019

Mobile Sports Betting Is the Moneymaker as More States Legalize.

Some states that disallow mobile wagers, like Mississippi, have brought in less tax revenue than expected from sports gambling

Bets placed via smartphones have rapidly brought New Jersey neck-and-neck with Nevada in the race to be the nation’s biggest sports-betting market.

Limits in other states, though, could hamper the nascent industry’s growth.

Online gamblers now account for about 80% of all legal wagers on games in New Jersey, which surpassed Nevada for the first time in May in monthly sports bets, according to figures released by the two states. New Jersey legalized sports betting last year, following a Supreme Court ruling that allowed such moves by individual states.

Continue reading.

The Wall Street Journal

By Katherine Sayre

Sept. 2, 2019 1:34 pm ET


School District of Philadelphia v. Board of Revision of Taxes

Commonwealth Court of Pennsylvania - August 22, 2019 - A.3d - 2019 WL 3948895

City school district sought review of determination by city board of revision of taxes concerning tax assessments of commercial properties. Taxpayers filed motion to quash.

The Court of Common Pleas granted taxpayers’ motion to quash. School district appealed.

The Commonwealth Court held that:

The Record High Price of Some Muni Bonds Erases the Tax Breaks.

Investors who are paying near record-high prices for the shortest-dated state and local government bonds may think the tax break makes it worthwhile.

It doesn’t.

U.S. Treasuries that mature in one year are providing bigger after-tax yields than traditional municipal debt, AllianceBernstein Holding LP said in its weekly note. That’s because the price run up pushed the yields on one-year tax exempt debt to about 0.91% by Friday’s close, or about 55% of those on Treasuries.

Steep drop in yields wipes out tax advantage of municipal bonds
That measure of relative value is only slightly above what it was earlier last week, when it hit the the lowest since at least 2001, according to data compiled by Bloomberg. The lower the ratio drops, the more pricey the municipal securities are in comparison.

The mutual-fund company said it’s very unusual for the tax advantage of state and local government debt to be non-existent, and it suggested that investors shift some of their cash into short-term Treasuries instead. They said the federal government securities also provide a “modest amount” of recession insurance because that have historically outperformed during economic contractions.

Bloomberg Markets

By Martin Z Braun

August 19, 2019, 9:17 AM PDT


Mass v. Franchise Tax Board

Court of Appeal, Second District, Division 3, California - August 15, 2019 - Cal.Rptr.3d - 2019 WL 3823675 - 19 Cal. Daily Op. Serv. 8154

Taxpayers filed a complaint for refund of taxes paid on interest dividends that they received as a result of holding shares in a regulated investment company that received 12.41% of its interest income from its holdings in California municipal bonds, which were interest dividends that, taxpayers contended, were exempt from taxation under the state constitution.

The Superior Court determined that the interest dividends were taxable. Taxpayers appealed.

The Court of Appeal held that the statute pursuant to which the interest dividends were taxed did not run afoul of state constitutional provision that interest on bonds issued by the state or local government in the state was exempt from taxes on income.

State statute taxing interest dividends that taxpayers received as a result of holding shares in a regulated investment company that received 12.41% of its interest income from its holdings in California municipal bonds did not run afoul of state constitutional provision that interest on bonds issued by the state or local government in the state was exempt from taxes on income.

Sanity Check for Qualified Opportunity Zone Investments.

A deadline is looming to maximize the stepped-up basis afforded to realized capital gains invested in qualified opportunity zone properties and businesses.

To get the full 15 percent step-up in basis, investment must be made by the end of 2019. There has been a corresponding surge of offerings, primarily real estate investment trust-like investments in commercial and residential properties, offered by the same firms that have offered such private offerings in the past and through the same channels. The difference is that these funds are being promoted to individuals who are inexperienced in investing as a limited partner or minority shareholder in a private REIT, or a private equity fund, which could be a disaster both for those advising such investors and those who are managing qualified opportunity zone funds. To avoid making mistakes, here is a sanity check to see if investing in a QOZ property or business makes any sense.

The opportunity zone concept has been around since the Clinton administration; the qualified opportunity zones, however, are new, having been formed in 2018 (based on 2010 census data) by the 2017 Tax Reform Act. The rationale is that private investments, now held in highly appreciated assets, will help economically distressed locations if those private investors: 1) sell their existing assets, and 2) reinvest the proceeds into new or newly renovated properties and new businesses in those locations. To encourage this sale and reinvestment, a deferral of the tax on realized capital gains for up to seven years, a stepped-up basis of up to 15 percent and the exclusion from capital gains of any appreciation on the QOZ investments held for more than 10 years is offered. The details of how a QOZ fund or investment must be managed are too complex to go into here. Suffice it to say, that qualification depends on strict compliance with the new, and sometimes ambiguous, regulations.

Private investors, individuals or institutions have not sold appreciated assets to invest in distressed communities in the past. Indeed, 75 percent of all private equity investments goes to just three states: Massachusetts, California and New York. This is because they believe they will not get a greater than market rate of return for their investment at equal or lower relative levels of risk by investing in such communities and properties relative to the high tech and biomedical investments that have proven to be such good investments in the past. By offering a significant financial incentive for such an investment, the government is boosting the implied rate of return on the reinvestment of realized gains by allowing the investor to use the amount otherwise needed to pay the tax (anywhere from 15 to 28 percent, plus the 3.8 percent investment tax) for up to seven years, and, if kept in the QOZ investment for more than 10 years, excluding the appreciation on that investment.

What is uncertain is whether any experienced investor will find these financial incentives sufficient to change the way they allocate their investment dollars. What is certain is that many inexperienced investors will be pitched the QOZ funds as a way of deferring capital gains taxes.

1. What are the investor’s objectives?

Success is achieving an investor’s objectives. The selection of a specific property or business investment as a limited partner or minority equity owner means the investors have a common objective in making the investment. Saving taxes is not an objective; it is just one way of reducing the friction incurred when making an investment. Other objectives include return on investment, security both in withdrawing funds during the 10 years and exiting the fund after 10 years, and the satisfactory results in short and long term.

Whether a QOZ is worth it depends on the specific situation. Since it is so new, QOZ funds are uncertain and may be costly. The advisor must weigh the net benefit to the investor of deferring capital gains against the likely costs and risks of such an investment and educate the investor of those risks and costs. Said a different way, is it worth spending $20,000 in fees over 10 years to save $20,000 of capital gains taxes on a $100,000 gain today, with only a 50/50 chance of getting a positive return on your investment?

2. Is investing in new or rehabilitated property, or growth of a private business, the best way to achieve the Investor’s objectives?

To qualify, investments must be realized capital gains that are equity investments in new or rehabilitated property or the growth of a business (sufficient to double the cost basis of the rehab property or growth of the existing business) in the QOZ. Deploying new investment capital into new or existing properties and businesses is not as simple as buying the stock of a publicly traded growth company. The management of the fund and the management of the property or business must work hard together to not waste time and money, and getting that experience and expertise is not cheap. The private investment landscape is littered with the wreckage of properties and businesses that failed less because they were a bad idea, but rather because too much new money came into the firm and not enough talent to deploy it.

3. Does the investor have the right team of professionals?

Because the QOZ program was created by recent legislation, both understanding and complying with the regulations is critical. For example, the calculations in Forms 8949 and 8996 seem straightforward, but failure to correctly prepare and file these forms in a timely manner is fatal to qualifying for the tax deferral. Additionally, the tax deferral only works to achieve the client’s goals if that deferral is leveraged with the rest of the client’s planning and administration. The client needs to have access to a financial advisor, a real estate investment advisor, a private equity investment advisor, a CPA and an attorney with corporate and estate planning experience — all of whom are familiar with the requirements and effects of investing in a QOZ fund or business. Relying on just one professional leaves the client open to that professional’s blind spots: their natural bias to do what they already know how to do. This includes going with 1031 exchanges for the real estate investment advisor, the promoted QOZ funds for the financial advisor and so on.

4. Is QOZ investment even necessary to achieve the investor’s objectives?

There are alternatives to QOZ for deferring realized capital gains, so the client needs to examine whether the QOZ investment is really necessary to achieve their goals. As mentioned above, the 1031 like-kind exchange remains available for real estate investments, but there are other alternatives, including charitable remainder trusts, charitable lead trusts, deferred sales trusts, et al. Each has their own advantages and their own drawbacks, but each should be considered a way of achieving the client’s objectives as they may make investing in a QOZ unnecessary.

5. Is what the promoters claim even possible, considering this has never been done before?

Any passive investment in a private equity fund or REIT will be promoted. The claims of the promoters need to be verified as being possible since the newness of this program means that any claims made in their promotional materials is even less likely to be true than the usual “puffing” that goes with promoting a new venture. This is doubly so for QOZ investments. This requires a more detailed investigation into the structure of the fund, the underlying assets, the periodic liquidity and exit strategy, who the managers of the fund or business are, as well as the focus, strategy and terms of the investment and so forth. Even if the offerings comply with the SEC regulations, most commonly Reg A and Reg D, it is very likely that a passive investor will give up most, if not all, control over their investments in the QOZ funds. Before you invest is the time to have second thoughts.

6. Is a QOZ investment currently viable?

Considering the uncertainty of the actual implementation and management of QOZ investments, and the hostility many of the Democratic candidates have toward the 2017 tax cuts in general, is a long-term investment in a QOZ a viable strategy anyway? This depends on the client’s objectives, but the viability of QOZ tax deferral in the future needs to be considered. Even if the underlying legislation does not come under attack, the capital gains rates could be changed so that in 2026, when tax on 85 percent of the realized gains invested in the QOZ fund are due, the net tax is greater than if the client has paid the capital gains tax at the 2019 rates to begin with.

The corollary to this question is what will be “Plan B” if the QOZ deferral is no longer a viable option?

7. Is the investor ready to deal with the worst possible outcome?

Is your client really ready to deal with the worst possible outcome? For some, it is the loss of the entire value of the invested gains in the first seven years of the investment. For others, it is being caught up in the social and political blame of gentrification of low-income neighborhoods. Whichever it may be, have you informed your clients of the possible downsides of passively investing in an equity position in a property or business located in economically distressed locations? Do they understand the risks?

Qualified opportunity zone investments are an important strategy for experienced private investors to leverage their investments in real estate properties and direct equity investments in new and growing businesses. They will need to be as skeptical of the promoted investments as they always should be when making a long-term investment in private equity funds and REITs. For clients who are new to passive or direct investing in such properties and businesses, who suddenly find themselves holding significant realized gains from the liquidation of their business, real estate holdings, or even such things as artwork and other tangible property, investing in a QOZ fund or business is perilous. Expect that QOZ funds, especially the REIT model funds, will be promoted heavily between now and the end of the year to these inexperienced investors. If you are an advisor, these questions will help your clients avoid a mistake. For fund managers, these questions will help you avoid getting saddled with minority investors who turn out to be more trouble than they are worth.

Matthew Erskine Managing partner, Erskine & Erskine LLC

August 16, 2019, 2:45 p.m. EDT

How Opportunity Zones and Co-Working Spaces Joined Forces.

The combination of opportunity zones and shared office space is creating incubators of start-ups and investors in underserved markets.

“There’s a lot of interesting stuff happening around Fort Wayne, but it was all happening within silos,” said Jeff Kingsbury, chief connectivity officer at Ancora, a private real estate firm based in Durham, N.C., that is backing Electric Works. “By creating that kind of center of gravity, we achieve a density, coupled with amenities, that really helps to draw innovation.”

Construction on Electric Works is scheduled to start in the first quarter of 2020, and is expected to take at least 18 months. The co-working component echoes a larger trend that is drawing more entrepreneurs to opportunity zones.

The opportunity zone program, enacted as part of the federal tax overhaul in December 2017, was created to stimulate private investment in economically distressed communities in exchange for a break on the capital gains tax. There are now more than 8,700 such zones nationwide.

Continue reading.

The New York Times

By Tom Acitelli

Published Aug. 20, 2019

Chris Rawley: Agriculture Investing in Opportunity Zones

How can agribusiness capitalize on the Opportunity Zones program? Chris Rawley is founder and CEO of Fort Worth, TX-based Harvest…

Read More »

Opportunity Db

August 21, 2019


NJ DEP/UFT v. Township of Upper Freehold

Tax Court of New Jersey - July 26, 2019 - N.J.Tax - 2019 WL 3406316

For-profit company sought a local property tax exemption for state-owned golf course and restaurant that it operated.

Company moved for summary judgment.

The Tax Court held that:

Restaurant on state-owned golf course property operated by for-profit company was exempt from local property tax, where provision of food and beverages was an expected amenity to golf course, restaurant was necessary to success of golf course, restaurant was located directly adjacent to the golf course and received a large percentage of patronage from golfers, and golf course furthered public purpose by providing recreational activity.

Leasing documents between government and for-profit company operating golf course and restaurant on state-owned property did not preclude application for tax-exempt status, even though the lease directed company to “pay all property taxes assessed,” where documents also directed payment of taxes “if applicable,” and no language in documents expressly precluded application for exemption.

Leaning on the Land.

More and more communities are considering reviving an old tax idea that’s been tried in only a few places.

The Market-Frankford rail line curves past an empty lot in Millbourne, Pa., a piece of land that marks both the rise and fall of the small borough just west of Philadelphia.

A Sears store once stood on the lot. Taxes collected from the store’s real estate enriched the treasury of the borough for more than 60 years. The store’s tax payments were the single largest source of revenue for Millbourne, enough for its 1,200 residents to have their own full-time police force. But in 1989, Sears decamped from Millbourne, moving one town over to the much larger and more affluent Upper Darby.

Like most municipalities, Millbourne relied heavily on property taxes. The city taxed land and the buildings on top of the land at the same rate, which is typical for cities across the country. And the Sears store was the largest structure in town on the largest parcel—17 acres. “For many years,” says Millbourne Mayor Tom Kramer, “that area of land was the meat and potatoes of the borough.” But when Sears closed and the building was demolished, Millbourne’s property tax revenue all but evaporated.

Millbourne fell into financial ruin. Five years after the store closed, the borough was designated as financially distressed by the state. That made it eligible for additional financial support and debt restructuring, but it was no help to the community’s reputation or self-image. The mark would remain on Millbourne’s back for 21 years.

The town was unable to lure in new development with tax breaks, so to avoid financial ruin, it leaned on its homeowners to fill the gap in municipal finances. Tax bills skyrocketed between 1993 and 2014. But city leaders ultimately realized the long-term vitality of Millbourne could not be financed by single-family homeowners. High taxes would eventually chase residents away. At the very least, continued increases to property taxes could spark a tax revolt like those that challenged high property rates in California in the 1970s and, closer to home, costly reassessments in Pittsburgh in 2001.

Where Sears once stood, weeds and wildlife have taken over. And from the train platform, the empty lot remains an eyesore in Millbourne. But the gash in the borough’s finances has been mended. The town turned to an old yet radical idea to raise revenue. It enacted a land value tax, levying high rates on the land itself and none at all on the structures built there. The tax burden was shifted. Homeowners saw their tax bills cut nearly by a third. Meanwhile, the Sears property, which still swallows up more than a third of the land in the city, saw its tax bill double.

The land value tax, a 19th-century idea, not only raised necessary funds to keep the city afloat financially, but, as intended, forced landowners to make more productive use of other large properties. A former car dealership and a bowling alley, the second and third largest parcels in Millbourne, are now under development. “It’s sort of a stick-and-carrot approach,” Kramer says.

It’s not an approach that many cities are using at the moment. But it’s an idea that quite a few local governments, most but not all of them in Pennsylvania, are starting to think about.

Property taxes have been levied since the Middle Ages, but generally not in the most efficient manner. Medieval European kings sent tax collectors out to count the number of hearths in private homes, assuming the tally was the best approximation of how many people lived in the house. In 17th-century England, tax collectors counted windows. The idea was that the more windows a property had, the more valuable the property. This clumsy assessment was easily evaded. Property owners simply bricked their windows up. The legacy of this practice can still be seen in London and other industrial centers in England. It had detrimental health implications when the Industrial Revolution drew thousands from the country into the city, where they were often forced to live in windowless buildings with poor circulation.

Meanwhile in the United States, land acquisition was making even some of the Founding Fathers extremely wealthy. George Washington amassed a huge fortune through land speculation across colonies and frontiers. “Tax policy has always encouraged land speculators,” says Ed Dodson, a former market analyst with Fannie Mae and professor at Temple University. “It makes it easy for speculators to acquire and hold land and wait for public-private partnerships to come along with funds to pay them their profit for speculating.”

In 1879, the journalist and political economist Henry George wrote Progress and Poverty, a book challenging the notion that land speculation should reap such large profits. George suggested levying high taxes on land itself, and freeing improvements on the land from taxation. The land taxes would be high enough that an owner would either convert the land into a profit-making enterprise or sell it to someone who would. “The economic value of bare land does not derive from the actions of the owner,” says Joan Youngman, a senior fellow at the Lincoln Institute of Land Policy. “A piece of bare land has value because of the growth of society and the activities around it.” Large landowners, she says, are actually engaging in a form of rent-seeking, buying and sitting on a piece of land at virtually no cost to themselves and waiting for the opportune time to sell after making little or no investment.

George wanted to break that cycle, and his theory was put to the test in the early 20th century in Pennsylvania, when it was used in an effort to break up large undeveloped tracts of land owned by the state’s steel barons, notably Andrew Carnegie and Henry Clay Frick. The state adopted legislation allowing its cities to adopt a land value tax. A handful of them did. Most of them weren’t the pure Henry George variety, under which developed structures escaped any taxation at all. They tended to be two-tiered systems, with buildings taxed but at a much lower rate than land.

Pittsburgh was one of the early adopters. The result was the development of affordable homes for many of the workers in Carnegie’s steel mills. Land value taxes grew in popularity in Pennsylvania well into the mid-1900s. But there was a serious problem. Municipalities seldom bothered to reassess the value of the land. Pittsburgh had to scrap the tax in 2001 after a backlash against land value reassessments sparked outrage from homeowners. “Pittsburgh went too long without revaluing,” Youngman says. “If you fail to revalue, you’ll have a revolt because you get sticker shock.”

And even though the city had a land value tax system from 1913 to 2001, Pittsburgh still saw the gradual decline of its industrial base in the second half of the 20th century. Steel mills slowed their output after their postwar boom. The accompanying decline in tax revenue wasn’t so much a failure of the land tax system as a failure of local industries to keep pace with foreign competitors as steel-making advanced. Some critics felt the land tax was unjustly blamed for the economic collapse.

The land value tax didn’t fail Pittsburgh as much as the political system did. For decades, city leaders balked at tax assessments, which had been lagging behind the real value of land since the 1940s. Rather than adjust the land assessments to match property values, the city instituted a property tax in 1954 to fill gaps in the budget. As residents continued to leave the city, its tax base continued to dwindle. Yet Pittsburgh’s leaders could not muster the political will to reassess land values. By the mid-1990s, though, the city was forced to reassess property values to help pay for services. When the assessments for 2000-2001 came back, land value taxes jumped 81 percent and taxes on buildings by 43 percent. The new valuations were in line with the actual appreciation of the land. But affluent Pittsburgh residents angered by the steep increases rejected them and filed thousands of tax appeals. The city scrapped its land value tax. “The 2001 abandonment of the split-rate in Pittsburgh,” University of Pennsylvania professor Mark A. Hughes wrote in 2005, “is a compelling example of the limited role that evidence often plays in policy decisions.”

But Pittsburgh didn’t abandon the tax idea completely. Since 1997, the city has used a pure land value tax to assess property within the confines of its central business district. After the Great Recession, downtown construction picked up. In the last 10 years, $8.5 billion in development has either been constructed or planned, according to a report by the Pittsburgh Downtown Partnership.

Meanwhile, California was confronting some of the same problems, but with a different outcome. As the state boomed after World War II, its population tripled. With that rapid growth came a housing crunch that led to rapidly increasing residential property taxes. A tax revolt broke out in the 1970s, and in 1978, voters approved Proposition 13, a ballot measure that rewrote the property tax system in the state. Property taxes were assessed at no more than 1 percent of residential or commercial building value and could only increase 2 percent per year.

Had the property tax reductions been accompanied by a significant land tax, George’s theories might have been given a meaningful test. But land taxes were also kept low, which didn’t promote the best use of property. With property taxes strictly limited, municipalities scrambled to attract car dealers, shopping malls and even parking lots to produce sales tax receipts. Improvements to the land were minimal, and the land itself brought in very little. One of the biggest losers was the state treasury.

But the biggest victim of all was the state’s school system. Prop. 13 constricted the main source for school revenue. The largest state in the nation, with by far the largest economy, fell to 41st in per pupil spending. Recently, some school districts in the state have turned to a revenue scheme almost akin to George’s land value tax. They are placing a flat tax on each parcel of land within a school district boundary, regardless of the improvements made on the land. The city of Oakland began imposing a vacant land tax earlier this year. It taxes owners of vacant lots $6,000 per year, and vacant condominiums $3,000 per year. The money will be used to address affordable housing and homelessness.

While California was struggling with its property tax system, some Pennsylvania cities still depended on a land tax. Harrisburg, the state capital, was using the land tax as a way of revitalizing its economy. In 1975, as industrial decline and white flight gripped Pennsylvania’s rust belt, Harrisburg adopted its two-tiered land value tax. It took some time, but city leaders insisted that taxing vacant land rather than development would revitalize the downtown. There’s some evidence they were right. Between the early 1980s and the early 2000s, the number of vacant buildings declined from more than 4,000 to about 500, and the number of businesses increased more than fourfold. Other Pennsylvania cities have followed Harrisburg’s lead.

Aliquippa is one of them. A small working-class town west of Pittsburgh along the Ohio River, it was once home to Jones and Laughlin Steel. The J&L plant supported the town and its residents until it shuttered in the 1980s, leaving many of the workers without jobs and the town short on resources. Overnight, the city lost 30 percent of its tax revenue. “The amount of vacant land from the demolition of steel plants,” says Joshua Vincent, president of the Center for the Study of Economics, “put extra pressure on out-of-work steel workers and businesses on Main Street.” In 1988, Aliquippa adopted a land value tax. From that point on, land was taxed at more than seven times the rate of buildings. The impact was immediate. Tax revenue from land alone jumped from less than one-fifth of city tax revenues to more than 80 percent. It was so successful that the school district followed suit in 1993.

Tom Kramer became mayor of Millbourne in 2009, as the town was slowly emerging from economic distress. He had seen the community’s decline first-hand, arriving just as the Sears facility had closed. It was a chance meeting with Dodson, the Temple University professor, that convinced him that a land value tax would be the right fit for Millbourne. Kramer was open to any ideas that would generate the revenue necessary to save the town fiscally, without placing any more burden on single-family homeowners. “The most important thing we needed to do,” Kramer says, “was cut the residents’ taxes.”

Kramer faced strong headwinds from real estate interests. Even when the local political climate supports a land value tax, adoption is difficult. In Pennsylvania, as in most states, state law severely limits the ability of a municipality to make major changes to how it collects taxes. But Pennsylvania may be a straw in the wind.

Cities in most of the country have been forced for decades to compete with each other in offering lucrative tax breaks to lure in developers and businesses. Those schemes leave local governments short on cash to build and maintain infrastructure and services needed for commerce. “Giving these picayune tax breaks makes no sense,” Vincent says. In the end, he believes, cities are repeating the mistakes of decades past. “The thing that cities want is someone to build the homes and offices,” he says. “And the city is taxing the good part, the building itself.” What it needs to tax, in his view, as in George’s view more than a century ago, is the fundamental value of the land.



White House OZ Council Releases List of Federal Programs Favoring OZs.

Click here to read the list.

Senate Carbon Capture Bill Gains a House Companion: Squire Patton Boggs

Earlier this month, we described Senate Bill 1763, which would authorize a new type of exempt facility bond to be issued for “qualified carbon capture facilities.” Well, on July 19, 2019, freshman House Republican Tim Burchett of Tennessee proposed the Carbon Capture Improvement Act, H.R. 3861, the text of which is identical to the Senate Bill.[1] However, unlike the Senate Bill that has bipartisan sponsorship, Burchett is (for now) the sole sponsor of the companion House Bill.

This isn’t the only carbon capture-related bill with both Senate and House support. The Senate has already passed the Utilizing Significant Emissions with Innovated Technologies Act, nicknamed the “USE IT Act.” The USE IT Act supports the development of carbon capture technology through the establishment of: technology prizes, research and development programs to promote existing and new technologies for the transformation of carbon dioxide generated by industrial processes, a carbon capture, utilization and sequestration report, permitting guidance, and regional permitting task force, among other things, research into carbon dioxide utilization and direct air capture, to facilitate the permitting and development of carbon capture, utilization, and sequestration projects and carbon dioxide pipelines. The USE IT Act similarly has a House counterpart, H.R. 1166, which has been referred to the House Subcommittee on Water, Oceans, and Wildlife. With carbon capture technology on Congress’ mind, and companion bills for tax-exempt bonds for carbon capture facilities pending in the House and Senate, the chances for a legislative change seem to be growing stronger.

[1] If you’re one of those people needs to see it to believe it, click here to see a blackline of the House Bill against the Senate Bill.

The Public Finance Tax Blog

By Taylor Klavan on August 13, 2019

Squire Patton Boggs

Opportunity Zones Could Provide Major Boost for Clean Energy, Sustainable Development.

When Darren Walker, president of the Ford Foundation, a $13 billion foundation guided by a vision for social justice, and Steve Mnuchin, President Donald Trump’s treasury secretary, agree that the Opportunity Zones program is the biggest economic development opportunity in 50 years, it’s worth taking a closer look.

A provision of the Tax Cuts and Jobs Act of 2017, the Opportunity Zones (OZone) program seeks to spur investment of patient capital in low- and moderate-income communities across the United States. The program allows investors to delay or avoid paying capital gains taxes if they invest in Qualified Opportunity Funds that then invest within Census tracts designated as Opportunity Zones.

Market watchers are predicting $200 to $300 billion in investment in the nation’s 8,700-plus OZones. And federal rules have made it clear that green economy projects — such as local power generation, microgrids, EV charging stations and energy storage — are eligible for OZone investment.

Continue reading.

by Julia Parzen and Graham Richard

Wednesday, August 14, 2019 – 1:28am

Local Income Taxes in 2019.

Key Findings

Continue reading.

Tax Foundation

by Jared Walczak

July 30, 2019

Nick Andrews: Renewable Energy Production in Opportunity Zones

Can Opportunity Zones be leveraged for biorefinery development and renewable fuel production? Nick Andrews is founder and CEO of Scottsdale,

Read More »

Opportunity Db

August 14, 2019


In re County Treasurer

Appellate Court of Illinois, Second District - July 24, 2019 - N.E.3d - 2019 IL App (2d) 180727 - 2019 WL 3409680

Purchaser of property at tax sale filed petition for issuance of tax deed and finding of sale in error.

The Circuit Court granted petition. County treasurer appealed.

The Appellate Court held that:

Purchaser of property at tax sale was not entitled to sale in error pursuant to water sanitation district’s lien on property; statutory municipal-lien provision limited sale in error remedy to county, city, village or incorporated town liens, not liens from special district, and lien stemmed from unpaid usage fees owed by former property owner, not from public funds advanced to take care of abandoned or hazardous property or to promote safety and welfare of community at large.

Water sanitation district was not municipality that could be incorporated into municipal-lien provision of statute providing for sale in error remedy to purchaser of tax-sale property; water sanitation district provided singular service, wastewater-treatment services, to community, and did not have broad police and welfare powers characteristic of counties, cities, villages or incorporated towns, entities which were specifically listed in statute.

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