Before you invest in the US, it is important that you understand the tax system being followed and enforced by the IRS to ensure that you don’t get on the bad side of the IRS. According to the law, ignorance isn’t a defense, not minding if you are new to the country or have not heard about the regulations. This is why you need a tax attorney that can keep you abreast with changes in the tax system.
Recently, The U.S. Department of the Treasury brought out its new regulatory guidelines that are expected of opportunity zones. These regulations were brought out on April 18, 2019, to give a lot of mode understanding about what the program stands for. For a time, people have been confused about what the program was, except for those that have tax attorneys that know their onion.
This program is dedicated to offering a lot of incentives to developers around that are getting into those areas that have been earmarked for development. What this means is that those real estate investors that are interested in meeting the specifications of the program can easily benefit from it. Since this IRS program is created to develop some geographical areas, one can easily reap the benefits of this program. As a tax attorney that knows his onion, it is important that real estate investors read the fine print before getting involved, to easily maneuver, and reap a lot from the program.
These brand new guidelines are designed to take care of some real estate-related issues like the way REITs, and multi-asset funds can easily be exited and how debt-financed distributions will be treated. It also concerns the following:
How flexible can one invest and reinvest in the fund; and
How improved and unimproved land would be handled.
What this means is that the following real estate investments fall under this program, and investors can benefit a lot:
Single asset investments,
Multi-asset funds and
REIT.
What this means is that it is expected that deal flow will improve in the real estate world, and the same can be said for investment. This will occur within the next few years.
With this brand new revenue guidance by the IRS, it is easy for those investors that want to get involved in opportunity zones to know how they are expected to treat leases and leased equipment.
Investors and businesses can easily invest in these opportunity zones, thereby improving economic growth, something that IRS craves for.
In the prior regulations, businesses weren’t given any form of attention like the recent one. In the previous one, businesses were so neglected that those benefiting from the program had to complain about it. Now, this has changed.
One important aspect that was clarified was the fifty percent revenue requirement, which was expected to be linked to employee salaries, hours, as well as where headquarters of the company is.
Based on what the IRS utilized in its initial two measurements, which are a service firm and a tech company, it means that the United States government views that these sectors can greatly improve the economy. The government feels the sectors above will promote job growth.
The examples released by IRS went on to talk about the way these kinds of firms could easily leverage the employee requirements of that program, to improve job growth in those geographical regions that are suffering from reduced economic growth.
For the headquarters example, IRS used a landscaping company. The headquarters rule that was put in the guidelines was designed to give firms a lot of leeways to get to the fifty percent of revenue requirement.
Since it is flexible, there are a lot of loopholes in this guideline that one with a tax attorney can easily spot out. The flexibility of this provision has led some taxpayers to benefit a lot from it even when their investments do not bring about the economic growth level that regulators crave for.
Some issues that seem to be disturbing this program are as follow:
The land prices are high even in the opportunity zones.
The cost of labor is high, and most times, companies have to suffer from a lack of labor.
When both work together, they reduce the tax benefits that an investor could get.
To make the program lucrative to investors and companies, the IRS is making plans to remove capital gains tax that may come up in a ten-year period from those investments. This isn’t easy because IRS is seeking for a way it can be done legally.
To show that the new regulations concerning the opportunity zones will take effect, the Treasury Department and IRS released them jointly.
Opportunity zones were created as an aspect of the Tax Cuts and Jobs Act of 2017, to give investors tax incentives when they invest their resources in those regions that are facing unemployment and poverty.
About eleven percent of the US census tracts have been earmarked for this, and the government is trying to ensure that the opportunity zone program works well.
The April draft regulations were designed to take care of some issues that were noticed when some set of regulations were brought out in 2018, and they are:
How vacant property is treated.
With the new April regulations, it is expected that a property that hasn’t been occupied for at least five years meet the needed original-use requirements. What this means is that the initial investment threshold has been lowered.
Contingencies that could affect the capital safe harbor.
Sometimes, delays may occur, and this draft has decided to take these delays into cognizance. The April draft regulations are expected to allow delays that could force the completion of the project to be extended past the thirty-one months that were permitted when the capital safe harbor was drafted.
This recent April draft regulation stated that the conditions won’t be said to be ignored if the delays were caused by the government.
To get a lot of tax incentives, investors are expected to invest their capital and leave it for a period of five to ten years.
It is expected that additional regulations will be released very soon, in a bid to look at the administrative rules concerning the QOF or qualified opportunity fund. The expected regulations are expected to tackle questions of what would happen to a QOF that doesn’t meet the necessary minimum investment standards. They are expected to go on and tackle the information reporting requirements that are expected of eligible taxpayers, such as alterations that would be made to the applicable IRS tax forms.
This April draft went on to address the following:
What can be said to be a qualifying investment;
QOF reinvestment requirements; and
Gross income requirements.
As a taxpayer, you have the right to drop your comments or thoughts on the recent April 2019 proposed regulations. If you have complaints or thoughts on it, you can easily send it to IRS, through their Federal Rulemaking Portal at regulations.gov
You may not know about the loopholes of this program, except you have a tax attorney that knows its onion at your beck and call to direct you.
