Final Opportunity Zone Rules: A Deep Dive

David Stewart:   0:01
Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: zeroing in on Opportunity Zones. In late December, the IRS and Treasury released the final Opportunity Zone regulations, which spanned hundreds of pages. Here to discuss the new rules and what they mean for tax practitioners is Tax Notes Today senior legal reporter Stephanie Cumings. Stephanie, welcome back.

Stephanie Cumings:   0:27
Thanks for having me.  

David Stewart:   0:28
Who did you talk to?

Stephanie Cumings:   0:29
I was very fortunate to be joined by phone by Tony Nitti, a partner at RubinBrown. Tony has over 20 years of tax and accounting experience, and if you're listening to this podcast, there's a very good chance you already know who he is. He's a frequent speaker at events and webinars, and he's a well-known contributor to Forbes.

David Stewart:   0:46
So, what did you talk about?

Stephanie Cumings:   0:47
So, we discussed the final regulations on the Opportunity Zone program, and for those who don't know, the Opportunity Zone program was a provision of the Tax Cuts and Jobs Act that lets taxpayers defer, reduce, and in some cases eliminate capital gains tax by making long-term investments in designated low-income areas. The regs are very long and complicated, and Tony walks us through some of the key changes and clarifications. We also discuss Tony's observations of the program in action because, for all of its benefits and attempts to make the program taxpayer friendly, it seems like a lot of people have hesitated to make investments because the rules are so complex. 

David Stewart:   1:21
Alright, let's go to that interview.

Stephanie Cumings:   1:24
Tony, thank you so much for joining us on the podcast today. There's been a lot of talk about Opportunity Zones since the Tax Cuts and Jobs Act was enacted. But it seems like more people are talking about Opportunity Zones than investing in them. And one of the common explanations for that was that people were waiting for more guidance. So now that the final regulations are finally out, do you think this is the year that people finally stop talking about Opportunity Zones and start investing in them?

Tony Nitti:   1:48
Stephanie, first of all, thank you for having me. That's going to be interesting to see. I'll tell you what, the feeling I've gotten after the first couple weeks of practitioners and taxpayers trying to absorb the final regulations is that we may have come full circle. And what I mean by that is when the Tax Cuts and Jobs Act was passed, Opportunity Zones they were eight pages buried in a much larger bill that warranted attention for a number of different reasons. So nothing was going on with Opportunity Zones until we got some regulations. And we got proposed regulations. Then we got another round of proposed regulations. And now we've got these final regulations.  

Tony Nitti:   2:20
And while the final regulations I certainly think are helpful, they're causing a lot of confusion. And they're so much bigger, just pure size, so much lengthier than the proposed regs that I almost feel that some people are kind of in a deer in headlights mode where they don't want to move in any direction because they're not quite sure how the final regulations interpret what it is they're trying to accomplish. So every step of the way with the O-Zones, we think this is a step that's going to spur people to really move forward with their investment. But this most recent round again I think it's just so all-encompassing and so involved, it's got a number of people scared. And I can say that from experience because just in the last couple weeks, that's been really the subject matter. Most of the phone calls I've gotten from people around the country, which is, "Hey, I thought I felt comfortable with what I was going to do under the proposed regs. Now I'm really not so comfortable under the final regulations." So it'll take some time. It's only been a couple of weeks, but I am getting that sense of people being a little bit paralyzed by the breadth of the final regulations.

Stephanie Cumings:   3:18
Let's dive into some of the specifics in the final regs. There were some changes in clarifications around gains that are eligible to invest, including section 1231 gains. So can you tell us how the rules changed for 1231 gains from the proposed regs to the final regs?

Tony Nitti:   3:33
Sure, and these are definitely taxpayer-friendly changes. But the only issue is, something that speaks to kind of everything we're going to talk about here today, but the effective date of the final regulations, right? I mean, they're not effective for most taxpayers until their 2021 calendar year. So, January 1, 2021. Now you can rely on those regulations in the current year or even in 2019. But you have to be consistent. And we're going to see in a second how that could create some confusion with the treatment of section 1231 gains.

Tony Nitti:   4:04
So, 1231 gains. First things first, it's just kind of a unique type of transaction within the tax law where if you sell a rental property, for example, you're not guaranteed capital gain because it's not technically a capital asset. Instead, depreciable property held in a trade or business for more than a year is treated as what's called a section 1231 asset. And 1231 what you do is you take all your gains and losses during the year, you net them together, and the result is a bit of a chameleon. If it's a net gain, it's treated as capital gain. And if it's a net loss, it's an ordinary loss. And the reason that's important in the O-Zone space is because you can only invest gain treated as capital gain into one of these Opportunity Funds and into an Opportunity Zone.

Tony Nitti:   4:47
And so in the proposed regs, they said, "Well, look, if you have $1 million of 1231 gain on January 2nd, 2020, you can't be sure whether that gain is going to be capital until you figured out what other 1231 gains and losses you have during the year and net them all together. And so if you end up with an $800,000 loss on December 5th of 2020, at the end of the year, your netting is going to reveal only $200,000 of section 1231 gain." And so the proposed regs said you could only in that situation invest the net 1231 gain of $200,000. And you could only do it starting the last day of the tax year, because that's the first day the netting is complete and you know the results. And so that meant somebody with $1 million of gain in January had to just sit there and wait till the end of the year. And even if there were no other losses coming, they couldn't make their investment until December 31st of that year because that's when the netting was complete. Obviously, a lot of people were not fans of that treatment.  

Tony Nitti:   5:45
And so the final regulations kind of went wildly in the other direction. And they say, "Hey, despite what we know about general tax principles, for our purposes, every section 1231 gain and loss is going to stand on its own. And so if you have $1 million of 1231 gain on January 3, 2020, hey, there could be more than $1 million of 1231 losses coming to you later in the year. It doesn't matter. Starting on that January 5th date, when you recognize the $1 million in 1231 gain, knock yourself out. You can invest it immediately into an Opportunity Zone and start your 180-day clock on the date of sale." And so if you do that, and later in the year, you have a loss from 1231 asset, doesn't matter. That 1231 loss just kind of stands on its own, and the result is you'll have a net loss for the year, and you still got to invest the full $1 million of gain.  

Tony Nitti:   6:29
But when you put those examples together, you could see why it's caused some problems for 2019 because someone might have had a gain on January 5th of $1 million, and then in December had a loss of $800,000. And so their net 1231 gain is $200,000. And so if they want to rely on the proposed regs, they're stuck putting in $200,000 of gain, and they can't do it till December 31st. If they wanted to try to rely on the final regs and contribute the full $1 million of gain, what's the problem? Problem is, the ship has already sailed. The 180-day period began back on January 5th on the date of sale. So for 2019, some people are going to realize they just can't have their cake and eat it, too. They're either going to have to deal with the proposed regs and contribute on a net basis starting last day of the year, or hope that their gain was late enough in the year so that they haven't lost their 180-day period yet.

Stephanie Cumings:   7:19
Right, well, there was also some clarifications about installment sales. Could you tell us a little bit about that?

Tony Nitti:   7:23
Yeah, this is the question I was getting all over the place when I taught on Opportunity Zones. Because it says, "Hey, you can only invest gain that's recognized on a sale after 2017." And so people are saying, "Alright, well, what about if I sell something in 2015 or 2016 or 2017, and I'm collecting installment payments in 2018, 2019, 2020? Can I take those gains even though they originated from a sale pre-18 and contribute them?" And I just thought logically, of course you could, because for tax purposes under section 453 those gains aren't treated as being recognized until you received payment. But we didn't have any clarification. Final regs just made it clear that yeah, when you have an installment sale, even if it originated pre-2018, every year when those cash payments are received and you recognize your proportionate share of gain, every one of those payments that gives rise to gain is eligible for its own deferral by contributing it into an Opportunity Zone. And so that provided some much needed clarity people were waiting on.

Stephanie Cumings:   8:20
So, there was some interesting language in the preamble about circular cash flows and the step transaction doctrine. And when it comes to transferring property to a fund, this was maybe not super taxpayer friendly. Could you talk a little bit about that section of the preamble?

Tony Nitti:   8:33
Yeah, this kind of sucker punched some people a little bit because what it refers to is we knew you couldn't defer gain on the sale of property to a related QOF. And related parties for those purposes is defined as a 20 percent relationship-ownership stake. So we knew you couldn't, say, sell land for $500,000 to a fund. And then immediately invest that amount in the fund if you were going own more than 20 percent of the fund because you'd be related parties and it would just kind of kill it for everybody. Not only would you not have eligible gain to defer, but the land wouldn't be a qualified property fund because it was acquired from a related party.  

Tony Nitti:   9:12
Well, what the final regs did is take things a step further and say, even if you're not technically related, let's say, again, you have land that you sell for $1 million and you sell it to a fund. And then you immediately take that $1 million and invest it into the fund. And you don't own 20 percent so you're not related. There's nothing that prohibits you from doing it under the related party rules. The problem is the final regs should say, "Hey, look at this logically. You started out with land. The partnership, or the QOF, whatever it is, your Qualified Opportunity Fund started out with $1 million. The fund gave you the $1 million for the land. And then you turn around, put the $1 million back in the fund, and the fund still has the $1 million it had from the beginning." And so it says, "Under step transaction principles, we'll combine all those steps together." And since you didn't end up with the cash that the fund did, it's really treated as if you contributed the property into the fund.  

Tony Nitti:   10:07
And so there's a number of problems there. No. 1, you wouldn't have eligible gain to defer. And No. 2, that property is never going to be qualifying property for the fund because it was acquired via contribution instead of purchase. And so, OK, we got some clarity there. But it's caused so much confusion among taxpayers, because what about if we sold land for $1 million? But we had $800,000 of basis in the land, and so we only end up with $200,000 of gain. And then, rather than putting the full $1 million of proceeds back into the fund, we only put $200,000. Has there still been a circular movement of that cash? I mean, we got $1 million out. We only put $200,000 back in. The answer? Probably no.  

Tony Nitti:   10:47
So, there's some ambiguity in the regs, but a lot of taxpayers are left to wonder how to interpret that circular transfer of the cash discussion. And whether there's going to be a tipping point where if you don't put too much of the cash back in, you're OK. But if you go $1 more than what's acceptable, it's all going to blow up. And we just don't have that level of detail right now.

Stephanie Cumings:   11:06
So, under the rules, investors generally have 180 days to invest eligible gains in a fund, but there's some special rules for partnerships and S corps. Can you tell us about those?

Tony Nitti:   11:14
Yeah, sure. And these are largely kind of born out of just common sense. A partnership or S corp, first of all, let's make sure we understand they can be their own eligible entities and defer gain directly into a Qualified Opportunity Zone. So a partnership or S corp can sell assets and just say, "Hey, we're going to make the decision at the entity level to defer this gain into a zone." And all the partners and shareholders are just kind of stuck with that treatment. Much more likely, however, what ends up happening is the partnership or S corp recognizes gain and says, "We're going to allocate that gain out to our owners and let each of them independently decide whether they want to defer." And the problem that then arises is this 180-day window you mentioned. Because what if the partnership sells its assets on January 5, 2020? And you're a partner, you aren't even going to know you necessarily have that gain until maybe you get a K-1 in February or March or April of 2021.  

Tony Nitti:   12:03
And so what the final regulations do is basically say the default treatment is when a partnership or S corporation allocates gain out to the owners, the 180-day period, regardless of when the partnership or S corp may have sold its assets,  that 180-day period will begin on the last day of the partnership or S corp's tax years. So call it December 31, 2020, in our example. Now, there are two elections that you can take to modify that. No. 1, maybe you're a partner, a shareholder, and you know the partnership or S corp sold the asset on January 5, 2020. You don't want to wait. You don't want to wait until the end of the year. You want to put your money in right away. You like this investment quite a bit. You can elect to start the 180-day period on that January 5, 2020 date. As long as you have actual knowledge of what your gain amount is. Or what the final regs did is say, "Take it the other extreme." You know, maybe the partnership doesn't get you your K-1 until May or June of 2021. You can now elect to start the 180-day period on the unextended due date of the partnership or S corp's tax return. So that would kick the period all the way back to beginning on March 15, 2021, which would buy another six months after that date. So we got a lot of flexibility now. Three different options.

Stephanie Cumings:   13:15
Alright, so the program's biggest benefit comes at the end of 10 years, when certain gains can be excluded from taxation altogether. And there were some major changes and clarifications in the final rules about how this works. Could you talk about that?

Tony Nitti:   13:27
Yeah, this has evolved over the regulations to become more and more taxpayer friendly. And the reason I say that is because originally the way the statute kind of laid out your options, basically after 10 years, you had to sell your equity stake in the Qualified Opportunity Fund, and that could become tricky. Buyers typically don't want to buy equity. They want to buy assets, particularly in real estate deals, because they want to get a stepped-up fair market value basis and take depreciation deductions. And so the regulations have certainly acknowledged that after 10 years, the big carrot that's being dangled here is tax-free gain. But if you can only get it upon a sale of equity, some people could be hamstrung. And so the proposed regulations said, "OK, you know, a Qualified Opportunity Fund could, instead, sell its assets. But you could elect to exclude from those asset sales any kind of capital gain resulting from the sale only of Qualified Opportunity Zone business property." So if you had some property outside the zone that wasn't qualifying, or if you had ordinary income depreciation recapture, which is very likely, you would end up paying tax on it if the QOF sold its assets versus if you were able to sell your equity.  

Tony Nitti:   14:33
The final regulations are much, much more friendly. They basically say ,"Hey, the QOF sells its assets. Even if the QOZB subsidiary of a QOF sells its asset, you can elect to ignore and exclude all of the gain that flows through to you other than ordinary income, specifically from the sale of property held for sale to customers in the ordinary course of business. Or what we refer to obviously as inventory. And so now you be protected from depreciation recapture. You'd be protected if you sold non-qualifying assets. Upon asset sale the only way you're going to get punished relative to an equity sale would be gain attributable to inventory. So that's much more friendly than under previous rules.

Stephanie Cumings:   15:12
So, the regs also provide that in order for property to be good property, for the purposes of the program, the original use of the property must have commenced with the fund or the fund must have substantially improved the property. And the final rules made some changes to the rules about improving property. Can you talk about that?

Tony Nitti:   15:27
This is where, going back to the intro, we're seeing some people almost paralyzed by how much new guidance there is. But when you just stop and take a step back, these requirements that all property to be qualified property either be property that's never before been placed in service in the zone before, what we call the original use test, or be substantially improved makes sense. Right? Because they want to encourage development, new investment into a zone that leaves the residents of that zone better than kind of when the investors got there. And so what you can't do in a fund is simply buy an existing rental property and maintain the status quo and think you're going to get any of these benefits. Right? Because that's not going to satisfy either of those tests. Obviously, you don't satisfy the original use test. The property that you bought was there yesterday, so it's not starting in the zone with you. And then the substantial improvement test wouldn't be met because you just maintained the status quo and kept renting it out. And so anything that's not new property they want to make sure is substantially improved.  

Tony Nitti:   16:24
And substantial improvement requires that effectively, you double the basis of that property over a 30-month period. And so, if I buy a land and building for $1 million, $400,000 under the price allocated to the land, $600,000 allocated to the building. As I said, I can't just keep that building going. None of this is going to work. I have 30 months, basically, to spend another $600,001 improving the building, and that's a big ask. And from my experience, right, that's kind of a question you ask people to weed out who's really serious about investing in an O-Zone. You make clear to them that they have to either buy something or create something new or double the cost of something they buy. And a lot of people shy away and say, "That's more than I have the appetite."  

Tony Nitti:   17:06
But meeting this substantial improvement test got a lot easier couple different ways under the final regulations. No. 1, they recognize doubling the basis can be difficult. Let's just say you buy a hotel that you want to renovate. You spend $600,000 on the hotel. Like I said, you have to spend another $600,000 renovating it. That's a big ask. And so what the final regs allow you to do is instead of simply improving the hotel to the tune of $600,000, they will allow you to count towards that substantial improvement requirement new assets that you purchased that helped facilitate the use of the hotel. So now maybe you only spend $300,000 improving the hotel, the other $300,000 you spend on mattresses and gym equipment for the hotel and furniture and fixtures for the hotel. And so you don't have to actually build out new walls and roofs anymore to the hotel. You could buy other assets that stand on their own as assets, but that will count towards a substantial improvement test. That is a big, big accommodation for a lot of taxpayers.  

Tony Nitti:   18:05
Another way things got easier under the substantial improvement test is that if you own multiple buildings, kind of on one plot of land, if you will, inside a zone. And let's say one of them you bought for $200,000 and the other one you bought for $300,000, you'd have the requirement that you improve them to the tune of half a million dollars over 30 months. But they would allow you to aggregate the buildings together. And so you wouldn't necessarily have to double the basis of each building specifically. But you would need to double the basis of both buildings combined. And so if one building was in far worse shape than the other, you could spend a lot of money on the one building and that would kind of count, if you will, towards substantially improving the other building.  

Tony Nitti:   18:44
And then the final thing we got that's most noteworthy about the substantial improvement rules is we were told that when we're improving property, so a lot of people worried about this. What if we buy that building I gave you the example of for $600,000? Obviously it doesn't pass the original use test. And so we just have a $600,000 bad asset sitting on our books for purposes of satisfying the requirement that 90 percent of your assets be qualifying assets until it's improved. While the final regulations make clear that basically, once you start substantially improving that $600,000 building, that building will count as qualifying property throughout that 30-month period. So that's a huge sense of relief to a lot of taxpayers. Because otherwise they thought they were going to be paying a penalty until the 30-month period was over.  

Tony Nitti:   19:27
But it's not all good news, right? There's one bit of bad news in the final regulations about substantial improvement, and that is, and this took some people by surprise. They said, "If you substantially improved non-qualifying property, those substantial improvements, right, don't do you any good. They don't count either." So if somebody had contributed, say, an old building into the fund. And then you spend a bunch of money improving that building, because you're improving a building that can't qualify by that definition, because it wasn't acquired via purchase, basically all that time you spend improving is for naught because those costs are never going to count as eligible property. And what it leaves is a little bit of ambiguity. And ambiguity that I dealt with just today on a call. Well OK, we know you can't substantially improve disqualifying building and have it qualify. But what if someone contributes land into a QOF? And again contributed property is never qualifying property. But someone contributes land in, and then you construct a building on it. Is that going to be punished under that same set of rules? Or is that more forgiving? Now my belief is that it will be more forgiving, because if you construct a building on raw land, you're not technically improving that land. You're just creating new building. So I think in that situation, the building would not be tainted just because the land was not a qualifying asset. But taxpayers are out there worried and wondering about it.

Stephanie Cumings:   20:47
So, to go back to that original use requirement There are also rules about vacant buildings and how long they have to be vacant. And there were some changes in the final rules about that. Can you discuss those?

Tony Nitti:   20:56
Look, taxpayers always kind of want to get the benefit of some of these incentive provisions while doing the least amount possible. And so if you are going to go into an Opportunity Zone and purchase a building that hasn't been open to the public for a number of years, you're going to say, "Well, wait a minute. If I slap some paint on it and get it back into service, I'm doing some good for the area. So why shouldn't that count?" But by definition, it's not going to meet the original use test because, as I said, if you buy a building today and it was there yesterday, you're not going to satisfy that test.  

Tony Nitti:   21:28
So, the proposed reg said, "If you want to hit the restart button on a building that's previously been placed in service, we'll allow you to treat a building as being newly placed in service if it sat vacant for five full years." So as I said, that's kind of a big ask, because five years is a long time. The final regulations give us some additional flexibility. They say, "Hey, look at the date that this zone that you're in was designated as a zone. If a building was already vacant for one year on that date, then as long as it's still vacant when you acquire it, you can slap some paint on it, put it into service, and it'll satisfy the original use test. If it wasn't already vacant for a year on the date that the zone was designated, then you've got to sit back and wait for the building to be vacant for a total of three years before you can place it into service." But that's still better than five, obviously.

Stephanie Cumings:   22:16
So, obviously a lot of rules in these regulations. Are there any significant issues you think were left unresolved by the final regs? Or do you think it's just a matter of people digesting and understanding the rules that we have?

Tony Nitti:   22:28
No. I think the industry as a whole would tell you there's still some major things out there that are unclear, and some of them, the IRS concedes to. I mean, for example, we don't have an answer yet to what is probably the most important fundamental question of all of this, right? Now, we haven't talked in detail yet about how the program works, but you get multiple tranches of tax benefits, deferred gain when you invested into the zone, forgiveness of 10 percent of the gain if it's been held for five years, 15 percent if it's been held for seven and then, as you alluded to, exclusion of all the gain if you sell your investment after 10 years. And we know that to be eligible for those benefits, we have to meet the spirit of the law, which means the fund is investing in a business that's operated inside a zone. The way that's measured is by the fund's assets, right, or 90 percent of its assets held in qualifying property every six months. And we know that if they're not, you pay a penalty.  

Tony Nitti:   23:20
But what no one has said yet, it's kind of remarkable when you think about it, is when is enough enough? When have you failed the 90 percent test so much, so egregiously, that we blow up all of this and you don't get any of your benefits? So that spooks taxpayers quite a bit because they're like, "Who's to say I can't just fail the 90 percent test every six months for 10 years, but still get my benefit after 10 years?" And the answer right now is we have no idea. No one has told us that. The IRS has acknowledged that. We don't know when they're going to tell us, but it seems like a fairly important thing to let us know about.  

Tony Nitti:   23:51
From a more practical perspective, though, there's just still so much confusion about certain things in terms of what counts as qualifying assets and what doesn't. Right? I mentioned to you before, you buy an old building for $600,000 and start improving it. Well we know you've got to spend another $600,000 to improve it, and we know that the regs say once you start improving it, that old building will count as a qualifying asset. But what about the cash that is sitting around? The other $600,000 that you're slowly but surely using to renovate the building. Does the cash count? Right? Is it treated as qualifying property? Is it not? It's not perfectly clear in the regulations. And so a lot of people just still have some fundamental questions about whether what they're doing is going to be OK. And it's, as I said, kind of a weird thing where we went from having no guidance to so much guidance that we're kind of back to still not understanding what to do about anything.

Stephanie Cumings:   24:45
Well, there have also been some criticisms of the program in the mainstream press, and from other people, about how maybe it won't help low-income communities the way it's intended to. So, I was wondering if you had any thoughts on that. And also, if you think the IRS is really in a position to do anything about that through guidance?

Tony Nitti:   25:00
Yeah, I think the IRS has pretty much given orders to kind of stand down on this, and I joke about that. But, you know, as Opportunity Zones evolved in the legislation, there were going to be requirements that a lot of this be tracked. Because, listen, this is not unique. Incentives like this, spurring people to invest in low-income areas, it's been done before. And there's a lot of question about whether it's ever been effective. Whether the lives of the residents have actually been improved or if all of these things simply lead to gentrification. So there had been some requirements in the proposed legislation about tracking this because I think tax policy experts and economists are all very curious. Does this work? Will it leave these areas better than when it started? But all of those tracking metrics were removed as part of the final legislation.  

Tony Nitti:   25:45
And so we are already seeing, as you alluded to, a ton of criticism about the zones as far as simply just where the zones were designated. And the idea that these are all low-income areas is clearly not what's become the reality. Where there's no shortage of articles that have been published about specific areas, whether it's in Michigan or in Miami, where areas that probably did not need this type of investment were designated as Opportunity Zones for political reasons or whatever it may be. And so you've got questions on the front end. Are these really the most deserving areas that have been designated? And then you're going to have a lot of questions on the back end, which is what really happened after the life cycle. I mean, was it something which a handful of people got very, very, very wealthy by doing what they were otherwise going to do, you know, develop property in low-income areas? Or was this something where the incentive worked and enough people did something they wouldn't normally do and invested in these areas and created new opportunities, new businesses, new housing. Where the residents of the area were left better off than when it started. And I know that people are very interested in tracking this. It's just something where the metrics required to do so aren't in place. So I'm not sure if a decade from now we're going to be any wiser about whether these incentives really work.

Stephanie Cumings:   27:00
One last question. You don't have to answer this if you don't want to, but I'm just curious. Have you or do you plan to invest in a Qualified Opportunity Fund?

Tony Nitti:   27:08
From a personal perspective? No, I'm still in a socking money away for the kid's college fund mode in my life. There's no Opportunity Zone incentive coming down the pipe for me. Right? Again, this is probably for a different class of taxpayer than I am currently residing in.  

Tony Nitti:   27:24
The more interesting discussion is just my clients. They're so quick to say this doesn't work for me for one reason or another. And I know from talking to people around the country that that has been, you know, the experience of many around the industry. That for all the attention given to Opportunity Zones, we're still trying to figure out where all of this is actually happening. Because I've spoken to, I can't even imagine, thousands of people at different conferences about Opportunity Zones and have yet to talk to anyone who says, "I've got a ton of clients doing this." Now everybody's got one or two, and I've certainly got more than that. But by and large is just a lot of people that learned about the incentive, explained it to their clients, and found that for whatever reason, location, the rules, 10-year holding period requirement. The clients just say, "You know, there's better uses of our money."

Tony Nitti:   28:12
And not to mention deferral, which is one of the primary benefits of doing this. Deferral was not always king. I mean, right now, capital gain rates are 23.8 percent tops, and we know they're not going to probably go any lower because Republicans had the chance with the Tax Cuts and Jobs Act to lower them if they wanted to, and they didn't. But we know we have an election coming up in 10 months, and certainly the Democratic candidates for president are proposing much higher capital gain rates. And so do you really want to defer out of a 23.8 percent rate right now? And potentially pay two times that or more when this gain comes home to roost in 2026 under the Opportunity Zone incentive. So it's been fascinating for me because I've devoted tens of thousands of word in written and spoken forms to this incentive, but do not have clients clamoring to move forward with it.

Stephanie Cumings:   28:57
It's incredibly complicated and a very interesting subject. I'm sure we're going to continue to talk about it for months and months and years to come. Tony, thank you so much for being on the podcast. We really appreciate it, and I know our listeners appreciate it.

Tony Nitti:   29:09
Well, thank you for having me. I appreciate the opportunity to talk.

David Stewart:   29:11
And now, coming attractions. Each week, we preview commentary that will be appearing in the Tax Notes magazines. I'm joined by Executive Editor for Commentary Jasper Smith. Jasper, what will you have for us?

Jasper Smith:   29:24
Thanks, Dave. In Tax Notes Federal, Richard Keller examines how the TCJA's inventory accounting exception benefits small business taxpayers. Richard Toolson argues that holding investments in taxable accounts can be more tax efficient than holding them in retirement accounts. In Tax Notes State, Eric Cook discusses state conformity with the TCJA. Michael Knoll and Ruth Mason urge the U.S. Supreme Court to clarify the scope of the dormant foreign commerce clause and the internal consistency test as a doctrinal tool in Steiner v. Utah. And in Tax Notes International, practitioners from PwC's Washington National Tax Service analyze the OECD's proposed consensus framework to shape allocation of global taxing rights, while Aleksandra Bal discusses new EU reporting obligations for payment service providers. Finally, in the Opinions page, Robert Goulder examines how the USMCA changes NAFTA and Nana Ama Sarfo looks at pay disparity taxes.

David Stewart:   30:20
You can read all that and a lot more in the February 3rd editions of Tax Notes Federal, State, and International. That's it for this week. You can follow me online at @TaxStew, that's S-T-E-W. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.