Neighborhood Prospecting – The Trump Administration’s Flawed Effort to Promote Investment in Low-Income Communities


The creation of the Qualified Opportunity Zone (“QOZ”) was an important part of the 2017 tax reform program. While the majority of media attention focused on the corporate and personal tax cut portions of the act,[1] the overlooked QOZ provision also offered a significant change to the tax code. Originally authored by Senator Tim Scott (R-SC) as a separate piece of legislation,[2] QOZs are envisioned as a means of increasing financial investment in distressed communities across the country.[3] A recent increase in investment activity related to QOZs has also spurred increased media attention. Last year, President Trump included a reference to QOZs as part of his State of the Union address,[4] and his unqualified praise for the tax program drew more attention to the measure.[5] However, not all of the media attention has been positive. Recent media reports focus on abuses and manipulation of QOZs which do not fulfill the program’s goal.[6] These controversies illustrate concerns with the tax program and the need for more transparency and oversight.

QOZs were conceived as a means of facilitating economic development and job creation in distressed communities.[7] The program provides a tax incentive for investors to allocate their deferred capital gains income into low-income areas.[8] Investors must invest their capital in a Qualified Opportunity Fund (“QOF”) to gain the resulting tax benefits.[9] These entities are self-certifying, and certification entails filing certain tax forms.[10] To qualify, a QOF must invest 90% of its investing capital in “qualified opportunity zone property.”[11] What constitutes property, however, is very broad—it includes stock, partnership interests or business property of entities located within a QOZ.[12] Once the necessary, qualifying investments have been made then the investor enjoys certain tax benefits.

The revamped tax code incentivizes investment in QOZs by deferring capital gains taxes for QOFs structured as partnerships or corporations. Limited liability companies may also qualify under certain conditions.[13] The longer capital or property is held in the QOF the greater the tax benefits. For example, when the proceeds of a sale or exchange of property are held in a qualified fund for five years, there is a 10% step up in the basis of the capital gains invested. This allows 10% of the total capital gain of the original investment to avoid being considered part of the taxable income.[14] After ten years, if the investment remains in the QOF, it becomes exempt from any capital gains taxation.[15] These tax incentives have drawn billions of dollars in investment to designated census tracts.[16]

While the federal government conceived the opportunity zone scheme, state governments hold responsibility for designating which areas are selected for approval by the Treasury Department.[17] 8,600 qualified opportunity zones have been selected by state authorities as “low income communities.”[18] In order to meet this standard, an area must either have a poverty rate of 20% or have a median income at or below 80% of the statewide median income.[19] Once the threshold is met, the area must be certified by the Treasury Department to qualify as a QOZ.[20] The Treasury Department’s certification authority is supposed to act as a bulwark against fraudulent use of the QOZ scheme, but in practice has failed to deter misuse.

The tax provision contains some deterrents against abuse of the opportunity zone scheme, but the Treasury Department holds primary responsibility for enforcement and fraud prevention. As previously mentioned, qualification for the program centers on whether a fund holds 90% or more of its capital or property in a designated census tract.[21] The Treasury Department has provided guidance on several other forms of investment which qualify for QOZ tax treatment.[22] But, while the Treasury Department has expanded the range of qualifying investments, it has not established a more proactive enforcement or reporting system for QOZs.[23] With the Treasury Department exercising lax oversight, certain investors have made questionable use of QOZs over the past two years.

The QOZ program in western Nevada exemplifies how lax governmental standards and oversight can serve to counteract the provision’s purpose of community development. Several years ago, Michael Milken, a recently pardoned former junk bond trader, made a sizable investment in an industrial park near Lake Tahoe, Nevada.[24] The Lake Tahoe area did not meet either of the specifications required to qualify as a QOZ, so it was ruled not to qualify for QOZ designation. After personally lobbying Treasury Secretary Mnuchin, however, the Treasury Department reversed its previous rejection for the Tahoe-Reno census tract.[25] Milken’s dubious preferential treatment is not uncommon to the QOZ program. Cleveland Cavaliers owner Dan Gilbert was also successful at procuring QOZ certification for a Detroit census tract where he owns real estate. He achieved this after reportedly lobbying  members of the Trump administration.[26] Like the Reno-Tahoe census tract, this segment of Detroit does not meet the criteria to qualify as a QOZ.[27]

Altered certifications are not the only issue affecting the census tract portion of the QOZ program. A number of tracts have been certified in neighborhoods with thriving commercial centers. In New Orleans,[28] Miami,[29] West Palm Beach,[30] and other cities, QOZ designations have allowed real estate investors to develop luxury condos and hotels. Under the QOZ tax provision, five percent of designated tracts are allowed if they border low income communities.[31] The drafters reasoned two birds could be killed with one stone—developers would be satisfied with the prospect of a tax-exempt development in a thriving area while inhabitants of low income neighborhoods would have access to jobs near their homes.[32] Whether this is a reality which has borne out in practice is inconclusive. The Treasury Department’s failure to collect economic figures on the local impact of QOZ investment makes it difficult to ascertain the program’s efficacy.[33] This has also drawn criticism from members of Congress.[34]

Although the tract-designation problems paint the QOZ program in a bad light, it is difficult to ascertain the provision’s impact given the absence of relevant facts and figures.

While the aggregate amount of investment capital directed towards opportunity zones has increased,[35] the data is inconclusive or nonexistent. The Treasury Department’s failure to measure the program’s effectiveness is compounded by the lax approach it has taken regarding enforcement and certification of QOZ investments. Figures indicate that billions in investment capital have entered QOFs,[36] but no organized tabulation and reporting system exists to note the precise impact for local inhabitants. In response, Senator Scott has sponsored a bill to remedy some of the QOZ program’s flaws.[37]

The proposed IMPACT Act provides a reporting mechanism for determining communal impact from QOZ investment.[38] Specifically, the bill requires QOFs to disclose their investments and where they are located.[39] It also more severely penalizes a QOF’s failure to disclose information pertaining to its financials and investment allocations, and mandates the publication of two five-year reports on the QOZ program’s impact.[40] So far, despite the bill’s good intentions, it offers little chance of effectively remedying the tax provision’s flaws. First, because the proposed legislation fails to address or fix the QOZ designation process. More importantly, the IMPACT Act has been stuck in the Senate since last winter with no chance of passage prior to the November elections.[41]  Unfortunately, until these measures are taken, the true impact of QOZs will remain unclear and investors may continue to inappropriately take advantage of the system.


[1] Louise Radnofsky, Trump Signs Sweeping Tax Overhaul Into Law, Wall St. J. (Dec. 22, 2017),

[2] Jesse Drucker & Eric Lipton, How a Trump Tax Break to Help Poor Communities Became a Windfall for the Rich, N.Y. Times (Aug. 31, 2019),

[3] Reid S. Vardell, The Land of Opportunity Zones: Deferring Taxable Capital Gains Through Investments in Low-Income Communities, 84 Mo. L. Rev. 915, 918 (2019).

[4] Press Release, Office of Sen. Tim Scott, ICYMI: POTUS Praises Opportunity Zones, Scott Efforts During State of the Union,

[5] See, e.g., Drucker & Lipton, supra note 2.

[6] See, e.g., Jesse Drucker & Eric Lipton, Symbol of ‘80s Greed Stands to Profit from Trump Tax Break for Poor Areas, N.Y. Times (Oct. 26, 2019),

[7] See Vardell, supra note 3.

[8] See Vardell, supra note 3, at 915.

[9] See Vardell, supra note 3, at 919.

[10] See Vardell, supra note 3, at 919.

[11] See Vardell, supra note 3, at 919.

[12] See Vardell, supra note 3, at 920.

[13] Victoria Lee, Opportunity Without Reach: The Problems with the Opportunity Zone Program and the Need for Clarification, Oversight, and Regulation, 47 Fordham Urb. L.J. 117, 122 (2019).

[14] Id. at 125.

[15] Id. at 126.

[16]  Michael Novogradac, Opportunity Funds Listing Shows Strong Increase in Investment, Novogradac (Jan. 8, 2020, 12:00 AM),

[17] See Lee, supra note 13, at 127.

[18] See Lee, supra note 13, at 127 n. 56.

[19] See Lee, supra note 13, at 127 n. 56.

[20] See Lee, supra note 13, at 127.

[21] See Vardell, supra note 3, at 919.

[22] Jim Tankersley, Treasury Completes Rules for Opportunity Zone Tax Breaks, N.Y. Times (Dec. 20, 2019),

[23] Id.

[24] See Drucker & Lipton, supra note 6.

[25] See Drucker & Lipton, supra note 6.

[26] Jeff Ernthausen & Justin Elliott, How a Tax Break to Help the Poor Went to NBA Owner Dan Gilbert, ProPublica (Oct. 24, 2019),

[27] Id.

[28] See Vardell, supra note 3.

[29] Rob Wile, This Program is meant to revitalize neighborhoods. For now, it’s development as usual, Miami Herald (Sep. 30, 2019),

[30] Jonathan Levin, Miami’s Condo King Sees Potential Opportunity-Zone Tax Windfall, Bloomberg (April 11, 2019),

[31] See Drucker & Lipton, supra note 6.

[32] See Drucker & Lipton, supra note 6.

[33] See Tankersley, supra note 22.

[34] See Tankersley, supra note 22.

[35] See Novogradac, supra note 16.

[36] See Novogradac, supra note 16.

[37] Jay Heflin, Trump claims success for antipoverty program that has no reporting requirements, Wash. Examiner (Feb. 8, 2020),

[38] IMPACT Act, 116th Cong. (2019).

[39] Id.

[40] Id.

[41] Id.


About Author

Comments are closed.

Fordham Journal of Corporate & Financial Law