The US Treasury and IRS have proposed new reporting, certification, investment-timing, and penalty rules for Qualified Opportunity Funds, following the permanent restructuring of the Opportunity Zone program under the One, Big, Beautiful Bill Act.
The US Department of the Treasury and Internal Revenue Service (IRS) have issued proposed regulations establishing new reporting and certification requirements for Qualified Opportunity Funds (QOFs) and Qualified Opportunity Zone Businesses (QOZBs).
These rules establish new mandatory annual returns and investor statements, clarifying the penalties for non-compliance while providing official procedures for voluntary decertification or the revocation of accidental certifications. The rules flow from the One, Big, Beautiful Bill Act (Public Law 119-21), which Congress passed to permanently extend and restructure the Opportunity Zone program.
The proposed regulations (REG-116506-25 / RIN 1545-BR82) reshape how QOFs operate and report their activities to federal tax authorities. The changes introduce a rolling investment timeline and revise the tax incentives available to long-term investors in designated opportunity zones.
Rolling timelines replace fixed deadlines
The most significant operational change is the shift from a fixed deferral period to a rolling system. Previously, investors could defer capital gains until 31 December 2026. Under the new rules, the deferral period runs for five years from each individual investment date, creating a rolling schedule that continues indefinitely.
The Treasury also restructured the basis step-up incentive. The original 10% basis increase for investments held five years remains in place. However, the FMV basis step-up—previously unlimited—now has a 30-year cap from the investment date.
New designation cycles begin on 1 July 2026 and occur every 10 years thereafter. This creates predictable renewal periods for zones that need continued federal designation.
Rural areas receive enhanced incentives. Zones classified as rural can now claim a substantial improvement deduction of 50% instead of the previous 100% threshold, making property improvements in these regions more tax-efficient.
Reporting duties expand significantly
Annual Form 8996 filings now carry extensive data requirements. QOFs must report their investment ratios against the 90% statutory standard, census tract numbers where property sits, physical business addresses, and six-digit NAICS industry classifications.
The regulations require QOFs to track employment metrics. Funds must calculate Full-Time Equivalent (FTE) employees, where one FTE equals full-time staff working 30 hours per week or 120 hours monthly, plus part-time hours divided by 120 (rounded to the nearest whole person).
Qualified Opportunity Zone Businesses—corporations and partnerships holding QOF investments—must furnish annual written statements to their investor QOFs by the first day of the second month after their tax year closes. A calendar-year business, for example, would provide statements by 1 February. These statements must include operational metrics, property valuations, residential unit counts, and signed attestations that the business meets all statutory requirements.
When a QOF decertifies from the program, it must notify all investors within 15 calendar days. Investors lose eligibility for the 10-year FMV gain exclusion and must recognise deferred gains immediately unless they roll the amount into a different QOF within 180 days.
Penalties and enforcement
Violations carry escalating penalties. QOFs that fail to file Form 8996 or provide complete information face USD 500 per day, capped at USD 10,000 yearly for funds with less than USD 10 million in assets and USD 50,000 yearly for larger funds. Intentional disregard multiplies these amounts to USD 2,500 per day, with caps of USD 50,000 standard and USD 250,000 for large funds.
Failures to furnish investor or business statements result in USD 250 penalties per statement (capped at USD 3,000,000 annually). Intentional disregard raises the penalty to USD 500 per statement with no annual ceiling.
Penalties accrue daily until correct filings reach the IRS. Reasonable cause defences exist under IRC section 6724 if the failure stems from causes beyond the taxpayer’s control.
Comment period and effective dates
The Treasury accepts written comments through 16 October 2026. A public hearing takes place on 5 November 2026 at 10:00 a.m. Eastern Time via telephone.
Speakers must submit requests and topic outlines within 30 days of publication. Telephonic attendance requests are due by 3 November 2026.
Rules apply to taxable years and statements due on or after the final regulations are published. The Treasury plans to issue annual public reports covering aggregate capital flows, job creation, housing units built, and industry distributions.
Comprehensive 5-year impact studies comparing designated and non-designated zones are due in 2031 and 2036.
