Senate Lawmakers Examine Tax Reform’s Effect on Small Businesses
The Senate Small Business Committee held an October 3 hearing on
expanding opportunities for small businesses through the tax code.
Senate lawmakers examined tax reform’s effect on small businesses and
discussed witnesses’ proposals to address ambiguity in the new tax code.
Various provisions of the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97)
were discussed among lawmakers and witnesses. Specifically, Opportunity
Zones under the TCJA were of particular focus.
The TCJA created certain tax
benefits for long-term business investment in Qualified Opportunity
Zones, which generally include economically distressed communities.
Although the TCJA did not receive a single Democratic vote, the
Opportunity Zones program was generally based on a bipartisan bill
sponsored by Sens. Tim Scott, R-S.C., and Cory Booker, D-N.J.
The TCJA’s Opportunity Zones program established tax incentives to
spur business investment in these low-income communities to produce
economic growth. Investor tax benefits include:
"Opportunity Zones are the most innovative and ambitious federal
attempt to encourage long-term private investment in low-income
communities in at least a generation," John Lettieri, president and CEO
of Economic Innovation Group, testified. However, "investors have yet to
receive the formal guidance or regulatory clarity needed to inform
their decision-making," he added.
- a temporary tax deferral for capital gains reinvested in a qualified opportunity fund;
- the elimination of up to 15 percent of the tax on the capital gain that is invested in the qualified opportunity fund; and
- the potential for a permanent exclusion of tax when exiting a qualified opportunity fund investment.
lawmakers that definitional clarity and proper reporting metrics for the
Opportunity Zone program are needed. Lettieri noted that Treasury has
broad authority in determining Congressional intent for defining key
terms pertaining to Qualified Opportunity Zone business and
investment. "These rules must be designed with practical considerations
and basic market flexibility in mind. If too narrow in scope or
impractical in nature, the rules would undermine the very purpose for
which this incentive was created," Lettieri testified.
Additionally, John Arensmeyer, founder and CEO of Small Business
Majority, stressed the importance of measuring the program’s success.
Those metrics should include evaluating success "based on the number of
jobs created, where those jobs are located, employee wages and the
number of businesses created, particularly businesses formed by women or
people of color," Arensmeyer told lawmakers.
Treasury Secretary Steven Mnuchin
recently expressed his support for Opportunity Zones. "I couldn't be
more excited about the opportunity zones," Mnuchin said in an interview
last week. "I think there's going to be over $100 billion dollars in
private capital that will be invested in opportunity zones," he added.
Comment. The Office of Management and Budget’s Office of
Information and Regulatory Affairs (OIRA) is currently reviewing
proposed IRS regulations on "Capital Gains Invested in Opportunity
Zones."Generally, OIRA has 45 days to review proposed regulations but
may expedite the process to 10 days for rules applicable to tax reform.
According to the OIRA website, the proposed rule was submitted to OIRA
on September 12, and the status of review is pending.