The Internal Revenue Service (IRS) held a second hearing on Opportunity Zone legislation. In order to provide up-to-date information for our investors, a member of our team attended the hearing.
Overall, concerns raised during the hearing are not expected to impede the progress of the Fundrise Opportunity Fund due to its unique structure as a corporation intending to elect REIT status. Our team expects any resulting changes in proposed regulations will likely only benefit the fund by allowing additional flexibility in asset acquisition and redevelopment.
Five IRS officials and two Department of Treasury representatives presided over the hearing, engaging in discussion with nearly every speaker. Nineteen speakers testified over the course of five hours. Most of the testimony was focused on the second tranche of guidance and the Request For Information (RFI) on Data Collection and Tracking for Qualified Opportunity Zones, both of which were issued on April 2019. The IRS received over 175 comment letters on the two topics prior to the hearing.
Many speakers, such as John Lettieri, CEO of the Economic Innovation Group, noted that most major issues for investing in Opportunity Zones had been addressed in the first two tranches of proposed regulations, but additional clarification would be helpful in several areas. The majority of comments focused on the current inability to aggregate assets for the substantial improvement test, mechanics related to debt-financed distributions for pass-through entities, guidance on the wind-down of Qualified Opportunity Funds, changes with respect to investing section 1231 gains, and potential reporting requirements.
Although it isn’t known when the proposed regulations will be finalized, it’s clear that the IRS and Treasury intend to continue working diligently to address questions on Opportunity Zones and to provide meaningful guidance to support Opportunity Zone legislation. As well, we remain confident that our fund’s structure renders it uniquely well-positioned to comply with the finalized regulations that come to bear.
Fundrise is a member of Economic Innovation Group’s Opportunity Zone Coalition and was a signer of the Coalition’s comment letter and response to the RFI.