Congress’s top taxwriters are leading the charge on seeking more information about the Opportunity Zone program, including an investigation into potential abuse by Treasury officials.
Senate Finance Committee ranking member Ron Wyden, D-Ore., and House Ways and Means Committee Chair Richard E. Neal, D-Mass., have launched an investigation into one of the designated zones to see “whether political appointees interfered in the process to potentially steer millions in tax breaks to longtime associates,” according to a November 6 release.
The New York Times recently reported that Storey County, Nevada, had been named an Opportunity Zone even though it didn’t meet eligibility criteria. Treasury Secretary Steven Mnuchin personally intervened in approving the zone to the benefit of his longtime friend and financier, Michael Milken, according to the Times, which also posted an internal IRS memo criticizing the move as “opening the door for accusations that the determination process was influenced by political considerations or bias.”
Wyden and Neal said in a November 4 letter to Mnuchin that the allegations were “deeply troubling and threaten to undermine the intended goals of the Opportunity Zone program.”
The lawmakers are asking Mnuchin to turn over a range of documents about the program and want to know whether IRS and Treasury officials discussed the Storey County designation with Milken or any of his representatives.
The Opportunity Zone program, added by the Tax Cuts and Jobs Act, allows taxpayers to defer and eliminate tax on capital gains by investing in qualified opportunity funds, which in turn invest money in the zones.
GAO Report
Wyden and Neal, along with Sen. Cory A. Booker, D-N.J., and Ways and Means Oversight Subcommittee Chair John Lewis, D-Ga., are also asking the Government Accountability Office to look into the Opportunity Zone program.
The four Democrats are asking the GAO to study the program’s “effectiveness in spurring investment in low-income areas compared to other federal incentives, zone designations and program compliance,” according to a release.
In a November 4 letter to the GAO, the lawmakers cited the lack of reporting requirements as one of the reasons the study is necessary. The letter asks the GAO to evaluate Treasury’s implementation of the program, including “the development and implementation of regulations, the adjustment of tax return schedules and instructions, and the collection of data from these returns and schedules.”
In an apparent reference to Wyden and Neal’s investigation of potential abuse, the letter also asks the GAO to “identify any Opportunity Zones that do not meet the statutory criteria and explain how and why they were designated.”
‘Handouts for Billionaires’
Wyden also introduced legislation aimed at reforming the Opportunity Zone program, which he described as “troubled from the start.”
“The Treasury Department has been steering potentially billions in tax breaks to Donald Trump’s friends, and there are no safeguards to ensure taxpayers are not simply subsidizing handouts for billionaires with no benefit to the low-income communities this program was supposed to help,” Wyden said in a release. “Republicans who support the program should work with Democrats to ensure it does not become a boondoggle.”
The Opportunity Zone Reporting and Reform Act would require annual, public reporting on the program and would eliminate zones that are not low income. The program has received criticism for using outdated census data that resulted in areas that were not economically distressed being designated for investment.
The bill also aims to ensure that the program’s benefits go to “productive, new investments that are actually in zones, and not to projects that were already underway or investors trying to park their money tax-free.” It would also prohibit investments in casinos, stadiums, and luxury apartments.
The Economic Innovation Group, which was involved in developing the Opportunity Zone program, praised some aspects of the bill, but also said it could have unintended consequences that undermine the program’s goals.
“These include significantly reducing the ability to use Opportunity Zones to address severe housing needs throughout the country and making the already difficult process of qualifying for investment even more challenging for operating businesses,” the group’s president and CEO, John Lettieri, said in a statement.
In the House, Republican Mike Kelly of Pennsylvania on November 6 joined fellow Ways and Means members Ron Kind, D-Wis., and Terri A. Sewell, D-Ala., in introducing another Opportunity Zone reporting bill. The Opportunity Zone Accountability and Transparency Act would require that reported information be made public and would impose penalties for failing to submit reports.
“The opportunity zone program is creating hope and improving economies throughout America, but it’s our job to conduct oversight and ensure the zones work as intended everywhere,” Kelly said in a release.