The U.S. Treasury unveiled stricter reporting requirements for investments made into the newly created federal opportunity zone program, a move it argues will usher in greater transparency as the federal tax break – an increasingly popular economic development tool in New Jersey – falls under greater scrutiny.
The four-page tax form from the treasury requires that the Opportunity Zone fund – the entity that collects investments for any particular zones – include the identification number for each business in which the fund has an interest, the census tract where the business owns property, and the monetary value put into each investment.
Opportunity zone funds would also need to report the business value of any properties that they own or lease.
“This is an important step toward a thorough evaluation of the Opportunity Zone tax incentive,” Treasury Secretary Steven Mnuchin said in a Thursday statement.
A product of the 2017 Trump tax cuts, the opportunity zone program allows investors to shield their capital gains from federal taxes by parking them in these federal zones. There are 8,700 opportunity zones across the country, including 169 in New Jersey spanning 75 municipalities in all 21 counties.
Many of the zones are in some of the most impoverished communities nationwide, and advocates including the Murphy administration see this is a chance to lure investment into these communities.
Treasury officials argued that the new reporting requirements will allow the federal agency to monitor the investments flowing into different zones.
“We want to understand where Opportunity Zone investments are going and strengthening the economy so that investors and communities can learn from the successes of this bipartisan, pro-growth policy,” Mnuchin added.
An Oct. 26 New York Times report detailed allegations that former “junk bond king” Michael Milkin was able to pressure U.S. Treasury Secretary Steven Mnuchin – with whom he has close ties – to relax the OZ rules so that land, where one of his properties is located, could qualify for a program.
Meanwhile, another Times report from August detailed how funds are being invested in multi-million dollar housing and industrial projects that were already underway before the advent of opportunity zones. In addition, the projects apparently employ few people and prices of the housing units are far beyond the price range of residents living in those communities.
That has since stoked fears that the opportunity zones might simply become tools that allow the wealthy and politically connected to accumulate more wealth while dodging taxes in the process.
As a result, state and local officials in New Jersey have been eyeing ways to ensure the zones promote equitable economic development.
Two proposed tax incentive bills moving through the state Legislature each provide tax credit bonuses for companies that build their projects inside these zones.