The U.S. Treasury Department and IRS today released a version of proposed regulations (REG-120186-18) and a notice of withdrawal of earlier proposed regulations as guidance and to provide additional details about investment in qualified opportunity funds under section 1400Z-2.*
*Section 1400Z-2 was added to the Code by the U.S. tax law enacted in December 2017 (Pub. L. No. 115-97, that is also known as the “Tax Cuts and Jobs Act” (TCJA)).
Read text of the proposed regulations [PDF 962 KB] (169 pages) as released today by the IRS and Treasury. This version of the proposed regulations includes the following statement:
This document will be submitted to the Office of the Federal Register (OFR) for publication. The version … released today may vary slightly from the published document if minor editorial changes are made during the OFR review process. The document published in the Federal Register will be the official document.
The IRS also released a version of a notice and request for information [PDF 145 KB] seeking public input on the development of public information collection and tracking related to investment in qualified opportunity funds. This notice will also be delivered for publication in the Federal Register.
The purpose of this report is to provide text (and also the related IRS release) of the proposed regulations. KPMG will provide a report of initial impressions about these proposed regulations.
According to a related IRS release—IR-2019-75:
The IRS release continues to explain that a “key part of the newly released guidance” clarifies the ”substantially all” requirements for the holding period and use of the tangible business property:
According to the IRS, there are situations when deferred gains may become taxable if investors transfer their interest in a qualified opportunity fund. For example, if the transfer is made by gift, the deferred gain may become taxable. However, inheritance by a surviving spouse is not a taxable transfer, nor is a transfer, upon death, of an ownership interest in a qualified opportunity fund to an estate or a revocable trust that becomes irrevocable upon death.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.