OPPORTUNITY ZONES Kathleen M. Nilles

OPPORTUNITY ZONES Overview and Key Concepts New tax incentives contained in Tax Cuts and Jobs Act (2017) Designed to promote development by attracting long- term capital into economically distressed communities Nominated zones must qualify as Low-Income Community (“LIC”) census tracts or be contiguous to a LIC census tract State Control—Each governor given broad discretion to nominate zones

OPPORTUNITY ZONES Potential Benefit to Indian Country Nomination and designation of Opportunity Zones is now largely complete Approximately 400 census tracts located within (or adjacent to) Tribal census tracts have been designated as Opportunity Zones. According to the Urban Institute, all 248 “tribal census tracts” containing an eligible LIC tract have received at least one Opportunity Zone designation. How do I find out if my tribal area has been selected?

OPPORTUNITY ZONES Key Tax and Investment Concepts Key incentives for both corporate and individual investors— (1) deferral of gain on prior investment when reinvested in an Opportunity Zone Fund, and (2) partial exclusion of gain. Additional incentive available for long-term investments in Opportunity Zone Funds—(3) exclusion of new gain. Fund managers may be private asset managers, CDFIs, CDEs, developers or tribes, but O-Zone Fund itself must be structured as a taxable corporation or partnership. Whether an Opportunity Zone succeeds in attracting investment will be left up to market forces, not government action

OPPORTUNITY ZONES How Can Tribes Maximize Opportunity? Determine whether a particular reservation or tribal area primed for development has been designated as an Opportunity Zone Recognize that it must be made attractive to private investment capital (e.g., availability of ready work-force, infrastructure investments by tribal government, market studies showing likelihood of business success) Long-term land leasing statutes and secured transaction codes must also be enacted if they are not already in place Consider forming/managing an Opportunity Zone Fund

OPPORTUNITY ZONES Opportunity Zone Fund Formation Must be organized as a (taxable) corporation or partnership For purpose of investing in eligible property located in an Opportunity Zone Opportunity Zone Fund utilizes funding from investors seeking to defer gain from a prior successful investment Unlike CDFI certification, the process of fund formation is very simple and not highly regulated (“no approval or action by IRS is required” in advance)

O-Zone Fund Formation (cont.) Fund must hold at least 90 percent of assets in (i) stock or partnership interests in a qualified Opportunity Zone Business, and/or (ii) qualified Opportunity Zone Business Property A qualified Opportunity Zone Business must be a trade or business deriving at least 50 percent of its gross income from the active conduct of a T or B in an O-Zone and it cannot be a “sin” business (but may be rental real estate) Qualified O-Zone Business Property must be new property (or property substantially improved by the O-Zone Fund)

OPPORTUNITY ZONES Combining Zones with other Tax Benefits Indian Country O-Zones may be able to offer additional tax benefits to investors and/or tribal members Unfortunately, Accelerated Depreciation and Employment Tax Credits have again (!) expired for years after 12/31/2017. If land is trust land, it should not be subject to property tax or to property tax substitutes Tribes should work with State and local governments to assert tribal taxing jurisdiction Tribal administrators should also consider tax benefits associated with distribution of trust land leasing revenues to tribal members

More Information on OPPORTUNITY ZONES CDFI FUND resources on Opportunity Zones-- https://www.cdfifund.gov/pages/opportunity- zones.aspx. Kathleen Nilles resource outline in NITA Conference materials. IRS Frequently-Asked Questions at https://www.irs.gov/newsroom/opportunity-zones- frequently-asked-questions. Client alerts and articles by Nicole Elliott and Kristin DeKuiper at Holland & Knight law firm. See www.hklaw.com.