On October 19, the Internal Revenue Service and the Department of Treasury, released its first guidance on the implementation of the Opportunity Zones Tax Incentive. The Opportunity Zones Coalition (OFN is a member), convened by the Economic Innovation Group, has prepared a short summary of the new guidance which can be accessed here.
Created in December 2017 in the Tax Cuts and Jobs Act, Opportunity Zones were designed to spur investment in distressed communities by offering investors tax incentives. US Treasury Secretary Mnuchin has said that he expects this new incentive to drive $100 billion in private capital to the census tracts chosen by the nation’s governors. Under the program, investors receive various degrees of relief from capital gains taxation if they make investments through Opportunity Funds into designated Opportunity Zone Businesses.
CDFI leaders have been discussing this new community development tool with a mixture of hope and skepticism. Some CDFIs including Enterprise Community Partners and LISC are already creating Opportunity Funds and raising capital, while other CDFIs are still exploring whether or how to participate.
At OFN’s recent conference in Chicago, two sessions addressing Opportunity Zones were very well attended. One of the presenters, Rachel Reilly of Enterprise Community Partners, advised CDFIs in the audience to consider a range of possible roles for their institution beyond the most obvious one of fund manager. For example, a CDFI could help identify high mission businesses or real estate projects to Opportunity Funds targeting a particular Opportunity Zone located in a CDFI’s target market. CDFIs might also provide debt capital alongside the Opportunity Zone investment for certain high mission businesses or real estate projects.