Draft IRS rules for Emerald Coast Opportunity Zone released

PORT ANGELES — Proposed federal tax regulations have been released for investors who want breaks on capital gains by investing in the Emerald Coast Opportunity Zone, managed by a one-of-a-kind collection of tribes, governments and economic develop-ment groups.

The long-awaited draft of Internal Revenue Service rules for the nationwide opportunity zone program were issued Friday, a day after the zone, which covers most of Clallam and Jefferson counties including Port Angeles and Port Townsend, was lauded at a packed Clallam County Economic Development Council (EDC) board meeting.

A summary of the rules for Emerald Coast Opportunity Zone (ECOZ), geared toward investors, and the text of the 74-page proposal, is at https://tinyurl.com/PDN-ZoneRules.

“The proposed regulations clarify that almost all capital gains qualify for deferral,” according to the IRS’ summary.

“In the case of a capital gain experienced by a partnership, the rules allow either a partnership or its partners to elect deferral.”

Taxpayers may submit comments on the regulations electronically via the Federal Rulemaking Portal at www.regulations.gov (IRS REG-115420-18), according to the regulations, which were submitted Friday for publication in the Federal Register and contain information on submitting comments.

The IRS will hold a public hearing on the proposed regulations Jan. 10.

The fund was created to improve economic conditions within under-served, low-income census tracts by allowing investors to dip into a bottomless pool of capital gains tax breaks by creating jobs and building sorely needed housing.

The 11 census tracts include the West End, the city of Port Angeles and most of Sequim in Clallam County and in Jefferson County, Port Townsend, Port Hadlock, Quilcene, Brinnon and the county’s entire coastline.

Stakeholders include the Hoh, Jamestown S’Klallam, Lower Elwha, Makah and Quileute tribes; the cities of Port Angeles, Forks and Sequim; the Port of Port Angeles, EDC-Team Jefferson and the Clallam EDC.

“Our EDC was the only one in the nation to put forward a collaborative approach involving five tribes, three cities, two counties, two EDCs and a port as a collective package,” said Rod Fleck, the city of Forks’ city attorney-planner and a former EDC board president.

“I really encourage you to stay the course and utilize the collaboration that created ECOZ in moving forward.”

Others who spoke on the program included Ann Rosecrants of Twisted Strait Fibers of Port Angeles; Allsyon Brekke, city of Port Angeles community and economic development director; and Ed Ebling, administrator of Sequim Health and Rehabilitation.

“We have jobs,” Ebling said.

“We don’t have places for people to live.”

Ebling said the EDC should play a key role an area-wide push he sees to find solutions from public officials and private industry.

“We need this organization to be pushing our agendas going together.”

Investors can temporarily defer capital gains taxes by rolling their gains directly into the ECOZ’s Opportunity Fund.

ECOZ funds are invested, through the ECOZ’s Opportunity Fund — which does not have a cap — into a qualified business property, partnership interest or stock.

Capital gains taxes are reduced by 10 percent if the investment is held in the fund for five years and cut another 5 percent if held seven years.

Investors receive a 10 percent capital gains tax deferral after five years, a 5 percent deferral after seven years that ends Dec. 31, 2026, and pay no taxes on gains from the investment after 10 years.

EDC Director Julie Knott said Friday she and more than 100 other participants nationwide took part in a conference call that morning with Douglas Lyn Hoelscher, deputy assistant to President Donald Trump and director of intergovernmental affairs.

The opportunity zone program is part of Trump’s Tax Cuts and Jobs Act of 2017.

Knot said the proposed regulations offer “a lot of flexibility” for investors.

“That’s something we all noticed,” she added.

“There’s no cap on the amount of money that people can benefit from.”

Former commercial banker Brian Kuh, executive director of EDC-Team Jefferson, took part in the call Friday morning and in a separate interview echoed the theme of flexibility offered to investors through the regulations.

Previously it was thought that the tax breaks would sunset in 2026.

“What was shared [Friday] morning was that investments made up until 2026 can extend a full 20 years, go beyond that 2026 sunset,” Kuh said, adding that the investments must remain in a qualified opportunity fund for the full 10 years.

“That’s a huge update in terms of the flexibility of the timing in getting capital places.

“It allows not only for shovel-ready projects but also allows for things into the planning stages to attract investors through this program.”

Said Knott of the extension, in an email: “This opens doors to a magnitude of long-term investments in the Emerald Coast Opportunity Zone that don’t have a rush to exit.”

Knott said “the step will be honored until 2047, designed that way so investors aren’t rushed to exit the fund.”

The EDC board will discuss the program at a private retreat Nov. 9 in Port Angeles.

Members also will attend a meeting Nov. 15 in Seattle sponsored by the National Development Council to outline the benefits of the Emerald Coast Opportunity Zone.

The New York City-based nonprofit group focuses on economic development in low-income communities and “acts as partner, teacher, advisor, investor, developer and lender,” according to its website at https://ndconline.org.


Senior Staff Writer Paul Gottlieb can be reached at 360-452-2345, ext. 55650, or at pgottlieb@peninsuladailynews.com.

Terry Ward, publisher of the Peninsula Daily News, Sequim Gazette and Forks Forum, serves on the Economic Development Corp. board of directors.

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