rp-18-16.pdf

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26 CFR 601.601: Rules and regulations.
(Also Part 1, §§ 45D, 1400Z-1, 1400Z-2.)

Rev. Proc. 2018-16
SECTION 1. PURPOSE
This revenue procedure provides guidance to the Chief Executive Officers of any
State, any possession of the United States, and the District of Columbia regarding the
procedure for designating population census tracts as Qualified Opportunity Zones for
purposes of §§ 1400Z–1 and 1400Z–2 of the Internal Revenue Code (Code).
SECTION 2. BACKGROUND
.01 Enactment. Section 13823 of “An Act to provide for reconciliation pursuant to
titles II and V of the concurrent resolution on the budget for fiscal year 2018,” P.L. 115–
97, which was enacted on December 22, 2017, amended the Code by adding
§§ 1400Z–1 and 1400Z–2 to the Code.
.02 Tax incentives. Section 1400Z–2 of the Code allows the temporary deferral
of inclusion in gross income for certain realized gains to the extent that corresponding
amounts are timely invested in a qualified opportunity fund. Investments in a qualified
opportunity fund may also be eligible for additional tax benefits.

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.03 Qualified Opportunity Fund. Section 1400Z-2(d)(1) of the Code provides that
a qualified opportunity fund is an investment vehicle that is organized as a partnership
or a corporation for the purpose of investing in Qualified Opportunity Zone property.
.04 Designations, in general. Section 1400Z–1 of the Code allows the Chief
Executive Officer (CEO) of each State to nominate a limited number of population
census tracts to be designated as Qualified Opportunity Zones (QOZs). For purposes
of §§ 1400Z–1 and 1400Z–2 and this revenue procedure, the term “State” means any
State, any possession of the United States, and the District of Columbia.
See §§ 1400Z–1(c)(3) and 7701(a)(10) of the Code. Under § 1400Z–1(c)(1), a
population census tract is eligible for designation as a QOZ if it satisfies the definition of
“low-income community” (LIC) in § 45D(e) of the Code.
.05 Tracts Contiguous with LICs. In addition, under § 1400Z–1(e) of the Code, a
tract that is not an LIC is eligible for designation if both of the following conditions are
met:
(1) The non-LIC tract is contiguous with an LIC that is designated as a QOZ (the
contiguous LIC QOZ need not be in the same State.); and
(2) The median family income of the non-LIC tract does not exceed 125 percent
of the median family income of that contiguous LIC QOZ.
.06 Determination Period and Extension. Pursuant to § 1400Z–1(b)(1)(A) and
(c)(2)(B) of the Code, the CEO of the State in which a tract is located may nominate the
tract to be a QOZ, and any such nomination must be made no later than March 21,
2018. Under § 1400Z-1(b)(2), however, the State CEO may request, and receive, a 30-
day extension of this deadline.

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.07 Consideration Period and Extension. In general, not later than the end of a
30-day period beginning on the date that the Secretary of the Treasury (Secretary)
receives notice of a nomination, the Secretary may certify the nomination and designate
the nominated tract as a QOZ. Under § 1400Z-1(b)(2) of the Code, however, the State
CEO may request, and receive, a 30-day extension of the Secretary’s deadline.
.08 Qualified Opportunity Zone. Section 1400Z-1 of the Code defines a QOZ as
any population census tract (either a nominated LIC or a nominated non-LIC,
contiguous census tract) that is designated as a QOZ.
.09 Number of Designations.
(1) In general, § 1400Z-1(d)(1) of the Code provides that the number of
population census tracts in a State that may be designated as QOZs may not exceed
25 percent of the number of population census tracts in the State that are LICs. If the
number of LICs in a State is not evenly divisible by 4, the 25 percent limitation is
determined by rounding the fractional quotient up to the next whole number. For
example, if a State contains 197 LICs, the maximum number of designations is 50, even
though 25 percent of 197 is 49.25.
(2) Section 1400Z-1(d)(2) of the Code further provides that, notwithstanding the
25 percent limitation, if a State contains fewer than 100 LICs, then a total of 25 tracts
may be designated.
(3) Section 1400Z-1(e)(2) of the Code provides that not more than 5 percent of
the tracts designated in a State may be non-LIC, contiguous tracts designated under
§ 1400Z–1(e)(1). Thus, designations under § 1400Z-1(d)(1) and (d)(2) may include a
limited number of non-LIC contiguous tracts. If the number of designated QOZs in a

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State is not evenly divisible by 20, the 5 percent limitation is determined by rounding the
fractional quotient up to the next whole number. For example, suppose that State B has
80 LICs. Under § 1400Z-1(d)(2), State B is allowed to nominate 25 tracts for QOZ
designation because State B has fewer than 100 LICs. If State B nominates all 25 of
the QOZs allowed, then of the 25 nominated tracts, only 2 (5 percent of 25 or 1.25,
rounded up to 2) nominated tracts may be non-LIC contiguous tracts. But if State B
nominated only 18 LICs, then it could nominate only 1 (5 percent of 19 or 0.95, rounded
up to 1) additional non-LIC contiguous tract.
SECTION 3. IDENTITY OF LICs AND OF THE CONTIGUOUS TRACTS THAT ARE
ALSO ELIGIBLE FOR DESIGNATION AS QOZs
.01 Based on the 2011-2015 American Community Survey (ACS) 5-Year data
from the Census Bureau, a public, on-line resource (Information Resource) identifies
over 41,000 population census tracts that are eligible for designation as a QOZ:
(1) 31,680 population census tracts that are LICs eligible for designation as
QOZs; and
(2) 9,453 non-LIC population census tracts that are eligible for designation if a
particular LIC contiguous to the non-LIC tract is designated as a QOZ.
.02 This Information Resource includes detailed mapping, which makes it
possible to see the exact location of every tract and to view a variety of demographic
information for each eligible tract.
.03 In the case of each tract described in section 3.01(2) of this revenue
procedure, the Information Resource includes one or more LIC tracts on whose
designation as a QOZ the non-LIC tract’s eligibility depends.

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.04 The Information Resource can be accessed at
https://www.cdfifund.gov/Pages/Opportunity-Zones.aspx.
.05 In the fall of 2017, the Census Bureau released the 2012–2016 ACS 5-Year
data. Because of the March 21, 2018, deadline for State CEOs to nominate tracts for
designation as QOZs, the maximum aggregate number of designations in a State is
determined on the basis of the 2011–2015 ACS, as reflected in the Information
Resource described above.
.06 In addition, the Information Resource is a “safe harbor.” That is, if the
Information Resource identifies a census tract as being either an eligible LIC or an
eligible non-LIC contiguous tract, a State CEO’s nomination of that tract will not fail to
be certified on the grounds that the tract is no longer eligible under more recent census
data.
.07 On the other hand, in many cases, if a tract is eligible under the most recent
available ACS 5-Year data, the tract is eligible to be nominated for designation. If the
Information Resource, however, does not identify the tract as eligible, the nomination
must be accompanied by an analysis demonstrating that eligibility, including appropriate
supporting data from that ACS.
SECTION 4. SCOPE
This revenue procedure applies to the CEO of any State that desires to nominate
for designation as QOZs population census tracts that are either LICs that qualify under
§ 1400Z–1(c)(1) of the Code or non-LIC contiguous tracts that qualify under § 1400Z-
1(e)(1) of the Code.

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SECTION 5. PROCEDURE
.01 A Nomination Tool, which can be accessed online, has been developed for
the benefit of State CEOs that are making nominations of census tracts for designation
as QOZs.
.02 Further information on the nomination process under § 1400Z-1 of the Code,
including how to access the on-line Nomination Tool and how to request an extension of
the determination period, will be sent individually to all State CEOs.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective on February 8, 2018.
SECTION 7. DRAFTING INFORMATION
The principal author of this revenue procedure is Erika Reigle of the Office of
Associate Chief Counsel (Income Tax and Accounting). For further information
regarding this revenue procedure contact Erika Reigle at (202) 317-7006 (not a toll free
call). For further information regarding the Information Resource, contact the CDFI
Fund Help Desk at (202) 653–0421 (not a toll-free call).