Business Tax - 16 Nov 2018
In August we published a summary of the new tax-incentivized program introduced in the 2017 Tax Cuts and Jobs Act for investment in designated U.S. “qualified opportunity zones” (QOZ’s). Click here to read.
On October 19th, 2018, the Treasury Department issued proposed regulations which offer sufficient clarity about the implementation of the QOZ provisions to permit investment advisers to proceed with packaging and marketing “qualified opportunity funds” (QOF’s) to make QOZ investments. In addition, Rev. Rul. 2018-29 was issued to provide guidance for taxpayers on the “original use” requirement for land purchased after 2017 in qualified opportunity zones. Lastly, a draft of the self-certification form, Form 8996, has been released.
It now seems clear the incentives—which include both deferral of already realized capital gains and favoured tax treatment of gains from QOZ investments—represent an opportunity as much for non-U.S. persons having capital gains taxable in the U.S. as for U.S. persons. In particular, QOZ investments can offer a means of deferring tax on gains (a) from the disposal by a non-U.S. person of a U.S. real property interest (under the “foreign investors real property tax act” or FIRPTA) or (b) deriving from participation in partnerships engaging in a U.S. trade or business.
The proposed regulations have clarified the following:
The IRS has requested that any comments on the proposed regulations be submitted by December 18th, 2018, and a further public hearing on the proposed regulations will be held on January 10th, 2019. As further guidance becomes available, we will be updating this article however the proposed regulations have given taxpayers much-needed guidance to feel more comfortable on the tax aspects of the Qualified Opportunity Zone program.
If you have any interest in learning more on the Qualified Opportunity Zone program, please reach out to your Frank Hirth contact as we can assist with the initial structuring and ongoing U.S. tax compliance each year.
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