Mortgage Brokers Suggest O-Zone Regs Address Practical Considerations

December 21, 2018

Internal Revenue Service
1111 Constitution Avenue NW
Washington, DC 20224

Re: Proposed Regulations on Investing in Qualified Opportunity Zones (REG–115420–18)

Ladies and Gentlemen:

The Mortgage Bankers Association (MBA)¹ respectfully submits these comments on the Internal Revenue Service (IRS) notice of proposed rulemaking implementing new section 1400Z–2 of the Internal Revenue Code.²

Section 1400Z–2 establishes tax incentives to encourage economic growth and investment in distressed communities designated as Opportunity Zones by providing federal income tax benefits to taxpayers who invest in businesses located within those areas.

MBA supports this objective and appreciates IRS efforts to provide guidance that taxpayers and Qualified Opportunity Funds (QOFs) can rely on to make investment and other business decisions. For example, the section became effective immediately when the Tax Cuts and Jobs Act became law in December 2017. We appreciate that the notice grants taxpayers the option of relying on the proposed guidance as an alternative to waiting for the final rule.³ We also support the clarification that a taxpayer may use an interest in a QOF as collateral for a loan without impairing its status as an eligible interest.⁴

We urge the IRS to ensure that its guidance address practical considerations. For example, as the notice suggests, it may be appropriate to specify exceptions to the general 180-day rule for reinvestment of capital gains into a QOF⁵ to address circumstances under which reinvestment within that time period may be impractical.

While clarity of guidance and practical considerations are important, we also recognize that the equity investment incentives created by new section 1400Z-2 will generate the intended benefits only if the broader commercial and multifamily development ecosystem is also actively engaged. This includes sources of debt capital, developers, business operators, state and local governments, and state Housing Finance Agencies (HFAs).⁶

Notably, sources of debt capital include MBA member companies that can provide mortgage debt financing for the acquisition and substantial improvement of business properties. In this regard, we are pleased that the new provision and the proposed guidance provide substantial flexibility in how the financing of Qualified Opportunity Zone Business projects may be structured. MBA is working with our members across multiple capital sources to ensure that they are prepared to play a critical role in financing Opportunity Zone projects.

Again, we appreciate IRS efforts to provide certainty to enable investors and QOFs to take action. As those activities unfold, our expectation is that our members will play an active and important mortgage financing role that will help Opportunity Zone communities to realize the benefits Congress intended. Please contact Fran Mordi at fmordi@mba.org or Bruce Oliver at boliver@mba.org with questions about this comment letter or for more information.

Sincerely,

Thomas T. Kim
Senior Vice President
Commercial/Multifamily
Mortgage Bankers Association
Washington, DC