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Rev. Proc. 2020-16: Empowerment zone designation extension procedures

Rev. Proc. 2020-16: Empowerment zone designation

The IRS today released an advance version of Rev. Proc. 2020-16 concerning empowerment zone and the extension procedures.

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Background

An empowerment zone is an area of high poverty and unemployment located in an urban or rural area that is designated as such under section 1391(a). Qualifying taxpayers and businesses located within the boundaries of empowerment zones are eligible for federal income tax incentives to promote economic development in those designated areas.

As originally enacted in 1993, section 1391(d)(1) provided that the designation of an empowerment zone remains in effect during the period beginning on the date of the designation and ending on the earliest of:

  • The close of the 10th calendar year beginning on or after such date of designation (statutory termination date)
  • The termination date designated by a state or local government in its nomination (that is, the designated termination date)
  • The date the appropriate Secretary revokes the designation

The statutory termination date has been extended several additional times, most recently in 2019 to extend that date to December 31, 2020, under the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (TCDTRA) enacted as part of the Further Consolidated Appropriations Act, 2020 (December 20, 2019). Prior to the TCDTRA, all empowerment zones have a designated termination date of December 31, 2017.

The TCDTRA allows a state or local government to extend the empowerment zone designated termination date in such a manner as may be provided by the Secretary of the Treasury (or the Secretary’s designee).

Rev. Proc. 2020-16

Rev. Proc. 2020-16 [PDF 23 KB] provides an automatic procedure for a state or local government in which an empowerment zone is located to extend the empowerment zone designation made under section 1391(a). Specifically, the automatic procedure provides that a state or local government that nominated an empowerment zone must provide a written notification to the IRS no later than August 10, 2020, affirmatively declining to extend until December 31, 2020, the termination date designated by that state or local government in its empowerment zone nomination.

Consequently, Rev. Proc. 2020-16 provides that unless a state or local government declines to extend the empowerment zone designated termination date, all empowerment zones will be deemed to be extended from December 31, 2017, to December 31, 2020.

KPMG observation

Historically, no states have declined to extend an empowerment zone designated termination date. Assuming no declinations under Rev. Proc. 2020-16, all empowerment zones will have a December 31, 2020 designated termination date as of August 10, 2020.


For more information, contact a tax professional with KPMG’s Washington National Tax:

Katherine Breaks | +1 (202) 533-4578 | kbreaks@kpmg.com

Susan Reaman | + 1 (202) 533-3541 | sreaman@kpmg.com

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