[4] Bloomberg Tax Complete Analysis of H.R. 1, Conference Agreement, as enacted (Dec. 22, 2017), hereinafter “Bloomberg Tax Analysis”.[5]See I.R.C. §1400Z-2(e)(4).[6]See I.R.C. §1400Z-2(d)(1).

Taxpayer A's basis in the investment is increased by $100 to $100.On January 1, 2033, after 10 years, Taxpayer A sells the investment at its fair market value of $200 and elects a step-up in basis in accordance with 26 USC 1400Z-2(c). Taxpayer A's basis in the investment is stepped up to the amount realized ($200), and no gain is included in Taxpayer A's income from this transaction in 2033.

However, the constructs from which these statutes are derived have been in existence for almost a decade, albeit on a much smaller scale. Endnotes:1 26 U.S.C § 1400Z-2(a)(1).226 U.S.C § 1400Z-2(a)(1)(A).326 U.S.C § 1400Z-2(d)(1).426 U.S.C § 1400Z-2(d)(2)(D)(i)(I).526 U.S.C § 1400Z-2(d)(2)(D)(ii).6Id.726 U.S.C § 1400Z-2(d)(2)(D)(i)(II).8Blakeney v. C.I.R., T.C. Memo 2012-289.

[2] As defined in 26 U.S.C. § 45D(e); see 26 U.S.C. § 1400Z-1(c)(1). [3] As defined in 26 U.S.C. § 1400Z-2(d). [4] As defined in 26 U.S.C. § 1400Z-2(d)(2).

Overall, the initial response to the 2019 Proposed Regulations has been very positive, with experts predicting that there will be an increase in capital investments into opportunity zones in the coming months.[1] IRC § 1400Z-2(d)(3)(A)(i).[2] IRC § 1400Z-2(d)(2)[3] IRC § 1440Z-2(d)(2)(D)(i)(III).

In order to qualify as a qualified opportunity fund eligible for deferral or elimination of tax on gains, a fund must invest in “qualified” types of property. In order for property to be qualified under I.R.C. § 1400Z-2, it must relate to a “qualified opportunity zone business.” A “qualified opportunity zone business” means a trade or business (1) in which substantially all of the tangible property owned or leased by the taxpayer is qualified opportunity zone property; (2) which satisfies the requirements of paragraphs (2), (4), and (8) of section 1397C(b), and (3) which is not described in section 144(c)(6)(B).

[3] IRS Issue Proposed Regulations on New Opportunity Zone Tax Incentive, Internal Revenue Service, https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-new-opportunity-zone-tax-incentive (containing a complete list of Opportunity Zones). [4] 26 USC 1400Z-2. [5] Investing in Qualified Opportunity Funds, 83 Fed. Reg.

IRC § 1400Z-2, under The Tax Cuts and Jobs Act of 2017, established an investment program designed to provide preferential tax treatment for investment in developments located within certain designated economically distressed communities known as “Opportunity Zones”. All 50 states, the District of Columbia, and each of the five U.S. territories, have Opportunity Zones within their borders.To qualify for preferential tax treatment, capital gains earned from a prior investment must be reinvested in a Qualified Opportunity Fund, which is a partnership, corporation, or limited liability company formed for purposes of investing in eligible property located within an Opportunity Zone.Investment in a Qualified Opportunity Fund offers taxpayers three primary tax incentives:1.

[xxiv] Directly or through an underwriter. [xxv] IRC Sec. 1400Z-2(d)(2)(D)(i)(I), Sec. 179(d)(2).

[3] Jim Tankerslsey, Tucked Into the Tax Bill, a Plan to Help Distressed America, New York Times (Jan. 29, 2018), available at https://www.nytimes.com/2018/01/29/business/tax-bill-economic-recovery-opportunity-zones.html. [4] IRC 1400Z-2(b) provides that a taxpayer must pay tax on the gain equal to the difference between the lesser of the gain or the fair market value of the OZ Fund interest and a “basis” – which is initially set to zero and then stepped up to 10% of the gain in Year 5 and up to 15% of the gain in Year 7. [5] “Qualified Opportunity Zone Business Property” is tangible property (i.e., machinery, equipment, etc.) held by an OZ Fund that (1) was acquired after 2017; (2) either (i) experienced its original use with the Fund or (ii) was “substantially improved” by the Fund; and (3) was used in an Opportunity Zone during “substantially all” of the Fund’s ownership of the property.