Qualified Opportunity Zones

Here’s the presentation on the Qualified Opportunity Zone rules that was used in today’s webinar. It addresses the Qualified Opportunity Zone proposed regulations and revenue ruling that the IRS released on October 19 that are discussed in our previously posted white paper of October 23.  I thank my Mayer Brown colleagues Mark Leeds and Maria Carolina Grecco for their collaboration on the presentation and the webinar.

On October 19, 2018, the US Internal Revenue Service released initial guidance on the Qualified Opportunity Fund (QOF) rules. The QOF rules allow US taxpayers to defer capital gain taxation by investing an amount equal to the gain in a QOF within 180 days of the gain recognition event. While not answering every question, the initial set of rules provides a working roadmap for implementing QOF transactions. Please join me and my Mayer Brown colleagues Mark Leeds and Maria Carolina Grecco for a webinar to discuss the new rules.

Our white paper on the new rules is available at white paper link.

United States
12:00 p.m. – 1:00 p.m. EDT
11:00 a.m. – 12:00 p.m. CDT
10:00 a.m. – 11:00 a.m. MDT
9:00 a.m. – 10:00 a.m. PDT

Europe
5:00 p.m. – 6:00 p.m. CEST
4:00 p.m. – 5:00 p.m. BST

Approval for CLE credit is pending.

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For additional information, please contact Shilpa Patel at spatel@mayerbrown.com.

Here’s a link to Mayer Brown’s white paper – Window of Opportunity: the IRS Releases Initial Guidance on Qualified Opportunity Zone Rules.  The white paper discusses the proposed regulations and a revenue ruling that were released by the IRS on October 19.

The new rules address a number of issues that investors and sponsors were waiting for guidance on.  The IRS has promised further guidance to address issues that remain in need of clarification.

On the heels of this guidance, it is expected there will be many Qualified Opportunity Funds formed, considerable capital invested in them by taxpayers seeking to defer tax on capital gains and significant investment by them in Qualified Opportunity Zones.

 

I was a panelist at an event held at Mayer Brown’s New York office addressing Environmental, Social and Governance (“ESG”) investing on October 4.  On the panel, I addressed the tax benefits associated with certain ESG investments, with a focus on Qualified Opportunity Zone Funds and solar investment tax credits (ITC).  Here are the slides that I presented to describe each on a high level: Qualified Opportunity Zone and ITC Slides for ESG Event.

The solar ITC slides ignores tax equity structures and assumes outright ownership, so the numbers are a little simplified relative to many transactions in the market.

We are still waiting on Qualified Opportunity Zone regulations.  Currently, the regulations are being reviewed by the Office of Management and Budget and are expected to be released any day.

On the solar front, we have heard from an IRS attorney that the IRS has resumed work on the regulations defining “energy property” for ITC purposes, but the regulations are not expected to be released until 2019.

 

We have published our whitepaper: Gain Deferral Using Qualified Opportunity Zone Investment Strategies Legal Update.  “Qualified Opportunity Zones” are not specific to renewable energy and do not involve tax credits but provide a powerful new tax benefits as a result of their enactment last year as part of the “Tax Cuts and Jobs Act.”

The whitepaper discusses Qualified Opportunity Zones generally.  Two aspects of them are of note to the renewable energy industry.  First, the statutory language appears to apply to ordinary and capital gains (the IRS may take a different view in its guidance).  The applicability to ordinary gains means that the Qualified Opportunity Zone rules could be used by developers to defer the tax gain they recognized on sales of projects to tax equity partnerships or lessors.

Second, the intersection of the Qualified Opportunity Zone rules and the partnership capital account rules requires clarification that we expect the IRS to provide in its guidance.  So the purchase by partnerships of solar projects in Qualified Opportunity Zones is a strategy that requires further guidance before the tax results can be certain.