An Answer to “Hard to Find” Equity – Opportunity Zone Funds
by Mark Riedy and Eddie Wang (Kilpatrick Townsend & Stockton LLP/Biofuels Digest) The recently-established Opportunity Zone Program offers developers, including start-up technology companies attempting to develop and commercialize new technologies in the energy, chemical, and infrastructure industries, an exciting, new opportunity to attract private placement investment funds into company-level business operations and project company-level equity, including working capital, for the construction of projects located in such Opportunity Zones.
It thus offers bioeconomy companies a new source of equity capital from which to secure the hardest-to-find initial funding to jump start business operations and projects. This new class of specialized equity investors otherwise may never have considered an investment of any kind into the bioeconomy, except that they may shelter and ultimately forego federal capital gains taxes on their recently acquired long term profits resulting from exiting other ventures.
Background
The Tax Cuts and Jobs Act of 2017 (the “Act”) contained a tax incentive program (the “Opportunity Zone Program”) to encourage long-term equity investments into qualified low-income communities identified as “opportunity zones”. Such equity investments may be made into holding companies as private placements and/or project level companies as project equity and working capital if such companies are located in such zones. The Opportunity Zone Program provides preferential tax treatment for capital gains that are re-invested in qualified opportunity funds (discussed below).
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Any taxpayer that recognizes capital gains for federal income tax purposes is eligible under the Opportunity Zone Program.
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Capital gains that are properly invested pursuant to the Opportunity Zone Program are deferred from recognition and not included in income until the earlier of their disposal or December 31, 2026. READ MORE
