The Financial Accounting Standards Board (FASB) today published Accounting Standards Update (ASU) 2023-02, which expands the proportional amortization method to account for investments in all tax credit structures. That accounting method was previously allowed only for low-income housing tax credit (LIHTC) investments, but now is available, by election, to all community development tax credit investment reporting that meets five conditions. Under the new guidance, reporting entities can make accounting policy elections on a tax-credit-program-by-tax-credit-program basis, rather than for individual investments or at the reporting entity level. For public business entities, the new amendments are effective for fiscal years beginning after Dec. 15, 2023. For all other entities, the amendments are effective for fiscal years beginning after Dec. 15, 2024. Early adoption is permitted for all entities in any interim period. For calendar-year-end entities, this would include the first quarter ending March 31, 2023.
Legislation introduced in the Rhode Island House of Representatives would exempt certain properties from the requirement to pay prevailing wages to receive the Rebuild Rhode Island Tax Credit. H.B. 6186 would allow taxpayers that applied for the tax credit before Jan. 1, 2023, an exemption from the prevailing wage requirement for construction projects that have more than $10 million in expenditures. The Rebuild Rhode Island tax credit goes to manufacturing projects, historic rehabilitation properties and mixed-use developments in opportunity zones (OZs) that support affordable housing.
A special report released today by the Economic Innovation Group says that investment through the opportunity zones (OZ) incentive had reached nearly half of OZs by the end of 2020 and that communities receiving OZ investment were significantly more economically distressed than the rest of the country. Examining the Latest Multi-Year Evidence on the Scale and Effects of Opportunity Zones Investment provides information through 2020 and also highlights the positive economic spillovers for neighboring communities and that home values in OZs have increased with development, while rents have remained stable.
Qualified opportunity funds (QOFs) tracked by Novogradac reported nearly $10 billion in equity investment in 2022, the biggest year since the opportunity zones (OZ) incentive was enacted at the end of 2017. The 1,661 QOFs tracked by Novogradac (1,274 of which report a specific equity amount) raised $9.68 billion last year, bringing the cumulative amount to $34.09 billion. That was despite a slowing in investment during the fourth quarter. Novogradac tracks QOFs based on voluntarily provided information as well as public information. Proprietary and private funds that are owned and operated by their principal investors are not included. Two blog posts by Novogradac provide details–the first with overall information, the second with information on the focus of investments. Future blog posts will address the cities and states with the most planned investments and the sizes of QOFs and the amount of equity overseen by different QOF managers.
The Maryland Department of Housing and Community Development last week announced more than $1 million in grant awards to investments in the state’s opportunity zones (OZs). Microgrants ranging from $50,000 to $100,000 were awarded to 12 businesses located in OZs. Those businesses employ between two and 50 full-time employees and generate annual revenue of $300,000 to $5 million. This is the third round of microgrants.
Maryland Gov. Larry Hogan announced today that the third round of opportunity zone (OZ) microgrant funding will open Tuesday, allowing certain small businesses that seek to expand in OZs to apply for grants ranging from $50,000 to $100,000. Eligible businesses must be in an OZ and have secured a matching contribution equal to or greater than the grant request, have between two and 50 employees, generate annual revenue between $300,000 and $5 million and be in good standing with the state department of assessments and taxation. The first two rounds of OZ microgrants have invested $1 million in 20 businesses.
Novogradac has resources available for private companies and nonprofits affected by Accounting Standards Codification (ASC) 842, which changed lease accounting standards. The change–which took effect Jan. 1 for fiscal years beginning after Dec. 15, 2021–affects the way certain contracts are accounted for under generally accepted accounting principles, particularly entities that are lessees. Rather than disclosing operating leases in notes to financial statements, but not on balance sheets, the new guidance requires lessees to record a right-of-use asset for the leased asset and a corresponding lease liability equal to the financial obligation over the lease term, as well as new disclosure requirements.
President Joe Biden today signed into law the Inflation Reduction Act (IRA), a $750 billion budget reconciliation bill that includes $369 billion in clean and renewable energy provisions that feature extensions of the renewable energy production tax credit (PTC) and investment tax credit (ITC).
Total investment in qualified opportunity funds (QOFs) tracked by national accounting and consulting firm Novogradac surpassed $30 billion as of June 30, according to a special report released today. Novogradac Opportunity Zones Investment Report: Data Through June 30, 2022, reports that $30.49 billion was raised by QOFs tracked by Novogradac for investment in opportunity zones (OZ). Novogradac is tracking 1,475 funds, of which 1,097 report a specific amount of equity raised. The June 30 total is $6.09 billion more than Novogradac reported at the end of 2021, giving the six-month period the second-largest dollar increase in OZ investment since Novogradac began tracking the data. Michael Novogradac, CPA, published a blog post on the QOF investment data, which is also topic of this week’s episode of Novogradac’s Tax Credit Tuesday podcast.
Legislation in Rhode Island to require all entities that receive the Rebuild Rhode Island Tax Credit pay prevailing wages to construction workers became law when Gov. Daniel McKee took no action within 10 days after adjournment of the Legislature. H.B. 7985 applies to all applications for that credit, which includes the state historic tax credit (HTC) and a credit for mixed-use developments in opportunity zones (OZs) that support new affordable or workforce housing. The legislation provides for the revocation of Rebuild Rhode Island Tax Credits for a failure to meet the requirements.
Ohio Gov. Mike DeWine signed legislation this week to temporarily expand and enhance the state’s opportunity zones (OZ) tax credits and temporarily double the state’s annual historic tax credit (HTC) cap. S.B. 225 increases funding for OZ tax credits for investments in qualified opportunity funds (QOFs) that hold all assets in Ohio OZs. That amount goes from $50 million to $75 million for 2022 and 2023 before dropping back to $50 million in 2024 and settling at $25 million annually thereafter. Investors without state tax liability can now transfer the OZ credit. The bill also temporarily increases the state HTC cap from $60 million to $120 million for fiscal years 2023 and 2024 and increases the tax credit percentage for those years from 25% to 35% for any county, township or municipal corporation with a population of less than 300,000.
The proposed global minimum tax and its potential effect on community development tax credit equity investments is the subject of this week’s Novogradac Tax Credit Tuesday podcast episode. Michael Novogradac, CPA, and Novogradac partner Brad Elphick, CPA, discuss the proposal and potential approaches to mitigate the damage to tax credit equity investment. They also examine next steps in the proposal and for community development tax credit stakeholders. Novogradac has also published a white paper on the subject called Pillar Two and Tax Credit Equity Investments and is seeking public comment on the paper. Comments may be sent to [email protected]
The weekly Tax Credit Tuesday podcast offers an in-depth discussion of various tax incentive topics with expert guests.
Ohio legislation that would temporarily expand and enhance the state’s opportunity zones (OZ) tax credits and temporarily double the state’s annual historic tax credit (HTC) cap has passed both houses of the Legislature and is headed for the desk of Gov. Mike DeWine. S.B. 225 would increase funding for the state OZ credits from $50 million to $75 million for 2022 and 2023 before dropping back to $50 million in 2024 and $25 million annually thereafter. Investors without state tax liability could transfer the OZ credit under the new legislation. The bill also would temporarily increase the state HTC cap from $60 million to $120 million for fiscal years 2023 and 2024 and would increase the tax credit percentage for those years from 25% to 35% for any county, township or municipal corporation with a population of less than 300,000.
Qualified opportunity funds (QOFs) tracked by Novogradac report a cumulative $28.37 billion in equity raised as of March 31, a $3.97 billion increase over the similar number reported Dec. 31. Michael Novogradac reported the figures at the 2022 Novogradac Spring Opportunity Zones Conference today in Long Beach, California, and wrote a blog post with more information. The increase in equity reported in the first quarter of 2022 is more than three times the increase in the same quarter of 2021 and is nearly equal to the equity increase in the final quarter of 2021. Novogradac reports QOF equity raises based on a collection of information from QOFs that voluntarily provide information or from other public sources. The Novogradac data does not include proprietary or private QOFs owned or managed by their principal investors.
The Internal Revenue Service (IRS) announced Tuesday in a news release that some qualified opportunity funds (QOFs) that filed Form 8996 may receive one of three letters seeking additional information about opportunity zones (OZ) investing. Some QOFs that attached Form 8996 to their returns may receive Letter 6501, which seeks additional information to support the annual certification of investment standard requirement. Filers of Form 8997 may receive either Letter 6502, Reporting Qualified Opportunity Fund Investments, or Letter 6503, Annual Reporting of Qualified Opportunity Fund Investments. For recipients of any of the three letters, additional details are required.
Bipartisan legislation was introduced today in the Senate and House of Representatives that would extend the federal opportunity zones (OZ) incentive, add reporting requirements, provide an early sunset for nonimpoverished OZs and more. The Opportunity Zones Transparency, Extension and Improvement Act would extend the OZ incentive through the end of 2028 to facilitate continued investment, implement the reporting requirements that were included in 2017 in the Investing in Opportunities Act and sunset the OZ designation for census tracts with a median family income at or above 130% of the national median family income. The legislation would also allow qualified opportunity funds (QOFs) to be organized as “funds of funds” to invest in other QOFs which would allow smaller projects to receive funding.
Legislation introduced in the Rhode Island House of Representatives would require all entities that receive the Rebuild Rhode Island Tax Credit–which includes the state historic tax credit (HTC) and a credit for mixed-use developments in opportunity zones (OZs) that support new affordable or workforce housing–to pay prevailing wages to construction workers. H.B. 7985 applies to all applications of the Rebuild Rhode Island Tax Credit and provides for the revocation of such credits for failure to meet the requirements.
Qualified opportunity funds (QOFs) tracked by Novogradac reported equity investment of $6.88 billion over the final six months of 2021, according to the Novogradac Opportunity Zones Investment Report: Data Through Dec. 31, 2021, which was released today. As of the end of 2021, the 1,342 QOFs tracked by Novogradac (978 of which report a specific amount of equity raised) had raised $24.40 billion in equity. The jump of nearly $7 billion in reported equity since June 30, 2021, is the largest increase in any reporting period since Novogradac began tracking QOF investment in May 2019. The semiannual report also includes data on the types of reported investment, the planned geographic focus of investment and the top 20 states and top 40 cities for targeted QOF investment.
The Internal Revenue Service (IRS) published two private letter rulings (PLRs) granting relief to a taxpayer who was late to file a Form 8996 to self-certify as a qualified opportunity fund (QOF). PLR 202205020 concerns a taxpayer that didn’t file a Form 8996 in a timely manner because the taxpayer and its accountant were unaware of the requirement to do so and PLR 202205021 addresses a similar situation in which the accountant filed a return and then an amended return without including a Form 8996. The IRS granted relief to file Form 8996 within 60 days of the ruling. PLRs are only directed to the taxpayer and may not be used or cited as precedent.
Legislation passed in Washington, D.C., and awaiting congressional approval would clarify that capital gains deductions related to the opportunity zones (OZ) incentive are available to individuals, estates and trusts in the same manner as to corporations. D.C. Council Bill 240513 would take effect following its 30-day period of congressional review.
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