Senator Tim Scott (R-SC), one of the drafters of the Opportunity Zones tax incentives, recently published an open letter (co-signed by 15 other senators and representatives) to Treasury Secretary Steven Mnuchin addressing the Treasury’s first set of proposed regulations on Opportunity Zones, which were released in October.
In the letter, the authors praise certain aspects of the proposed regulations but note that “a number of important questions remain” regarding their implementation. They go on to address what they see as “key issues” in aligning the provision with congressional intent — including, among others, industry adoption of transparency measures and community impact reporting.
“We urge Treasury to include in its final regulations reasonable reporting requirements, including of Fund- and transaction-level information, in order to prevent against waste, fraud, and abuse, and to ensure that the incentive is delivering impact for communities,” the authors write.
At NES Financial, we believe that it’s in the OZ industry’s best interests to set a high standard for security and transparency now. Future proposed regulations are expected to impose rules that will mandate meaningful disclosures and reporting. In fact, that’s why — based on our experience providing fund administration to more mature financial industries — we designed these reporting capabilities into our purpose-built Opportunity Zone Fund Administration Suite from the very beginning. As Reid Thomas, Executive VP at NES Financial, wrote in the latest edition of National Real Estate Investor Magazine:
“As a best practice, fund managers should implement a policy of transparency … because their investors will be interested not only in ROI, but also the tax and social impact benefits of the program. Moreover, the long-term sustainability of the OZ program will depend on whether it achieves its intended good.”
To this end, among other services, we generate audit-ready fund tracking and reporting documentation for our clients, both for current legal requirements (e.g., the 90% asset and “substantial improvement” tests) and for non-required metrics (e.g., job creation and social impact data).
If and when Treasury regulations catch up to our own high-bar security and transparency standards, that’s fine by us — but we aren’t going to wait around for it. Instead, we urge all OZ Funds to adopt the stringent best practices of more established financial industries from the outset, to the benefit of all stakeholders.
The last IRS hearing on Opportunity Zones regulations was held on February 14 at 10 a.m. Eastern Time.
 National Real Estate Investor Magazine’s “2019 National Real Estate Investor Market Outlook,” p. 47. Dec. 21, 2018. https://www.nreionline.com/national-real-estate-investor-magazine/2019-national-real-estate-investor-market-outlook