Power Couples: Matching Opportunity Zones with Other Economic Development Tax Incentives – Taxation

United States: Power Couples: Matching Opportunity Zones with Other Economic Development Tax Incentives

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You never change things by fighting the existing reality. To change something, create a new template that makes the existing template obsolete.

-R. Buckminster Fuller (1982)


Since the inception of this country, federal economic development programs have been fundamental and innovative tools to encourage public and private sector investment in troubled areas. In particular, economic development programs offer the prospect of maximized profits (or the prospect of some profit in the case of less profitable / riskier investments) for high net worth investors and entities, as most allow tax credits that reduce the current year’s tax base dollar for dollar, a deferral of tax (resulting in a reduction of the tax due for the current year), or additional sources of funding.

Each economic development program is implemented for different reasons, using unique methodologies to target different market segments. For example, the Low-Income Housing Tax Credit program was introduced as a way to address the affordable housing crisis, while the Energy Tax Credit program was introduced to incentivize businesses to switch to renewable green energy. Meanwhile, under the Opportunity Zone Incentive (OZ Incentive)1 -the newest economic development innovation found in the Tax Cuts and Jobs Act (TCJA)2 -the federal government has introduced a broader program that encourages local economic development, allowing for investment in a much wider range of businesses, properties and joint ventures than other programs of years past. This less restrictive structure of the OZ incentive provides an overlap with the market coverage of many other programs, providing investors with a unique opportunity to engage in innovative tax planning techniques: entering complex businesses to reap the benefits of more ‘a program. I call this pairing process “twinning”.

The OZ incentive and other programs found in the tax code have different levels of synergy and can work together, but often imperfectly, since the goals of each program – despite being in similar veins of “development economic” – may vary depending on the particular investment and program requirements. While the increased costs and compliance of running multiple tax credit programs at once may be off-putting to some investors, the lucrativeness of matching could still win out. Particularly if the cost of administration is compared to the alternative increased tax burden, a figure that can only rise with the Biden administration’s proposed capital gains rate increases this fall.3 In this article, I discuss possible OZ matching structures, their pitfalls when matching with other programs, and policy changes that might make the matching process more streamlined.

This article is divided into six parts. Part II discusses the history and objectives of the OZ incentive and provides a general overview of the program, highlighting relevant provisions for the purposes of this article. Part III discusses the objectives of the Low-Income Housing Tax Credit program in general, then giving a brief overview of its structure and discussing possible matching structures with the OZ incentive. Part IV examines the objectives of the New Market Tax Credit program, then giving a brief overview of its structure and similarly discussing possible matchmaking structures with the OZ incentive, as in Part III. Part V briefly highlights the potential for tripling and quadrupling OZs along with various other incentives, although this cannot be covered in detail in this article. Finally, Part VI ends with a brief discussion of the balance between risks and benefits associated with the innovative matchmaking process.

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1. See in general IRC §§ 1400Z-1, 1400Z-2 (2021).

2. Tax Cuts and Jobs Act 2017, Pub. L. No. 115-97, 131 Stat. 2054 (2017).

3. On September 13, 2021, the House Ways and Means Committee released its recommended fiscal reconciliation measures, proposing a new wave of tax code changes that could affect every investor. To see House Ways & Means Committee, Printed Committee consisting of subheadings F, G, H, and J, Budget Reconciliation Legislative Recommendations Relating to Infrastructure Financing, Green Energy, Social Safety Net, and Prescription Drug Pricing (September 13, 2021) [hereinafter Reconciliation Proposal].

It should be noted that the reconciliation measure proposes an increase in the capital gains rate of twenty-five percent.

Originally posted by American Bar Association Journal of Affordable Housing.


The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.


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