United States: A Primer On The Kentucky Opportunity Zones Initiative

"Kentucky will maximize this golden chance to attract economic development projects to communities most in need across the Commonwealth, and the Kentucky Opportunity Zone Initiative will strengthen and rebuild both rural and urban areas." Kentucky Governor Matt Bevin, April 11, 2018

The Tax Cuts and Jobs Act, Pub. L. 115-97 (the "Act"), signed into law on December 22, 2017, introduced the Opportunity Zone program (Internal Revenue Code §1400Z-1 and §1400Z-2) which provides a new federal framework for stimulating private investment in economically distressed areas across the country. In simple terms, IRC Section 1400Z-1-2 allows qualified U.S. investors to defer and potentially avoid tax on unrealized capital gains if they reinvest their unrealized capital gains in a qualified Opportunity Fund. The Fund then invests its capital, as equity, in a qualified Opportunity Zone Business located in a qualified Opportunity Zone. By targeting investment incentives to underserved census tracts, the program is intended to create jobs, drive economic growth, and improve the quality of life for the residents.

The Opportunity Zone is the focus of the program. It is created to incentivize "impact investments" in designated low-income communities identified as certified Opportunity Zones. Under the law, no more than 25% of the low-income census tracts or certain contiguous census tracts in any one state can be designated as Opportunity Zones and it is up to the Governor of each state to submit a list of census tracts for approval. On March 21, 2018, Governor Bevin, on behalf of the Commonwealth, nominated the maximum number of census tracts as Opportunity Zones and then on April 9, 2018, the U.S. Department of the Treasury and the Internal Revenue Service designated 144 urban and rural census tracts in 84 Kentucky counties as qualified Opportunity Zones. It is reported that over half the Kentucky designated communities had fewer jobs and fewer businesses in 2015 than in 2000. The Kentucky Cabinet for Economic Development will oversee the Commonwealth's program through the Kentucky Opportunity Zone Initiative and www.KYOZ.org will provide ongoing and up-to-date information in interactive maps of all of the Kentucky Opportunity Zones.

The process begins with the Qualified Opportunity Fund. It is the mechanism for connecting investors to investment opportunities in Opportunity Zones. A Qualified Opportunity Fund is a private sector investment vehicle treated as a corporation or partnership for federal income tax purposes. The sole purpose of this Fund is investing and holding its assets in Qualified Opportunity Zone Property. At this time there are no limits on the number of Qualified Opportunity Funds nor are there any limitations on the dollar amount of the investment made by a Qualified Opportunity Fund; or the total number of investments that any one Qualified Opportunity Fund can make. Qualified Opportunity Funds are subject to self-certification which means a fund simply needs to complete a form and attaches that form to its federal income tax return for the taxable year. Consequently, there is no preapproval required by the IRS.

A Qualified Opportunity Fund must invest and hold at least 90% of its assets in Qualified Opportunity Zone Property. Qualified Opportunity Zone Property includes (i) Qualified Opportunity Zone Stock; (ii) Qualified Opportunity Zone Partnership Interests; and (iii) Qualified Opportunity Zone Business Property. Qualified Opportunity Zone Stock is defined as original issued stock of any domestic corporation acquired by an Opportunity Zone Fund, for cash, after December 31, 2017, and which, at the time the stock is issued and during substantially all of the Opportunity Fund's holding period, the corporation is a Qualified Opportunity Zone Business. If the corporation is newly formed, it does not need to constitute a Qualified Opportunity Zone Business on the date the stock is issued, but it must be organized for the sole purpose of being a Qualified Opportunity Zone Business. Qualified Opportunity Zone Partnership Interests are interests in a partnership with requirements substantially identical to those applicable to Qualified Opportunity Zone stock. Finally, Qualified Opportunity Zone Business Property is tangible property used in a trade or business if such property: (i) was acquired by purchase after December 31, 2017; (ii) the original use of such property in the Qualified Opportunity Zone commences with the Qualified Opportunity Zone Business or the Qualified Opportunity Zone Fund substantially improves the property; and (iii) substantially all of the use of such property was in a Qualified Opportunity Zone during substantially all of the Qualified Opportunity Fund's holding period for the property. Qualified Opportunity Zone Business Property will be treated as substantially improved by a Qualified Opportunity Fund only if, during the 30 month period beginning after the date of acquisition, the additions to the basis of such property, in the hands of the Qualified Opportunity Fund, exceed the adjusted basis of such property at the beginning of the 30 month period.

Finally, Qualified Opportunity Zone Property must be used in a Qualified Opportunity Zone Business. A Qualified Opportunity Zone Business is defined as a trade or business where: (i) substantially all of the tangible assets of the business are used in a Qualified Opportunity Zone; (ii) at least 50% of its gross income must come from the active conduct of a trade or business in the Qualified Opportunity Zone; (iii) it holds a limited amount of investment property; and (iv) it is not engaged in owning or operating any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other facility used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises.

Upon checking off all the boxes, an investor/taxpayer will be allowed to defer income tax imposed on short-term or long-term capital gains due if the capital gains portion of the sale or disposition is reinvested within 180 days in a Qualified Opportunity Zone Fund. If the investment is maintained in the Qualified Opportunity Zone Fund for five years, the investor will receive a step-up in tax basis equal to 10% of the original gain and if the investment is held in the Qualified Opportunity Zone Fund for seven years, the investor will receive an additional five percent step-up in tax basis. A recognition event will occur on Dec. 31, 2026, in the amount of the lesser of (i) the remaining deferred gains (accounting for earned basis step-ups) or (ii) the fair market value of the investment in the Qualified Opportunity Zone Fund. Importantly, investments maintained for 10 years and through Dec. 31, 2026, will allow for an exclusion of all capital gains from post-acquisition gains on the investments in a Qualified Opportunity Zone Funds.

With a reported $2.0-$6.2 trillion of unrealized capital gains in stocks and mutual funds held by individuals and corporations, Kentucky is poised to maximize this unique opportunity to drive investment capital to communities most in need. However, it is much too early to gauge the impact of this program. First of all, the U.S. Treasury must promulgate the program's rules and regulations which ensure that investments are made in ways that will both generate an acceptable return to investors and ensure that the local community objectives are met. It is likely that it will be late fall before guidance is issued. Second, and equally important, state and local governments must, from the start, participate in a meaningful manner by creating an environment that remove barriers to economic growth and promotes innovation and productivity. Money, in and of itself, will not be enough. A strong, well-thought out and aggressive public-private partnership with a focus on community revitalization and reconstruction is required for the Opportunity Zone program to succeed in the Commonwealth.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Womble Bond Dickinson
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Womble Bond Dickinson
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions