Whopper of a New Markets Tax Credit (NMTC) Allocation from US Treasury ($3.5B) – these funds can be matched with OZ Funds

The U.S. Department of the Treasury’s Community Development Financial Institutions Fund (CDFI Fund) announced $3,548,485,000 in New Markets Tax Credits that are intended to spur investment and economic growth in low-income urban and rural communities nationwide.

A total of 76 Community Development Entities (CDEs) were awarded tax credit allocations, made through the calendar year (CY) 2019 round of the New Markets Tax Credit Program (NMTC Program).

“Today’s action demonstrates the Administration’s commitment to promoting economic growth and jobs in distressed communities, and to ensuring that every American can get back to work as quickly as possible,” said Treasury Secretary Steven T. Mnuchin.

”For almost 20 years, the New Markets Tax Credit has attracted private capital into businesses and communities as they recover from significant shocks to our economy,” said CDFI Fund Director Jodie Harris. “Projects that spur job creation, enable access to technology infrastructure and develop community facilities like federal qualified health centers, are examples of how New Markets Tax Credit investments are especially critical for low-income communities across the country.”

The 76 CDEs receiving awards were selected from a pool of 206 applicants that requested an aggregate total of $14.7 billion in tax credit allocation authority. The award recipients are headquartered in 30 different states and the District of Columbia. One-fifth (20%) of the investments will be made in rural communities. It is estimated that these award recipients will make more than $706 million in New Markets Tax Credit investments in non-metropolitan counties.

Yesterday’s announcement brings the total amount awarded through the NMTC Program to $61 billion. Historically, NMTC Program awards have generated $8 of private investment for every $1 invested by the federal government.

Through the end of fiscal year 2018, the most recent data available, NMTC Program award recipients deployed nearly $52.5 billion in investments in low-income communities and businesses; with impacts such as the creation or retention of more than 836,000 jobs, and the construction or rehabilitation of more than 218.3 million square feet of commercial real estate.

As we have discussed here before, NMTC funds CAN be matched with Opportunity Zone equity as OZ deals can stack with other tax programs to really drive a return for OZ projects.  Worthy of consideration. 

If you have any questions about this blog post or other NMTC or OZ questions, do not hesitate to reach out, we are happy to discuss at your convenience.  Be well and stay safe. 

IRS issues new Opportunity Zone Guidance and Provides Additional Time and Flexibility

Thanks to the urging of Senator Tim Scott (R-SC), the IRS issued revised guidance in Notice 2020-39 and provided some additional flexibility for Opportunity Zone investors and Qualified Opportunity Zone Funds.

The key take aways are as follows:

1. EXTENSION OF 180-DAY INVESTMENT PERIOD: Under the OZ regulations, an individual who realizes a gain, is required to invest that gain into a QOF within 180-days of realizing the gain (or such other date as outlined in the regulations). The new relief provides for the 180-day investment period to be automatically extended until December 31st, 2020 if it would have originally expired after April 1st, 2020 and before December 31st, 2020. Example: If any individual realized a gain on 12/15/2019, their investment period would have expired in May, 2020. That date is now automatically extended to December 31st, 2020.

2. EXTENSION OF 90% TEST FOR QOF: Under the OZ regulations, a QOF in required to invested 90% of its assets into qualifying opportunity zone property within 6 months and at the end of the taxable year (i.e., December 31st for a calendar year QOF). If the 90% test is not met, then the QOF is subject to penalties on a portion of the funds in the QOF. The new relief provides that if either the first 6 month testing date or the final year end testing date occurred between April 1st, 2020 and December 31st, 2020, then the failure to satisfy the 90% test is deemed to be due to reasonable cause and, as such, no penalties will be levied.

3. EXTENSION OF 30 MONTH SUBSTANTIAL IMPROVEMENT TEST: Under the final OZ regulations, one of the way tangible property qualifies as qualified opportunity zone business property is to meet the “substantially improved” test within 30 months of acquisition. The new relief provides for a tolling of the 30-month period beginning April 1st, 2020 and ending December 31st, 2020. In other words, properties that are acquired during or that have previously been acquired within an opportunity zone after 1-1-18 and which are under construction will be provided with an additional 9 months to satisfy the substantial improvement test.

The Notice also discusses the 12 month reinvestment requirement upon a sale and the up to 24 months of additional time under a “working capital plan” for properties located within federal declared disaster areas (note, all 50 states and Puerto Rico, the US Virgin Islands and Guam have been declared federal disaster areas in connection with COVID-19).

If you have any questions or thoughts, please do not hesitate to reach out via email or text to my cell.  Best regards and be well. 

A copy of the IRS Notice can be found here – IRS Notice 20-39

Over and out from the Land of OZ.  -Brad

From the Land of OZ – 24 pages of clarifying OZ regulations from Treasury

Good morning/afternoon friends and hope you and yours are doing well and staying healthy in these trying times.

A potential ray of sunshine – which is still being reviewed. Yesterday, without a lot of fanfare or warning for that matter, the Treasury Department issued 24 pages of clarifying regulations to the Opportunity Zone Program.

Unfortunately, rather than state what the impact of the changes were intending to do, the release replaces this word with that word and this time period with that time period. Our team is working on the import of the language changes and will have an explanatory Alert put together in the coming days but wanted folks to be aware in case they want to read it for themselves in the interim.

For you industrious types (I know who you are :)) – https://s3.amazonaws.com/public-inspection.federalregister.gov/2020-07013.pdf.

Happy to discuss any questions or concerns on this or other topics or just to catch up and see that you are doing ok, just email at bamolotsky@duanemorris.com.

Stay safe. Be vigilant.

Philadelphia Issues “Stay at Home” Order – The Intersection Of the City Order with the PA Order and Defining Essential and Life Supporting Businesses

As you have likely been following, New York and New Jersey have issued similar but slightly different Stay at Home orders over the weekend. Pennsylvania has also issued a “non-life supporting” business physical locations shut down effective as of Friday, March 20, 2020, which list of what constitutes a “life-sustaining” business has been modified twice since the initial announcement so please be sure you are checking for the latest list. If you would like one, do not hesitate to email us and we would be happy to provide you one.

As of March 22, 2020, the City of Philadelphia has declared by Executive Order, a similar Stay at Home Order. Key elements of the Order are noted below or feel free to read the actual text at: https://www.phila.gov/documents/eo-and-explanation-of-prohibition-on-non-essential-businesses/.

1. Prohibition on Operation of Non-Essential Businesses/Activities in Philadelphia

A. Prohibition: People and entities are not permitted to operate a non-essential place of business. This prohibition does not apply to virtual or remote operations (e.g., work from home).

B. Essential Businesses ARE permitted to operate during the term of the Order BUT are required to be observe the Social Distancing Rules stated within the Order.

1. “Essential Businesses” include all Life-Sustaining Businesses in the specific industry groups identified by the Governor of Pennsylvania, specifically those permitted in Natural Resources and Mining; Construction; Manufacturing; Trade, Transportation, & Utilities; Information; Financial Activities; Professional and Business Services; Education and Health Services; Leisure and Hospitality; and Other Services (Except Public Administration) (hereinafter, the “Governor’s Order”).

2. Governor’s List – In determining whether a business is a Life-Sustaining Business, businesses should first refer to the Governor’s Order and the list of Life-Sustaining Businesses noted above. That list has been updated by the Commonwealth to conform with guidance on Essential Critical Infrastructure issued by the Department of Homeland Security, Cybersecurity and Infrastructure Security Agency. The City’s Order should be interpreted to be consistent with the Governor’s Order.

3. Philadelphia Specific – The City of Philadelphia also provided “Philadelphia-specific” definitions and examples of Life-Sustaining Businesses, which are defined as Essential Businesses and Activities below, in appropriate coordination with the Commonwealth. The City’s Order may impose additional public health and safety restrictions above and beyond the Governor’s Order.

A. Essential Retail Businesses and Activities, includes the following:

“Grocery Stores,” including supermarkets, farmers’ markets, convenience stores, and mini-markets; these stores are supposed to discourage non-shopping activity (leisure or idling) and manage store occupancy to allow for social distancing.

“Food Services,” or restaurants limited to providing delivery service or pre- ordering online or via phone (strictly prohibited are walk-in ordering, dine-in service, and mobile food vendors, such as food trucks).

“Automotive Parts, Accessories, and Tire Stores,” including auto-repair shops but not any affiliated car dealerships.

“Gasoline Stations,” including their convenience stores.

“Building Material and Supplies Dealers,” including hardware stores, but NOT lawn and garden stores.

“Electronic Shopping and Mail-Order Houses,” means establishments primarily engaged in retailing all types of merchandise using non-store means, such as catalogs, toll free telephone numbers, or electronic media.

“Other General Merchandise Stores,” except department stores, includes:

1. Hardware stores supplying life-sustaining electrical, plumbing, heating, automotive parts, and other life-sustaining materials.

2. Pharmacies, drug stores, and retailers of prescription or nonprescription drugs, medicines, and essential healthcare products.

“Personal Household Goods Repair and Maintenance,” includes:

1. Emergency or urgent household repairs (HVAC, plumbing, electrical, utilities, life-sustaining household appliances, telecommunications equipment) and repair and maintenance necessary to maintaining the safety, sanitation, and essential operation of home residences;

2. Bicycle or motorcycle repair shops; and

3. Stores primarily engaged in repairing cell phones.

“Home Healthcare Services,” includes in-home or home-based care for seniors, adults, or children (not to be confused with child daycare facilities).

“Postal Service” and “Couriers and Messengers,” includes post offices, local messengers and local delivery, shipping and freight services, package delivery companies that deliver packages to residential buildings and offices, and companies that otherwise provide intercity, local, and/or international delivery of parcels and documents (including express delivery services).

“Dry-cleaning and Laundry Services,” includes laundromats.

Consumer banks and credit unions using drive-through, ATM, and limited lobby services, which are permissible “Financial Activities”.

“Veterinary hospitals and services, and pet stores (which are “Other Miscellaneous Stores”).

“Rooming and Boarding Houses” includes hotels:

1. “Clothing Stores” that only or primarily sell essential uniforms and apparel for medical/healthcare professionals and public safety workers (police officers and firefighters);

2. “Automotive Equipment Rental and Leasing,” includes establishments primarily engaged in renting or leasing passenger cars and trucks; and

3. “Services to Buildings and Dwellings,” includes establishments primarily engaged in exterminating and controlling birds, mosquitoes, rodents, termites, and other insects and pests

B. Essential Infrastructure and Industrial Businesses and Activities:
“Construction” for:

1. All medical, pharmaceutical, and healthcare facilities (including non- emergency construction);

2. All emergency projects or other projects deemed essential by the City of Philadelphia, while appropriately balancing public safety, to ensure the continued delivery of critical infrastructure services and functions by the City (“City Essential Infrastructure Projects”); and

3. Emergency repairs for “Residential Building Construction,” “Nonresidential Building Construction,” “Utility Subsystem Construction” (related buildings and structures for utilities, i.e., water, sewer, petroleum, gas, power, and communication, and all structures that are integral parts of utility systems); “Highway, Street, and Bridge Construction,”

4. “Other Heavy and Civil Engineering Construction,” “Foundation, Structure, and Building Exterior Contractors,” Building Equipment Contractors,” “Building Finishing Contractors,” and “Other Specialty Trade Contractors”

“Transit and Ground Passenger Transportation,” which includes urban transit systems, taxi and limousine services, interurban and rural bus transportation, other transit and group passenger transportation (except Charter Bus Industry), and rideshare services (see Governor’s Order for other categories).

“Air, Rail, Water, Truck Transportation,” and affiliated “Support Activities,” which includes delivery and distribution services, and Philadelphia ports and port- related functions (see Governor’s Order for other categories).

“Waste Management and Remediation Services,” which includes trash collection and essential sanitation or cleaning of public right of ways (e.g., sidewalks and streets) (see Governor’s Order for other categories).

“Broadcasting,” which includes radio and television broadcasting, and cable and other subscription programing (see Governor’s Order for other categories).

“Publishing industries,” which includes newspapers, periodicals, books, magazines, and directory publishers (see Governor’s Order for other categories).

“Telecommunications” (except telecommunications resellers), which includes wireless telecommunications carriers (see Governor’s Order for other categories).

“Manufacturing,” which includes all manufacturing of: food and beverages; medical supplies and equipment; HVAC equipment; plastics, rubber, cement/concrete, iron, steel, ferroalloy, and aluminum; semiconductor, electrical electro-medical, navigational, control instrument components and products (see Governor’s Order for other categories).

“Pharmaceutical and Medicine Manufacturing” is defined to include all essential activities and support activities related to ensuring the availability of in-vivo diagnostic substances and pharmaceutical preparations intended for internal and external consumption in dose forms, such as ampoules, tablets, capsules, vials, ointments, powders, solutions, and suspensions, as well as biological products, such as vaccines, toxoids, blood fractions, and culture media of plant or animal origin.

“Wholesale Trade,” which includes all wholesale trade of: food, groceries, and related products; pharmaceutical medical, healthcare, and wellness products; medical supplies and equipment; life-sustaining public health products; and all permissible Retail Trade products under the Governor’s Order (see Governor’s Order for other categories).

“Professional Businesses and Services,” which includes “Scientific Research and Development Services,” e.g., all essential research and development and support activity relating to Pharmaceutical and Medicine Manufacturing and biotechnology activity (see Governor’s Order for other categories).

C. Essential Healthcare and Social Services Businesses and Activities include:

1. All medical or healthcare related services and support services, including “Hospitals”; “Nursing and Residential Care Facilities”; “Ambulatory Health Care Services” (offices of physicians, dentists, and other health practitioners); urgent care facilities; and mental and behavioral health providers.

2. “Social Assistance” includes businesses that provide essential food, shelter, and critical social services for economically disadvantaged or otherwise needy individuals are not prohibited from providing essential food, shelter, and services; and residential facilities and shelters for seniors, adults, and children.

D. Essential Governmental Functions includes all services needed to ensure the continuing operation of the government agencies and provide for the health, safety and welfare of the public, including City Essential Infrastructure Projects.

E. Essential Educational Functions include:

1. Elementary and secondary schools maintaining preparation and distribution of meals for children (with essential staff only);

2. Colleges and universities supporting residence halls where students are required to be reside (with essential staff only)

Additional Essential Businesses may be determined by the Department of Public Health, consistent with the Governor’s Order, and will be identified at phila.gov/COVID-19.

2. Prohibition on Operation of Office-Based Businesses. The Order specifically states that:

A. No office-based or co-working space business or organization, other than an Essential Business, may operate the business generally with personnel located in such office.

B. Businesses required to suspend physical operations may only have essential on-site personnel to maintain critical functions, such as security, processing of essential operations (e.g., payroll and benefits for employees; maintaining remote technology infrastructure; and facilitating “Facilities Support Services” permitted by the Governor’s Order, which are services such as janitorial, maintenance, trash disposal, guard and security, mail routing, and reception).

C. US Businesses are also permitted to maintain essential on-site personnel to ensure compliance with federal, state and local regulatory requirements, and for the safety and security of essential government services.

Note: All businesses are required to be follow social distancing and COVID-19 mitigation guidance provided by the Center for Disease Control, the Pennsylvania Department of Health, and the Philadelphia Department of Public Health.

3. Other Non-Essential Businesses and Activities:

A. Businesses that are not listed as Essential Businesses or Life-Sustaining by the Commonwealth are non-essential businesses. For the avoidance of doubt, the Order confirms that non-essential retail businesses that are NOT permitted to operate include, among other things, movie theaters, clothing-only stores, fitness clubs (yoga, barre, and spin facilities), personal care salons (hair salons, barbershops, and nail salons), arts and music venues, tour operators, social clubs, night clubs, bars, electronics and appliance stores, amusement facilities, food trucks, ice cream trucks, car dealerships, florists, office supply stores, stationery stores, book stores, furniture stores, gift stores, event halls, and shopping malls.

B. Child daycare facilities are non-essential businesses, unless they obtain a waiver to operate from the Commonwealth of Pennsylvania or the City of Philadelphia.

C. “Legal Services,” specifically the practice of law, is governed by the rules established by the Supreme Court of Pennsylvania and/or the Administrative Office of Pennsylvania Courts. Restricted access to law offices and facilities by legal professionals, staff, and clients is permitted to the degree necessary to allow attorneys to participate in court functions deemed essential by a president judge per the Supreme Court’s order of March 18, 2020 or orders of the courts of the United States, so long as social distancing and other mitigation measures are employed for the protection of lawyers, staff, and clients. Pursuant to the Governor’s Order, all other business are required to conducted remotely; necessary retrieval of files or other materials should be accomplished expeditiously.

D. Operators of non-life sustaining, non-emergency construction in Philadelphia have been given until 5:00 p.m. on March 27, 2020, to make construction sites safe and secure. Contractors are directed to take proper measures to protect adjacent properties, remove or fasten items that are or could become loose, secure sites against trespass, and complete work necessary to protect and ensure the structural integrity of buildings under construction. Occupied residential properties are required to be left in safe and habitable condition.

E. No storefront businesses may open or operate their storefronts unless they are Essential Businesses.

4. Social Distancing Rules

A. Any business operating under and during the term of the Order are required to be adhere to Social Distancing Rules, which include making efforts to maintain at least six (6) feet of space between individuals; frequently washing hands with soap and running water for at least twenty (20) seconds and/or using hand sanitizer, refraining from shaking hands; covering coughs or sneezes with a sleeve or elbow (not hands); and regularly cleaning frequently touched surfaces, such as desks, tables, countertops, computers, phones, and door handles.

B. Businesses permitted to perform emergency household maintenance and repair services under the Order are required to be: require the customer to clean and sanitize the work are prior to arrival; sanitize the work area themselves before and after completing the work; ask that occupants keep a personal distance of 10-feet at a minimum during work; and allow in the residence only the number of workers necessary to complete the emergency maintenance or repair.

5. Gatherings of Individuals:

All public and private gatherings of any number of people occurring outside a single household or living unit are prohibited, except for the limited purposes permitted by this Emergency Order. This portion of the Order does not apply to activities related to Essential Businesses and Activities or Essential Personal Activities, which are required to be observe the requirements of the Order.

6. Stay at Home Order

A. All Philadelphia residents are required to remain home or at their place of residence unless they are engaged in Essential Personal Activities, which include:

1. obtaining essential goods or services from Essential Businesses, such as obtaining pre-ordered takeout food or beverages from restaurants, acquiring groceries, obtaining medical prescriptions or supplies, or any other products from Essential Businesses for themselves, family, household members, and pets;

2. seeking any form of medical attention, including through Essential Healthcare and Social Services Businesses and Activities, or seeking assistance from law enforcement or emergency services for themselves, family, household members, and pets;

3. caring for family members, friends, or a pet in another household, including delivering essential goods or obtaining emergency services and attention;

4. reporting to or performing their essential jobs related to Essential Businesses and Activities, Essential Minimum Operations, Essential Government Functions, or any other working activities permitted in the Order;

5. walking, running, cycling, operating a wheelchair, or engaging in outdoor activities with immediate family members, caretakers, household members, or romantic partners while following Social Distancing Rules with other individuals, which includes staying six feet apart;

6. leaving the home for an educational, religious, or political reason;

7. leaving because of a reasonable fear for health or safety;

8. leaving at the direction of law enforcement or other government agency; and

9. engaging in any other activities or performing tasks essential to health and safety, or to the health and safety of themselves, family, household members, or pets

7. Exemptions from the Governor’s Order

A. In extenuating circumstances, special exemptions to the Governor’s Order will be granted by the Commonwealth. Businesses seeking a waiver should comply with the Governor’s Order and suspend in-person, physical operations until a waiver is approved and provided.

B. Businesses performing Essential Governmental Functions, including essential Construction for the City of Philadelphia need not obtain an exemption from the Commonwealth.

We will continue to track local and national information and report as new news becomes available through our COVID taskforce web-page which can be found at: https://www.duanemorris.com/practices/coronavirus_covid_19.html.

If you have questions or concerns, please do not hesitate to email any of our COVID task force members and we will find the applicable person on our team who can assist you. bamolotsky@duanemorris.com; dcanderson@duanemorris.com; jsegal@duanemorris.com; or slcaffrey@duanemorris.com.

Be safe.

NJ – Closure order issued for Non-Essential Businesses effective March 21, 2020 at 9:00 PM

NJ just announced Executive Order No. 107 on Saturday, March 21, 2020, which becomes effective at 9:00 p.m. tonight. This Order contains new standards for businesses which supersede previous announcements.

Gathering: Gatherings of individuals, such as parties, celebrations, or other social events, are cancelled unless explicitly authorized by Executive Order 107. CDC guidance defines a gathering to include conferences, large meetings, parties, festivals, parades, concerts, sporting events, weddings, and other types of assemblies.

Non-Essential Retail businesses: Non-essential retail businesses must close storefront and/or brick-and-mortar premises operations while Executive Order 107 is in effect. All recreational and entertainment businesses must close to the public, including: Casinos; Racetracks; Gyms and fitness centers; Entertainment centers such as movie theaters, performing arts centers, concert venues, and nightclubs; Indoor portions of retail shopping malls; and Places of public amusement. Business may continue any on-line operations.

Personal-Care businesses: Personal-care businesses that by their very nature result in noncompliance with social distancing must be closed to the public and remain closed as long as this Order remains in effect. This includes: Barbershops; Hair salons; Spas; Nail and eyelash salons; Tattoo parlors; Massage parlors; Tanning salons; and Public and private social clubs.

Bars and Restaurants: Bars and restaurants in New Jersey must be closed for on-premise service and may provide take-out and delivery service only. Drive-throughs, take-out, delivery offered by restaurants, and other delivery services can continue to operate.
Exempt Businesses: Certain essential businesses and facilities are considered exempt from these closures and may remain open:

Essential retail businesses that are exempt from the mandate to cease storefront operations include:

Grocery stores, farmer’s markets and farms that sell directly to customers, and other food stores, including retailers that offer a varied assortment of foods comparable to what exists as a grocery store;

Pharmacies and medical marijuana dispensaries; Medical supply stores;

Gas stations; Convenience stores;

Ancillary stores within healthcare facilities;

Hardware and home improvement stores;

Vehicle rental locations;

Banks and other financial institutions with retail functions; Laundromats and dry-cleaning services;

Stores that principally sell supplies for children under five years;

Pet stores and veterinary service locations;

Car dealerships, but only for auto maintenance and repair, and auto mechanics;

Printing and office supply shops; Mail and delivery stores; and Liquor stores.

All businesses or non-profits must accommodate their workforce for telework or work from home arrangements wherever practicable. To the extent they have employees who need to be on site, they should operate with the minimal number of on-site employees as possible to ensure critical operations can continue. Examples of such employees include cashiers or store clerks, construction workers, utility workers, repair workers, warehouse workers, lab researchers, IT maintenance workers, janitorial and custodial staff, and certain administrative staff.

Manufacturing, industrial, logistics, ports, heavy construction, shipping, food production, food delivery, and other commercial operations may continue operating, but as explained above, they should limit staff on site to the minimal number to ensure that essential operations can continue.

Medical facilities may continue to operate. Medical facilities include any facility where a sick or injured person is given care or treatment, such as: doctor’s offices, hospitals, dentist offices, long-term care facilities, and other medical offices.

Employees reporting to work are permitted to travel to and from their place of business. Businesses are encouraged to give each employee a letter indicating that the employee works in an industry permitted to continue operations.

Governor Murphy also signed Executive Order No. 108, which invalidates any county or municipal restriction that in any way will or might conflict with any of the provisions of Executive Order No. 107. This is effective at 9 p.m. on Saturday, March 21 as well. The only exceptions are two categories over which municipalities or counties may impose any additional restrictions: 1) online marketplaces for arranging or offering lodging and 2) municipal or county parks.

If you believe that your retail business or operations are unique and should be included as “essential,” you may submit it to the State Director of Emergency Management, who is the Superintendent of State Police. The Director has the discretion to make additions, amendments, clarifications, exceptions, and exclusions to these lists.

We will continue to track local and national information and report as new news becomes available through our COVID taskforce. If you care to look directly, go to www.covid19.nj.gov.

If you have questions or concerns, please do not hesitate to email any of our COVID task force members and we will find the applicable person on our team who can assist you. bamolotsky@duanemorris.com; ppjosephson@duanemorris.com; dcanderson@duanemorris.com; jsegal@duanemorris.com; or slcaffrey@duanemorris.com.

Be safe.

Philadelphia – Construction and the Intersection with Governor Wolf’s Shut Down of Physical Locations of “Non-Life Sustaining” Businesses Announcement

Good afternoon and hope you and your loved ones are doing well under the circumstances.

As you likely know, and as we blogged about late last week and updated this morning, Governor Wolf of PA has issued a closure order for “non-life sustaining” businesses. There is a list on line of the life sustaining businesses. All “non-life sustaining” businesses were required to close their physical locations as of Thursday at 8 PM. This Order was modified this morning, March 21 with a few changes to the list of businesses that qualify as “life sustaining” and a change to the process of requesting a waiver. Please see our earlier post.

In response to Governor Wolf’s order, which includes construction in “non-life supporting” business column and which has shut down construction sites in Pennsylvania, the Philadelphia Department of Licenses and Inspections offered the following guidance.

1. Construction work must stop by Friday, March 27, 2020 at 5 p.m.

The additional time is provided in the interest of public safety and protection against unnecessary property damage.

Construction sites must be made safe and secure by March 27 at 5 p.m.

Contractors are directed to take proper measures to protect adjacent properties, remove or fasten items that are or could become loose, secure sites against trespass, and complete work necessary to protect and ensure the structural integrity of buildings under construction.

Occupied residential properties must be left in safe and habitable condition.

2. Routine maintenance and repair of existing buildings is exempted from the order and may continue.

3. Emergency systems repair and replacement are also exempted and may continue. The work must be performed by a license contractor and with permits as required by the Philadelphia Administrative Code.

Examples include:
Roof repair
Plumbing leaks
Hot water heater replacement
Fire safety systems repair

Contractors are required to obtain permits within 3 days of the emergency repair or replacement. At this time new permit applications are required to be filed using L&I’s eCLIPSE system.

https://www.phila.gov/2020-03-20-li-issues-guidance-on-construction-work-in-light-of-governors-march-19th-order.

Additional information will be provided as it becomes available.  Stay safe.

Please do not hesitate to email our COVID team if we can be of assistance or if you have any questions – slcaffrey@duanemorris.com; bamolotsky@duanemorris.com; jsegal@duanemorris.com; dcanderson@duanemorris.com

From the Land of OZ – Timing for Filing Forms 8996 and 8997 and the 180 day investment period – Spring Forward!

Good morning/afternoon friends. As we draw close to March 15th, a magic day for partnerships and S corps. for required tax filings, if you have invested in a QOF or a QOZB, I wanted to politely reach out and remind you all of something your accountant is likely to have already covered but, just in case:

1. Individuals – have 180 days from their gain event to put as much or as little capital gains as they want into a QOF. The individual needs to file a Form 8997 for his/her individual OZ investments. This form is available on line at www.irs.gov and is due with your individual return in April.

2. Partners in Partnerships; Shareholders in S Corps. – as you likely know, the final regulations issued in December 2019 allow partners and shareholders to invest capital gains 180 days from when the return for the relevant entity is due. This due date, WITHOUT EXTENSION, is March 15th. 180 days from March 15th takes one to September 11th. Thus, if you are a shareholder in an S corp or a partner in a partnership that had 2019 gain that is distributed to you in your individual capacity, you have until September 11, 2020 (this year) to place your gain into an QOF and still qualify. That is for you in your individual capacity friends.

The entity that is the QOF (the qualified Opportunity Zone Fund) is required to file form 8996 with its tax return to tell the IRS it wants to be treated as a QOF. If the QOF files an extension, this form would be due with the extension. Note, the September date for the individual is NOT extended regarding the timing for their investments into a QOF and the individual is required to make a decisions 180 days from when the return was originally due (i.e., March 15th).

3. QOZBs – as discussed, if relevant to you, QOZBs do NOT need to file any forms with the IRS. That said, they still need to meet the 70% test, the 50% test and 5% tests in order for the QOF that has invested in them to qualify; so their paperwork is very very relevant, they just don’t need to file anything with the IRS. Please note that the QOZB’s information will still be needed for the QOF to file its form 8996 as there are specific questions about the QOZB contained in the QOF’s filing paperwork.

I know, clear as mud! Just note, I did not make up the rules just trying to keep friends and clients from running afoul of them. If you have any questions or concerns, please reach out via email. I am traveling with my family (yes, I know, wash my hands) the rest of this week through Monday but will have access to email, just please be patient as out with my family. Best regards.

Over and out from the Land of OZ. -Brad

From the Land of OZ – States continue to add benefits to their OZ sites!

Good morning from the Land of OZ, it’s been a busy and interesting start to the new week with conversations about deals in all kinds of neat places – from Philly to Orlando, Ohio to Pennsylvania, the NJ shore to California and even to Alaska where I had a lovely chat with a business owner with capital gains yesterday who wanted to discuss how best to create a QOF. Fun stuff and the hectic pace of play continues – meaning, there is a lot going on despite what you may read elsewhere.

According to Novogradac, over $7.57 Billion dollars has been raised in QOFs in the funds they track (513 funds- 308 of which have raised equity) and these funds will be used to build and rehab buildings and businesses with an goal of $68.75 Billion of investment capacity.

State Updates:

Connecticut – Workforce Housing and OZs – Legislation that was recently introduced in the Connecticut General Assembly would expand the state’s workforce housing tax credit program to include properties in opportunity zones (OZs) and would change definitions for workforce housing in other parts of the state. S.B. 184 would add properties in OZs to the definition of “eligible workforce housing development projects.” According to Novogradac, the bill would also redefine workforce housing as a property where 10% of units are for low-income renters, 40% are available at 20% of the area’s prevailing rent, and the remainder are available at market rate. The legislation would double the statewide annual cap for the workforce housing tax credit to $20 Million.

Utah – HB 299 has been approved by the House in Utah. It enables added incentives for electric vehicle charging stations in Opportunity Zones, provides priority of review of OZ projects, allows for low income housing tax credits to be issued to projects in Utah OZs, provides preference for qualified opportunity zone. The bill also allows for 25% tax credits for certain parking lot construction projects located in OZs located within Utah.

Wisconsin – A bill to conform Wisconsin’s tax code to the federal Internal Revenue Code concerning opportunity zones (OZs) and to double the exclusion for capital gains invested in Wisconsin-based OZs passed the state Senate and is on the desk of Gov. Tony Evers for approval according to Novogradac. AB 532 would allow an additional 10% capital gains tax reduction for investors who hold investments in a Wisconsin-centered qualified opportunity fund (QOF) – defined as a QOF that holds at least 90% of its assets in Wisconsin OZ projects for 5 years and an additional 15% reduction for investors who hold their investment for 7 years.

Miscellaneous – we are hosting our monthly OZ webinar on March 4th at 1 pm EST. Guests for this upcoming month are Jill Homan of Javelin Investments and James Solomon of Ravinia Capital and we will be focusing on the OZ deals they have funded and what they are looking at and seeing in the OZ space. If interested, drop me an email and happy to have you join us.

Around on line if you want to discuss anything OZ or otherwise. Best regards – Brad

From the Land of OZ – Federal and State Updates and some annoying news from the IRS on the 70% Test

A quick thank you shout out to Craig Bernstein of OPZ Bernstein for being my guest on this month’s webinar installment of “From the Land of OZ”, our monthly Duane Morris Opportunity Zones webinar. If of interest, it is on tape and you can listen in at your convenience – we discussed the final regulations, fund deployment, fund creation and social impact investing.

First, the annoying News From the IRS involving QOZBs and the 70% test – prior to last week there was no written (or spoken) prohibitions on cash from a QOF being placed into a QOZB per a working capital plan counting for the 70% test at the QOZB level. As such, it was widely accepted by tax practitioners that cash in the QOZB bank account on the applicable testing date would be eligible to count for the 70% test. That is, until last week when an IRS official advised the working group at the RE Roundtable that cash that is not invested yet in the QOZB in real property or in a business does NOT count for the 70% test.

As such, please be very careful when planning for and dealing with the 70% test to make sure that the cash that ends up in that account is invested and actually buys inventory or good or materials that will be used in the business or real estate on or before the testing date.

Again, this is very new news and came out late last week from the IRS and you will NOT find it in writing anywhere. We will be confirming this in writing but, for the moment, I would assume this is the direction the IRS intends to go even though it’s not in writing anywhere in the regs.

In separate news, thanks to our pal Emily Lavery (rockstar policy person working with Senator Scott):

On the State level:

• In Colorado, a Montrose, CO-based co-working software company, received its third OZ investment through funding from the Center on Rural Innovation’s Innovation Fund, an Opportunity Fund that invests in high-growth technology companies supporting job creation and revenue generation in rural communities. (EIG). Nice!

• In Georgia, Vision unveiled for West End Mall’s rebirth as mixed-use ‘opportunity zone’: West End’s aging mall will be redeveloped into a bustling hub of offices, hotel rooms, and affordable housing that would set a national example for how federal opportunity zones could prosper is moving forward was unveiled, and investors with clout are buying in, according to project leaders. #Visionary

• In California, Catalyst Opportunity Funds Invests in SoLa Impact Opportunity Zone Projects to Reenergize South Los Angeles Communities. The SoLa projects aim to revitalize underserved LA neighborhoods such as Compton, Watts and South Central through real estate development, with additional services like job training, financial literacy, and homelessness prevention. #impactinvesting

• Also in California, a $250 Million Senior Living Facility is in the Works thanks to OZ’s: The facility will be outfitted with 52 assisted living units and 32 memory care units. It will be the first senior living community built in San Jose in 35 years. #seniorliving

• In Florida, an old Sears and mall property will become an “Innovation Community”: The project will have a focus on academic, scientific and technology uses thanks to Opportunity Zones. Preliminary plans for the former Sears store includes up to one million square feet of new office space; capacity for up to 400 hotel rooms, 1,000 apartment units and 100,000 square feet of street-level restaurants, shops, fitness and experiential concepts. #adaptivereuse

• In Rhode Island, Opportunity Zones will Give Rise to Largest Economic Development Project in Pawtucket’s History. This $400 million economic development project will transform Pawtucket’s riverfront with extensive development, including a new United Soccer League (USL) Championship soccer team and stadium. The state’s Democratic Governor, Gina Raimondo, was thrilled to see a $400M economic development project that will transform Pawtucket’s riverfront with extensive development, including a new United Soccer League (USL) Championship soccer team and stadium – all made possible because of Opportunity Zones. This project will add more than $130 million annually to the state’s GDP, and create more than 3,500 jobs. The Tidewater Landing project will include key infrastructure upgrades, a new multi-use stadium, a new indoor sports complex, market-rate and workforce housing, a hotel, and commercial office space. #OZSoccer #$400M

• In Kentucky, a $22.5M renovation coming to former YMCA building in Covington, KY: The former YMCA building and Gateway Bookstore in Covington, Kentucky have sat vacant since 2015. Now, with the help of Opportunity Zone financing, the two historic buildings will undergo a $22.5 million renovation. The mixed-use project, which expects to create over 100 new jobs, will include office space, 60 hotel units from the nearby Hotel Covington, and will serve as a northern trailhead for the Kentucky bourbon industry. #YMCAOZ

• In Alabama, the City of Opelika announced a new 105-acre Innovation and Technology Park to be built in an Opportunity Zone. the OTIP has Easy access to East Alabama Medical Center, Tiger Town, Historic Downtown Opelika, Southern State Community College and Auburn University. “Opelika has been incredibly proactive about harnessing the power of its Opportunity Zone. Its vision for building a place where innovation and technology can co-exist matches perfectly with the spirit of the Opportunity Zone incentive, which facilitates investment in both buildings and the companies that occupy them,” said Alexander Flachsbart, CEO of Opportunity Alabama. #RollTide

On the Federal Level:

• Treasury has FINALIZED the 2019 versions of OZ tax forms! This includes form 8996 (funds) and the new form 8997 (investors) for the 2019 tax year.

• the Opportunity Zone Catalyst Grand Prize winners of the of the Forbes OZ 20 were announced at Sorenson Impact Center’s Winter Innovation Summit in Salt Lake City, UT. The City of Erie and Opportunity Alabama emerged as the top two Community Organizations. The SoLa Impact Fund and Four Points Funding were named the top two Opportunity Zone Funds.

• Recently, Novogradac has reported that the 513 Qualified Opportunity Funds they are tracking now represent $68.75 billion in community development investment capacity. Novogradac is also now reporting that the 308 funds reporting equity raised, are now reporting a total $7.57 billion in equity raised! That’s near a one billion dollar increase over the last month and a ~50% increase since December. However, per Emily, as Tax Notes recently noted, these numbers may just be the tip of the iceberg. “Most of our transactions and most of the money we’re seeing flow through these qualified Opportunity Zones is through proprietary or private funds — funds that would not be reporting to any of these fund listing agencies or databases.

Over and out from the Land of OZ – if you have questions, comments, thoughts or want to appear on our monthly webinar – please do not hesitate to contact me at your convenience – email finds me fastest – bamolotsky@duanemorris.com. Have a super weekend.

-Brad A. Molotsky, Esq., Duane Morris, LLP

From the Land of OZ: Menino Survey of Mayors 2019 – OZ Observations Unveiled!

According to Boston University – Initiative on Cities – affectionately referred to as the Menino Survey – “Mayors generally believe the new federal Opportunity Zones program has targeted the right areas, nationally and in their own communities.

Community government is starting to take the lead in organizing their communities to take advantage of their tract designations and are confident in their ability to capitalize on the program. Mayors believe dedicated senior staff and an Opportunity Zone Investment program will be a key factor in making a census tract attractive and interesting.

– Roughly three quarters of cities in the survey sample had eligible census tracts, and two-thirds now have at least one designated opportunity zone, with an average of six per city

– 51% of mayors believe the Opportunity Zone program has effectively targeted areas of true economic need nationally

– 29% are unsure, suggesting a large minority are unaware or not yet confident the program is working as intended. [Figure 28]

– 65% of mayors agree that the tracts selected by their governor were either based on their own advice, or are comparable to what the mayor would have picked if they had been given the choice. [Figure 29]

– Mayors generally believe (79% of Democratic Mayors and 65% of Republican Mayors) that designations were driven by a desire on the part of governors to spread them across the state, and were responsive to mayors’ input. [Figure 33]

– Generally their degree of satisfaction with their own designations does not vary substantially by city size, partisanship of the mayor, or affluence of the community. [Figures 31-32]

– Mayors are generally NOT concerned that the program will lead to gentrification or residential displacement, including those leading more expensive cities, or that limited funds will ultimately be invested in their OZs. [Figure 35]

More than 50% believe the OZ program will have a large and positive impact on their local economy, with the greatest benefits conferred on outside investors but that small businesses and residents currently located in the zones will also greatly benefit. [Figures 36 and 39]

– The vast majority (75%) of mayors believe they have the capacity and power to maximize the benefits of their zones. Mayors believe the main mechanisms to maximize the benefits are: dedicated senior staff in city hall (54%) and an Opportunity Zone Investment brochure that outlines their community’s priorities and specific opportunities and assets (50%) and 34% believe supplemental monetary incentives will also be important. [Figures 37 and 41]

– 71% say the economic development director or city administrator is taking the lead in organizing the community to capitalize on the designations. [Figure 42]

– When it comes to their own role, 43% of mayors believe their job is to serve as an advocate for their city and its zones, and promote them to investors. [Figure 43]

Some very interesting numbers at a time when some national publications are saying the program is not working. While some zones may not be in the right spot or more difficult to develop or in the path of development already, they all needed to be part of the 2010 HUD census data for low income areas. Worth taking a read of the survey if you have the time and interest. Good stuff in there – well done BU!

If you have any questions or comments, please do not hesitate to contact me or my colleagues at the firm working in our Opportunity Zone team.

https://www.surveyofmayors.com/reports/Menino-Survey-of-Mayors-2019-Final-Report.pdf

-Brad A. Molotsky, Duane Morris, LLP