The Treasury publishes rules on tax breaks in areas of opportunity



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WASHINGTON – The Trump administration on Wednesday issued regulations that could help venture capitalists, Native American tribes and entrepreneurs get a new tax incentive to encourage investment in struggling communities.

Proponents of this advantage, known as the Opportunity Zones, have been complaining to the administration in recent weeks that its regulations could concentrate most of this money on real estate development, rather than on start-ups more likely to create well-paying jobs. .

The rules released Wednesday seemed to appease many of these fears. Critics argued, however, that the administration had not done enough to make the program reach its goals.

Under the draft 169-page regulation, the second of a series of rules to clarify the 2017 tax law that created the zones, investors can enjoy tax benefits in several ways. The new methods are particularly important for investors who want to finance new cafes, grocery stores or possibly, as licensed by government officials, marijuana clinics in states that have legalized the drug.

"This series of regulations removes some of the most important barriers to capital locking-in, particularly with respect to operating activities," said John Lettieri, President of the Economic Innovation Group, a research organization that Washington who developed and defended the Opportunity Zone concept. .

Senator Tim Scott of South Carolina, the Republican who inserted these areas in tax legislation, said in a press release that the draft settlement "has made good progress" to help investors and property owners. 39; company. At the end of last week, Scott said in an interview that he was "concerned at the moment" with the Regulatory Administration's approach.

The tax incentive promises investors the opportunity to defer, reduce or – when investments are held for more than a decade – to eliminate taxes on certain capital gains, provided that they are not taxed. they invest in areas of opportunity. In the past year, these states have identified these areas based on criteria such as poverty and income levels.

After two sets of regulations and the sustained criticism of economists suggesting ways to make the program more accountable, the government will still not have a system to track investments in the zones and to know if it is safe. they help communities as advertised. Treasury officials said Wednesday that they were looking for proposals on how the ministry should collect data on areas of opportunity.

"This has been going on for 17 months and you are now going to ask for feedback on the data collection?" Said Olugbenga Ajilore, senior economist at the Center for American Progress in Washington. "It's frustrating, there must be some responsibility to the community."

Even before the administration has finished publishing its rules, the zones have will become a boon for real estate developers and will draw criticism from those who say they will enrich affluent investors and accelerate the movement of low-income residents into gentrified areas.

Treasury officials have developed a series of tests, in the regulations they began publishing in October, for which the investments should enjoy tax benefits. A key test used by many local officials to assess areas is whether tax breaks encourage job-creating businesses, not just condos, retail stores, hotels and other real estate projects that often do not create many permanent jobs offering opportunities for advancement.

Scott and others urged officials to set rules that encourage investment in entrepreneurship and attract a broad range of investors, including venture capitalists, who could create incentives for entrepreneurship. funds that can finance several projects in different areas.

The rules released Wednesday, in anticipation of a meeting of the program at the White House, aim to meet this demand in several ways.

They include provisions that will allow investors to qualify for breaks, even if the companies they finance focus on exported goods or services or the domestic market outside the zone. Vacant properties for a long time will immediately qualify for tax benefits. Investors will be allowed to share their holdings in funds that invest in the zones and to sell, for example, a start-up business in an area of ​​opportunity as long as the money is reinvested in another activity or a business. other eligible asset. Real estate investors will be allowed to rent and refinance their properties.

Mr. Trump announced the regulations and the program, calling the zones "an essential element of our new tax law to help low-income Americans".

"As you know," he told the White House, "this vital provision offers businesses a significant incentive to invest and create jobs in the most underserved communities in the country."

Area supporters said the regulation could be further improved to further encourage business investment.

Some critics have recognized that the new rules include important provisions to help more communities benefit from the zones. Making leased properties eligible for tax benefits could help Native American tribes, for example, as they often rent out their land to businesses.

The proposal also allows Treasury officials to revoke tax relief for any Opportunity Zone project "if a significant goal of a transaction is to achieve a tax result inconsistent with the program's objectives".

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