It has been a busy month on the policy front, with regulatory and legislative action at both the state and federal level. Good thing we’ve been following it so you don’t have to!

Federal Updates

Last week, the IRS sent a draft of final Opportunity Zone regulations to OIRA – the internal office that approves final regulations before they are posted. With prior tranches of OZ regulations, this process has taken well over 30 days. If repeated, that would mean we will not see final regulations until after December 31, 2019. We anticipate that final regulations will provide additional clarity on some of the open issues remaining after the first round of regulations last October and the second round of regulations from April.

In addition, there have been a number of legislative proposals made over the last month. The common theme is reporting requirements – bills introduced by Representative Terri Sewell and Senator Tim Scott would add back the kinds of reporting requirements originally proposed when OZ legislation was introduced as part of the Tax Cuts and Jobs Act. In addition to these lead bills, other legislative proposals would eliminate certain OZs designated as “contiguous tracts” and create barriers for workforce housing development. As always, we will monitor legislative developments closely and keep you informed if it appears that any of this legislation will make it into a larger omnibus bill.

State Updates

Late last month, the Alabama Department of Economic and Community Affairs (ADECA) published a draft regulation that will be the key to implementing a new set of aligned state incentives for Opportunity Zone investors. The Alabama Incentives Modernization (AIM) Act creates a slew of incentives for potential OZ investors looking to “make a difference” with their dollars – but ties access to those incentives to investing in an Opportunity Fund that places 75% or more of its capital in Alabama-based Qualified Opportunity Zone Businesses (QOZBs). In its regulatory release, ADECA provided this definition, which applies the same regulatory guidance used by the IRS in determining whether a QOZB is located in an Opportunity Zone to whether a QOZB is located in Alabama. In other words, if “substantially all” the QOZB’s tangible property is located in Alabama, it should qualify as an Alabama-based QOZB. Standards used in interpreting what “substantially all” means default to federal guidance – currently at 70% of overall business assets.

Final comments on the rule are due January 3, 2020. We anticipate the promulgation of an application form shortly thereafter.