Barring more detailed informational reporting requirements regarding how investments in opportunity zones are being used — something lawmakers from both parties have called for — the census data may provide the best available information about whether the most deserving communities are reaping the program's benefits.
That's because lawmakers relied upon data from the 2010 census when crafting the opportunity zone program, which was authorized by the 2017 Tax Cuts and Jobs Act
. Democratic lawmakers have criticized the program for relying on outdated information, arguing it allows investors to target communities no longer in need of special treatment. While the 2020 census data will likely feed discussions about the program's efficacy, whether lawmakers decide to recalibrate, reform or expand the program will also likely depend upon the extent to which detailed informational reporting is made available, as well as the political landscape that emerges from Tuesday's election.
The new data could lead to "designating new areas or zones for new investments going forward," Dustin Stamper, managing director in Grant Thornton LLP's Washington national tax office, told Law360.
The opportunity zone program authorized by the TCJA allows an investor who sells an asset and reinvests the gains in a zone to defer taxes on the gains until Dec. 31, 2026. It also forgives taxes on gains from investments held in opportunity zones for at least 10 years. More than 8,760 census tracts have been designated as opportunity zones by state and local officials.
The Census Bureau has stopped collecting information for the 2020 census, though a court challenge remains. The bureau is set to report its apportionment counts to the president by the end of the year and to provide states with redistricting counts by April 1, 2021.
The 2020 census will allow lawmakers to compare data on income levels, employment and education with 2010 data to determine roughly whether the census tracts chosen by states to be included in the opportunity zone program have seen any improvements.
But even if the census data were to show the program's benefits are not being enjoyed by the legislation's intended beneficiaries, there's nothing the Internal Revenue Service or states could do without additional legislation from Congress.
That's because the program was locked in, as in states are not able to designate additional census tracts and they're also unable to remove previously designated tracts from the program under the TCJA, Neisen Kasdin, managing partner of Akerman LLP's Miami office, told Law360.
The only way the program could be changed is if Congress passes legislation, "which either adds additional census tracts or authorizes their deletion," he said. "It takes legislation."
David Shapiro, tax partner at Saul Ewing Arnstein & Lehr LLP, told Law360 lawmakers' decision to make it difficult to change the zones was a good one because otherwise, investors would have faced an untenable amount of uncertainty.
"You want to have a program where if you're starting a project in an opportunity zone, it will remain an opportunity zone, and you're not going to have it pulled out and then leave people sitting high and dry," he said.
But because the program provided that level of security for investors, it also means that lawmakers would need to reach some type of agreement in order to recalibrate the program. The political dimension, therefore, is unavoidable when discussing the future of the program, Kasdin said.
"It'll be in the realm of politics now," he said.
Still, there are limits to any type of recalibration that lawmakers might pursue, Stamper said, adding that it would be highly unlikely for Congress to retroactively disqualify certain zones based on new information.
In general, Republicans have been supporters of the opportunity zone program, while some Democrats have remained skeptical that it is meeting its intended goals, or even called it a giveaway to wealthy investors.
For his part, President Donald Trump has touted the benefits of the opportunity zone program, saying they have been a boon for minority communities. Still, while the issue has garnered some attention during the election, it's been outshone by the novel coronavirus and Trump himself, Kasdin said.
No matter which party gains control of the White House and Congress, though, adding additional informational reporting requirements to the program is an area of reform that could enjoy bipartisan support, Shapiro said.
In fact, the program's original version, as introduced by Sens. Tim Scott, R-S.C., and Cory Booker, D-N.J., included information reporting requirements, but those provisions were later stripped from the TCJA.
Lawmakers from both parties, including Senate Finance Committee Chairman Chuck Grassley, R-Iowa, have introduced legislation meant to increase the program's reporting requirements. One example would require the qualified opportunity funds through which opportunity zone investments are made to report their total assets, stock, partnership interests and business property, as well as information on the corporations and partnerships in which they have interests.
Without the ability to evaluate that type of granular information, it's difficult to draw educated conclusions about the program or how to change it moving forward so it's more effective, Shapiro said.
The new census data would help in gaining a better understanding of whether and to what extent the program is working, but the value of that information, by itself, will likely be limited, Shapiro said. For instance, it's likely that census tracts that would qualify for the program based on the 2020 survey would also have qualified based on the 2010 data. By the same token, plenty of tracts that qualified in 2010 would not have done so in 2020.
But if lawmakers could get their hands on substantive, detailed data about the program, there are all kinds of reforms they could institute, Shapiro said.
"Since the states are all laboratories and doing it all a little bit differently, they can see whether the methodology that one state used was a particularly good one," he said, adding that lawmakers could go so far as to further restrict the types of investments that would qualify for the program.
"This is a great experiment," he said. "And it's only a valuable experiment if we have the data to see what worked and what didn't work. We can guess at it. But it's a lot easier if there is a centralized reporting mechanism."
--Additional reporting by Theresa Schliep. Editing by Robert Rudinger and Joyce Laskowski.
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