Last month, the EPA’s Office of Brownfields and Land Revitalization (OBLR) requested clarification from the IRS on the extent to which brownfield site remediation could be facilitated through investments in Opportunity Zones.
As noted in a previous article, investors can enjoy deferred taxes and other incentives when investing in designated Opportunity Zones. The IRS released its initial Opportunity Zone guidance and proposed regulation back in October. The commentary notes that—in order to reap the tax benefits central to the Opportunity Zone program—the investment must lead to a doubling of the tax basis of the building (not including the value of the land) or the original use of the property must spurred from such an investment.
OBLR’s letter asked several key questions, and the IRS’ decisions may have a significant effect on the extent to which brownfield properties receive Opportunity Zone-related investments. Specifically, the OBLR recommended that the IRS revise its proposed rule to incorporate the following:
- Allow environmental remediation costs to count as “substantial improvements” to a property;
- Allow for funds to be deployed over a longer period of time so that properties can be cleaned up and developed along a more reasonable timeframe;
- Allow the gains resulting from the remediation of one property to be invested in another Opportunity Zone-designated property; and,
- Include brownfield cleanup and reuse of vacant, underutilized, or bank land bank property as an “original use” of a property, since enabling the original or initial use of a property from an investment spurs eligibility for the tax benefits.
How the IRS will ultimately weigh in on these issues remains to be seen. As of this writing, the Department of Treasury, including the IRS, is still impacted by the partial government shutdown and has yet to respond.