An IRS hearing on the highly anticipated opportunity zones tax break has been postponed indefinitely, dealing a blow to investors seeking answers on how to cash in on the new incentive.
The IRS announced (REG-115420-18) on Jan. 7 that the public hearing, originally scheduled for Jan. 10, is canceled, news that comes as the bulk of the agency’s employees remain furloughed because of the government shutdown.
The IRS will announce a new date once funding has been restored to the Treasury Department, it said.
“I am definitely disappointed. The sooner we get the guidance the better and the delay is not helpful,” Michael Novogradac, managing partner at Novogradac & Co., told Bloomberg Tax Jan. 7.
The hearing was to focus on October proposed regulations (REG-115420-18). It was a chance for investors, community groups, and lobbyists to give IRS officials feedback on proposed guidelines on how to recycle idle capital gains into economically distressed areas around the U.S. and Puerto Rico.
Nearly 150 comments were submitted to the IRS ahead of the hearing. The agency had solicited comments from the public on the definitions of “substantial improvement” and “original use,” both of which will determine how property developments retain their eligibility for the tax cut.
The incentive, under tax code Section 1400Z, has attracted avid interest from investors who stand to gain from a twofold tax break on an estimated $6 trillion in idle capital gains that are eligible for the program. The incentive was added as part of last year’s tax overhaul.
Treasury Secretary Steven Mnuchin has touted the program. Ivanka Trump, the president’s daughter and a White House adviser, reportedly advocated for the measure.
“The hearing would have been an opportunity for investors to emphasize what is important to them, and for the IRS to ask questions,” Novogradac said.
Slowing Investor Appetite
The incentives for businesses that invest in opportunity zones are time-bound by five-, seven-, and 10-year brackets, with the longest-term investments enjoying the most substantial tax breaks.
But without guidelines that detail how investments can evolve while retaining the tax benefits, investors are likely to get trigger-shy and withhold investments.
“There are many unanswered tax questions that continue to slow investor appetite and fund rollouts, with operating businesses (as opposed to rental real estate) most dramatically affected,” Novogradac said in an email.
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(Updates with additional reporting.)