The “Tax Cuts and Jobs Act of 2017” created a new classification for tracts of available land—with the intention of driving investments in historically under-performing regions across the country, called Opportunity Zones.
According to the IRS, an Opportunity Zone (OZ) is an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as Opportunity Zones if they have been nominated for that designation by the state and been certified by the Secretary of the U.S. Treasury.
These tax incentives pose a unique opportunity for investors. At a recent Executive Speaker Series, attorneys from Manning Fulton discussed the second round of Opportunity Zone regulations and how investors and developers in the Triangle could take advantage.
During this discussion, attorney Kevin Prakke also emphasized the need for fund promoters, developers and interested investors to ensure compliance with federal and state securities law.
Under applicable federal and state securities laws, issuers of securities must either register the transaction under which such securities are issued (which is typically costly and time consuming) or qualify for an exemption from such registration requirements, usually by virtue of limited offering exemption available to private placed securities. Investment interests in an OZ fund will almost certainly be considered securities under these laws, and thus most issuers will need to understand and qualify for an appropriate exemption.
Kevin gave nine tips for getting started—and ensuring compliance.
1. Recognize that you probably need to comply with securities laws.
2. Engage qualified and experienced legal and accounting help. You will likely need a corporate securities lawyer.
3. Develop a compliance plan early. Don’t wait until after you have raised capital.
4. Confine your offering to Accredited Investors only.
5. Avoid engaging in a general solicitation for investors. Crowdfunding is not for everyone.
6. Put together a solid offering memorandum.
7. Know your co-founders and insiders (require them to complete a Bad-Actor Questionnaire).
8. Be aware that we have a dual regime for securities law. You’ll need to submit Form D federally (with the SEC) and in each state where your investors reside.
9. Be wary of unlicensed broker-dealers.
Interested in pursuing an investment in an Opportunity Zone? We want to hear from you.
