Investing in Opportunity Act
This bill amends the Internal Revenue Code to authorize the designation of opportunity zones in low-income communities and to provide tax incentives for investments in the zones, including deferring the recognition of capital gains that are reinvested in the zones.
Governors may submit nominations for a limited number of opportunity zones to the Department of the Treasury for certification and designation. Governors must give particular consideration to areas that:
Treasury must designate zones if a governor fails to submit nominations within a specified period of time.
An "opportunity fund" is any investment vehicle organized as a corporation or a partnership to invest in opportunity zones that holds at least 90% of its assets in opportunity zone assets.
Taxpayers may temporarily defer the recognition of capital gains that are invested in opportunity zones. Investments in opportunity zones or opportunity funds that are held for at least five years are eligible for capital gains tax reductions or exemptions, depending on how long the investment is held.
Treasury must report to Congress on the opportunity zone incentives enacted in this bill, including an assessment of opportunity fund investments at the national and state levels.
[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[S. 293 Introduced in Senate (IS)]
<DOC>
115th CONGRESS
1st Session
S. 293
To amend the Internal Revenue Code of 1986 to provide for the deferral
of inclusion in gross income for capital gains reinvested in
opportunity zones.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
February 2, 2017
Mr. Scott (for himself, Mr. Booker, Mr. Blunt, Mr. Bennet, Mr. Graham,
Mr. Coons, Mrs. Capito, Mrs. Gillibrand, Mr. Peters, Mr. Gardner, Mr.
Young, and Mr. Warner) introduced the following bill; which was read
twice and referred to the Committee on Finance
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide for the deferral
of inclusion in gross income for capital gains reinvested in
opportunity zones.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Investing in Opportunity Act''.
SEC. 2. OPPORTUNITY ZONES.
(a) In General.--Chapter 1 of the Internal Revenue Code of 1986 is
amended by adding at the end the following:
``Subchapter Z--Opportunity Zones
``Sec. 1400Z-1. Designation.
``Sec. 1400Z-2. Deferral for capital gains invested in opportunity
zones.
``SEC. 1400Z-1. DESIGNATION.
``(a) Qualified Opportunity Zone Defined.--For the purposes of this
subchapter, the term `qualified opportunity zone' means a population
census tract that is a low-income community that is designated as a
qualified opportunity zone.
``(b) Designation.--
``(1) Governor.--
``(A) In general.--For purposes of subsection (a),
a population census tract that is a low-income
community is designated as a qualified opportunity zone
if--
``(i) not later than the end of the
determination period, the governor of the State
in which the tract is located--
``(I) nominates the tract for
designation as a qualified opportunity
zone, and
``(II) notifies the Secretary in
writing of such nomination, and
``(ii) the Secretary certifies such
nomination and designates such tract as a
qualified opportunity zone before the end of
the consideration period.
``(B) Extension of periods.--A governor may request
that the Secretary extend either the determination or
consideration period, or both (determined without
regard to this subparagraph), for an additional 30
days.
``(C) Deemed designation if secretary fails to
act.--Unless the tracts are ineligible for designation,
if the Secretary declines in writing to make such
certification and designation or fails to act before
the end of the consideration period, such nomination
shall be deemed to be certified and designated,
effective on the day after the last day of the
consideration period.
``(2) Secretary.--If a governor fails to make the
nominations and notifications by the end of the periods
referred to in paragraphs (1)(A) and (1)(B), the Secretary
shall designate and certify population census tracts that are
low-income communities as qualified opportunity zones, as
permitted by subsection (e).
``(c) Other Definitions.--For purposes of this subsection--
``(1) Low-income communities.--The term `low-income
community' has the same meaning as when used in section 45D(e).
``(2) Definition of periods.--
``(A) Consideration period.--The term
`consideration period' means the 30-day period
beginning on the date on which the Secretary receives
notice under subsection (b)(1)(A)(i)(II), as extended
under subsection (b)(1)(B).
``(B) Determination period.--The term
`determination period' means the 90-day period
beginning on the date of the enactment of the Investing
in Opportunity Act, as extended under subsection
(b)(1)(B).
``(d) Guidance for Opportunity Zone Nominations.--When considering
the nomination of qualified opportunity zones, governors should strive
for the creation of qualified opportunity zones that are geographically
concentrated and contiguous clusters of population census tracts and
should give particular consideration to areas that--
``(1) are currently the focus of mutually reinforcing
State, local, or private economic development initiatives to
attract investment and foster startup activity,
``(2) have demonstrated success in geographically targeted
development programs, such as promise zones, new market tax
credit, empowerment zones, and renewal communities, and
``(3) have recently experienced significant layoffs due to
business closures or relocations.
``(e) Number of Designations.--
``(1) In general.--Except as provided by paragraph (2), the
number of population census tracts in a State that may be
designated as qualified opportunity zones under this section
may not exceed 25 percent of the number of low-income
communities in the State.
``(2) Exception.--If the number of low-income communities
in a State is less than 100, then a total of 25 of such tracts
may be designated as qualified opportunity zones.
``(f) Designation of Tracts Contiguous With Low-Income
Communities.--
``(1) In general.--A population census tract that is not a
low-income community may be designated as a qualified
opportunity zone under this section if--
``(A) the tract is contiguous with the low-income
community that is designated as a qualified opportunity
zone, and
``(B) the median family income of the tract does
not exceed 125 percent of the median family income of
the low-income community with which the tract is
contiguous.
``(2) Limitation.--Not more than 5 percent of the
population census tracts designated in a State as a qualified
opportunity zone may be designated under paragraph (1).
``(g) Period for Which Designation Is in Effect.--A designation as
a qualified opportunity zone shall remain in effect for the period
beginning on the date of the designation and ending at the close of the
10th calendar year beginning on or after such date of designation.
``SEC. 1400Z-2. DEFERRAL FOR CAPITAL GAINS INVESTED IN OPPORTUNITY
ZONES.
``(a) Special Rules When Gain From Sale of Property Invested in
Opportunity Zone Property.--
``(1) Exclusion of gain invested in opportunity zone
property.--In the case of gain from the sale to, or exchange
with, an unrelated person of any property held by the taxpayer,
at the election of the taxpayer--
``(A) gross income for the taxable year shall not
include so much of such gain as does not exceed the
aggregate cost of all qualified opportunity zone
property acquired by the taxpayer during the 180-day
period beginning on the date of such sale or exchange,
and
``(B) the amount of gain excluded by subparagraph
(A) shall be included in gross income as provided by
paragraph (2).
``(2) Deferral of gain invested in opportunity zone
property.--
``(A) Year of inclusion.--Except as provided by
subparagraph (C), gain to which paragraph (1)(B)
applies shall be included in income in the taxable year
in which the qualified opportunity zone property
related to such gain is sold or exchanged in the amount
determined under subparagraph (B).
``(B) Amount includible.--The amount of gain
determined under this clause shall be--
``(i) 100 percent of such gain in the case
of the sale or exchange of the qualified
opportunity zone property with respect to which
gain is deferred under paragraph (1) that is
held for less than 5 years,
``(ii) 90 percent of such gain in the case
of the sale or exchange of the qualified
opportunity zone property with respect to which
gain is deferred under paragraph (1) that is
held for at least 5 years but less than 7
years, and
``(iii) 85 percent of such gain in the case
of the sale or exchange of the qualified
opportunity zone property with respect to which
gain is deferred under paragraph (1) that is
held for at least 7 years.
``(C) Property held after 2026 treated as sold.--
For purposes of subparagraph (A), any qualified
opportunity zone property that has not been sold or
exchanged on or before December 31, 2026, shall be
treated as sold on December 31, 2026.
``(3) Exclusion of gain on qualified opportunity zone
property held for at least 10 years.--Except as provided in
paragraph (2), in the case of the sale or exchange of qualified
opportunity zone property, or an investment in a qualified
opportunity fund, held for at least 10 years, gross income for
the taxable year shall not include any gain from the sale or
exchange of such property or investment.
``(4) One election per property.--No election may be made
under paragraph (1) with respect to a sale or exchange if an
election previously made with respect to such sale or exchange
is in effect.
``(b) Basis Rules Relating to Qualified Opportunity Zone
Property.--
``(1) Reduced by gain deferred under subsection (a)(1).--
The basis of a qualified opportunity zone property immediately
after its acquisition under subsection (a) shall be reduced by
the amount of gain deferred by reason of subsection (a)(1)(A)
with respect to such property.
``(2) Increase for gain recognized under subsection
(a)(2).--The basis of qualified opportunity zone property shall
be increased by the amount of gain recognized by reason of
subsection (a)(2) with respect to such property.
``(3) Subsequent increase in basis for property held for at
least 5 years but less than 10 years.--In the case of qualified
opportunity zone property held for at least 5 years but less
than 10 years--
``(A) Property held for 5 years.--For qualified
opportunity zone property held for at least 5 years,
the basis of such property shall be increased by an
amount equal to 10 percent of the amount of gain
deferred by reason of subsection (a)(1)(A) with respect
to such property.
``(B) Property held for 7 years.--For qualified
opportunity zone property held for at least 7 years,
the basis of such property shall be increased by an
amount equal to 5 percent of the amount of gain
deferred by reason of subsection (a)(1)(A) with respect
to such property.
``(c) Qualified Opportunity Zone Property.--For purposes of this
section:
``(1) In general.--The term `qualified opportunity zone
property' means property which is--
``(A) qualified opportunity zone stock,
``(B) qualified opportunity zone partnership
interest,
``(C) qualified opportunity zone business property,
or
``(D) an interest in a qualified investment fund.
``(2) Qualified opportunity zone stock.--
``(A) In general.--Except as provided in
subparagraph (B), the term `qualified opportunity zone
stock' means any stock in a domestic corporation if--
``(i) such stock is acquired by the
taxpayer after December 31, 2017, at its
original issue (directly or through an
underwriter) from the corporation solely in
exchange for cash,
``(ii) as of the time such stock was
issued, such corporation was a qualified
opportunity zone business (or, in the case of a
new corporation, such corporation was being
organized for purposes of being a qualified
opportunity zone business), and
``(iii) during substantially all of the
taxpayer's holding period for such stock, such
corporation qualified as a qualified
opportunity zone business.
``(B) Redemptions.--A rule similar to the rule of
section 1202(c)(3) shall apply for purposes of this
paragraph.
``(3) Qualified opportunity zone partnership interest.--The
term `qualified opportunity zone partnership interest' means
any capital or profits interest in a domestic partnership if--
``(A) such interest is acquired by the taxpayer
after December 31, 2017, from the partnership solely in
exchange for cash,
``(B) as of the time such interest was acquired,
such partnership was a qualified opportunity zone
business (or, in the case of a new partnership, such
partnership was being organized for purposes of being a
qualified opportunity zone business), and
``(C) during substantially all of the taxpayer's
holding period for such interest, such partnership
qualified as a qualified opportunity zone business.
``(4) Qualified opportunity zone business property.--
``(A) In general.--The term `qualified opportunity
zone business property' means tangible property used in
a trade or business of the taxpayer if--
``(i) such property was acquired by the
taxpayer by purchase (as defined in section
179(d)(2)) after December 31, 2017,
``(ii) the original use of such property in
the qualified opportunity zone commences with
the taxpayer or the taxpayer substantially
improves the property, and
``(iii) during substantially all of the
taxpayer's holding period for such property,
substantially all of the use of such property
was in a qualified opportunity zone.
``(B) Substantial improvement.--For purposes of
subparagraph (A)(ii), property shall be treated as
substantially improved by the taxpayer only if, during
any 30-month period beginning after the date of
acquisition of such property, additions to basis with
respect to such property in the hands of the taxpayer
exceed an amount equal to the adjusted basis of such
property at the beginning of such 30-month period in
the hands of the taxpayer.
``(C) Related party.--For purposes of subparagraph
(A)(i), the related person rule of section 179(d)(2)
shall be applied pursuant to paragraph (8) of this
subsection in lieu of the application of such rule in
section 179(d)(2)(A).
``(5) Qualified opportunity fund.--The term `qualified
opportunity fund' means any investment vehicle organized as a
corporation or a partnership for the purpose of investing in
qualified opportunity zone property (other than another
qualified opportunity fund) that holds at least 90 percent of
its assets in qualified opportunity zone property, determined--
``(A) on the last day of the first 6-month period
of the taxable year of the fund, and
``(B) on the last day of the taxable year of the
fund.
``(6) Qualified opportunity zone business.--
``(A) In general.--The term `qualified opportunity
zone business' means a trade or business--
``(i) in which substantially all of the
tangible property owned or leased by the
taxpayer is qualified opportunity zone business
property,
``(ii) which satisfies the requirements of
paragraphs (2), (4), and (8) of section
1397C(b), and
``(iii) which is not described in section
144(c)(6)(B).
``(B) Special rule.--For purposes of subparagraph
(A), tangible property that ceases to be a qualified
opportunity zone business property shall continue to be
treated as a qualified opportunity zone business
property for the lesser of--
``(i) 5 years after the date on which such
tangible property ceases to be so qualified, or
``(ii) the date on which such tangible
property is no longer held by the qualified
opportunity zone business.
``(d) Applicable Rules.--
``(1) In general.--For purposes of this section and except
as otherwise provided in this section, rules similar to the
rules applicable to deferred like kind exchanges under section
1031 shall apply except that reinvestment in opportunity zone
property need not require an intermediary party.
``(2) Related persons.--For purposes of this subsection,
persons are related to each other if such persons are described
in section 267(b) or 707(b)(1), determined by substituting `20
percent' for `50 percent' each place it occurs in such
sections.
``(3) Decedents.--In the case of a decedent, amounts
recognized under this section shall, if not properly includible
in the gross income of the decedent, be includible in gross
income as provided by section 691.
``(4) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out the
purposes of this section, including--
``(A) rules providing for proportionate inclusion
in income and increases in basis for purposes of
subsections (a) and (b) in cases in which a sale or
exchange of any qualified opportunity zone property
with respect to which gain is deferred under subsection
(a)(1)(A) is less than all of such property,
``(B) rules requiring taxpayers to provide such
information as the Secretary determines to be necessary
or appropriate for the identification of both the
assets sold (including basis and sale price) and the
assets acquired and investments made, and
``(C) rules to prevent abuse.
``(e) Failure of Qualified Opportunity Fund To Maintain Investment
Standard.--
``(1) In general.--If a qualified opportunity fund fails to
meet the 90-percent requirement of subsection (c)(5), the
qualified opportunity fund shall pay a penalty for each month
it fails to meet the requirement in an amount equal to the
product of--
``(A) the excess of--
``(i) the amount equal to 90 percent of its
aggregate assets, over
``(ii) the aggregate amount of qualified
opportunity zone property held by the fund,
multiplied by
``(B) the underpayment rate established under
section 6621(a)(2) for such month.
``(2) Special rule for partnerships.--In the case that the
qualified opportunity fund is a partnership, the penalty
imposed by paragraph (1) shall be taken into account
proportionately as part of the distributive share of each
partner of the partnership.
``(3) Reasonable cause exception.--No penalty shall be
imposed under this subsection with respect to any failure if it
is shown that such failure is due to reasonable cause.''.
(b) Basis Adjustments.--Section 1016(a) of such Code is amended by
striking ``and'' at the end of paragraph (36), by striking the period
at the end of paragraph (37) and inserting ``, and'', and by inserting
after paragraph (37) the following:
``(38) to the extent provided in section 1400Z-2(b).''.
(c) Report to Congress.--The Secretary of the Treasury, or the
Secretary's delegate, shall submit a report to Congress on the
opportunity zone incentives enacted by this section beginning 5 years
after the date of enactment of this Act and annually thereafter. The
report shall include an assessment of investments held by qualified
opportunity funds nationally and at the State level. To the extent such
information is available, the report shall include the number of
qualified opportunity funds, the amount of assets held in qualified
opportunity funds, the composition of qualified opportunity fund
investments by asset class, the percentage of qualified opportunity
zone census tracts designated under subchapter Z of the Internal
Revenue Code of 1986 (as added by this section) that have received
qualified opportunity fund investments. The report shall also include
an assessment of the impacts and outcomes of the investments in those
areas on economic indicators including job creation, poverty reduction,
and new business starts, and other metrics as determined by the
Secretary.
(d) Clerical Amendment.--The table of subchapters for chapter 1 of
such Code is amended by adding at the end the following new item:
``subchapter z. opportunity zones''.
(e) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
<all>
Introduced in Senate
Introduced in Senate
Read twice and referred to the Committee on Finance.
Committee on Small Business and Entrepreneurship. Hearings held. Hearings printed: S.Hrg. 115-574.
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