Could a Call for Increased OZ Oversight Mean Legislative and Regulatory Action in the Coming Months?

Published by John Sciarretti on Friday, February 19, 2021 - 12:00am

At the end of 2020, many opportunity zones (OZs) stakeholders watched to see if there would be legislative action around OZs in the closing days of the Trump administration, especially on reporting but year-end tax legislation did not address the incentive. There is a greater chance of legislative and regulatory activity in 2021 on OZ. President Joe Biden proposed retaining the OZ incentive as part of his Build Back Better platform, but did propose making some reforms. While there are numerous urgent issues vying for Biden’s attention, proposals that address the health emergency and economic downturn brought about by the COVID-19 pandemic will be a priority. Incentives and programs that help to address either of these issues will gain favor in the first 100 days of the Biden administration, and the OZ incentive, with its focus on driving investment to underserved, low-income communities, fits that bill. The OZ incentive’s inclusion as part of Biden’s Build Back Better platform speaks to the potential the administration sees in OZs, particularly as a means to advance racial equity, though there are areas that Biden believes need to be addressed to ensure OZs “fulfill their promise.”

Support, but with Reform

Over the past several months a number of recommendations have been made to enhance the OZ incentive. President Biden’s proposal, as laid out in his plan to advance racial equity across the American economy, entails: 

  • A push for more partnerships between qualified opportunity funds and nonprofit or community-oriented organizations, and the creation of community benefit plans for each investment;
  • Directing the U.S. Department of the Treasury (Treasury) to review OZ benefits to ensure there are clear benefits to the community; and,
  • Requiring detailed reporting, along with public disclosure on OZ investments.

A similar call to help make clear the effects of the OZ incentive came from the U.S. Government Accountability Office (GAO), which released a report last year calling for a greater role for Treasury and increased reporting. The GAO provides auditing, evaluation and investigative services for Congress. As an independent, nonpartisan agency, the GAO examines how taxpayer dollars are spent and provides Congress and federal agencies with the information needed to help the government save money and work more efficiently.  It was in this capacity that the GAO was asked to review the OZ incentive by Sens. Charles E. Grassley (R-Iowa), Ron Wyden (D-Oregon), Cory Booker (D-New Jersey) and Tim Scott (R-South Carolina), and Reps. Richard E. Neal (D-Massachusetts) and Kevin Brady (R-Texas). Two actions were recommended as a result of their review:

  • Congress should provide Treasury with the authority and responsibility to collect and report data on OZs’ performance, and,
  • To help direct the recommended data collection and reporting effort, Congress should consider compiling a list of questions that would need to be answered in order to assess the incentive’s performance.

The call for more oversight could be seen as an effort to put the OZ incentive on equal footing with other community development tax expenditures. The GAO found there does not exist the same level of oversight for the OZ incentive as there is for other community development tax expenditures  – namely the New Markets Tax Credit (NMTC), the Low-Income Housing Tax Credit (LIHTC), and the historic preservation tax credit (HTC) – with GAO concluding the OZ incentive, “generally has fewer limits on the types of projects that can be financed, and fewer fiscal controls to limit potential revenue losses.” Specifically, the report points to the lack of limits on the amount of capital gains that could be deferred, the number of taxpayers that could participate in the incentive, and the amount of federal revenue that could be reduced by the claims.

As the OZs statute did not identify an agency to perform an oversight role, authorizing Treasury to perform this task, as suggested by the GAO, would require “appropriations and specific direction from Congress,” according to Treasury officials quoted in the report. Further, the GAO suggests Treasury draw on the expertise of multiple federal agencies as OZ investments can cover a varied range of areas, noting the expiration of the executive order that created the White House Opportunity and Revitalization Council on Jan. 21, 2021. This group worked to target, streamline and coordinate federal resources to be used in economically distressed communities, including OZs. More than 20 federal entities comprised the council and its work has resulted in more than 260 regulatory and sub-regulatory actions being taken to better align federal policies and programs with the goals of the OZ incentive. Authorizing the council’s continuation past its Jan. 21, 2021 expiration date could provide a measure of continuity in assessing the OZ incentive, but the Biden administration has yet to take that step, and it is uncertain whether it will do so.

Future OZs Legislative and Regulatory Action

The reforms proposed by Biden and the GAO mirror to some extent legislation introduced during the 116th Congress. Reporting requirements and, to a lesser degree, the phasing out of certain high-income tracts, are seen as the most likely areas for legislative action in the 117th Congress. There is bipartisan support for reporting and there has been numerous calls for the adoption of reporting requirements from both OZ supporters and critics.

Several bills were introduced in the 116th Congress that would require reporting and impact assessment – most notably the IMPACT (Improving and Reinstating the Monitoring, Prevention, Accountability, Certification and Transparency of Opportunity Zones) Act introduced by Sen. Scott, who is widely considered the author of the incentive and has been instrumental in advancing the incentive from its inception, and seven co-sponsors. The original standalone bill included the requirement for reporting , but the OZ legislation that passed as a part of the 2017 tax reform law commonly known as the Tax Cuts and Jobs Act omitted the reporting requirements because of Senate reconciliation rules. Ultimately, Scott and others are looking to restore the reporting requirements so that there is a clear methodology to assess investments into OZs, including the types of businesses and projects receiving investments and the impacts these investments are having in the communities they are located, such as job creation, affordable housing units created, increases in median income, and other metrics.

Regarding the elimination of certain higher-income census tracts, there are a small number of tracts that have drawn criticism as they do not appear to conform to the intended goals of the OZ incentive, which is to attract investment to underserved, low-income areas. Designation of these tracts was permitted, as they either fit the definition of a low-income community or they were allowable contiguous tracts. During the 116th Congress, Sen. Ron Wyden, then ranking member of the Senate Finance Committee, introduced S. 2787, OZ Reporting and Reform Act, which includes the early sunset of high-income tracks and contiguous tracks, which could have implications for existing investments. With Democratic control of the Senate and Wyden’s role as chairman of the Finance Committee, the OZ community will be paying attention to any action on OZs legislation Wyden will take this Congress. These bills, along with a host of others, will likely be reintroduced once the 117th Congressional session starts. A potential vehicle to move OZs legislation is infrastructure legislation, which could be a focus of the Biden administration once COVID-19 relief has been addressed.

Novogradac’s Opportunity Zones Working Group counts among its 2021 priorities a goal of recommending ways in which transparency and data collection efforts can be enhanced without excessive burden or privacy concerns for investors, QOFs and QOZBs.  This could include commenting on any policy recommendations for Treasury to use the Community Development Financial Institutions (CDFI) Fund to help carry out its policy objectives, which is consistent with the GAO recommendation of an increased role for the Treasury. Furthermore, the narrow Democratic majority in the Senate means it will still likely take bipartisan support to pass legislation, leaving Biden to explore the regulatory options available to them for pursuing reform. Regulatory action could focus on certification of qualified opportunity funds (QOFs) and the decertification of QOFs that are found to be acting in a manner that contradicts the spirit of the OZ incentive. The OZ Working Group, as part of an ongoing engagement process that includes reaching out to the Biden-Harris Administration, Treasury and the Internal Revenue Service (IRS), will continue to monitor government proposals to modify the incentive and will continue to make recommendations intended to ensure that any modifications do not have a diminishing effect on the amount of investment in opportunity zones. The group will also continue to make recommendations for additional guidance and legislative enhancements that could encourage investment in operating businesses and affordable housing projects in opportunity zones.


Investments in QOFs continued to increase throughout 2020, even in the face of the COVID-19 pandemic and related, ongoing economic downturn. The newly released Novogradac Opportunity Zones Investment Report: Data Through Dec. 31, 2020 reveals that investment in OZs by QOFs tracked by Novogradac total more than $15 billion. Novogradac’s survey was tracking 927 QOFs on Dec. 31, 2020, 659 of which have reported $15.6 billion in equity raised, which is only a subset of the total market. In its report, The Impact of Opportunity Zones: An Initial Assessment, the White House Council of Economic Advisors, which used Novogradac data as a key factor, estimated total investment at $75 billion at the end of 2019. It is understandable that with this level of investment, and the forgone tax revenue these investments represent, Congress, and the new administration, would want to know how these funds were being used to benefit low-income communities. Even with the proposed reforms, it is encouraging that Biden sees OZs as a tool to help with the ongoing economic recovery and addressing the racial equity gap. Increased data collection and reporting would help all involved answer important questions about the OZ incentive and evaluate its performance. It is up to OZ advocates to engage the administration to ensure proposed reforms benefit communities in need but do not present an undue hardship for investors, thus jeopardizing investment in the communities the incentive was designed to help.