The Treasury Department and IRS have proposed regulations (REG-116506-25) that would implement the Opportunity Zone reporting requirements enacted by the One Big Beautiful Bill Act (OBBBA), clarify the process for self-certifying as a Qualified Opportunity Fund (QOF) and establish procedures for revoking an inadvertent certification or voluntarily decertifying.

The proposed regulations generally would apply to tax years ending on or after the date final regulations are published in the Federal Register.

Background

The Opportunity Zone regime was originally enacted by the Tax Cuts and Jobs Act through IRC Sections 1400Z-1 and 1400Z-2 to encourage investment in designated low-income communities. QOFs generally must hold at least 90% of their assets in qualified opportunity zone property, while Qualified Opportunity Zone Businesses (QOZBs) must satisfy various operational and property-use requirements.

The OBBBA substantially revised and expanded the Opportunity Zone program by making it permanent, establishing recurring Opportunity Zone designation cycles and creating new reporting requirements under IRC Sections 6039K and 6039L (see Tax Alert 2025-1418). The OBBBA also directed Treasury to develop annual public reports measuring the economic impact of Opportunity Zone investments and added a new penalty regime for reporting failures.

Before enactment of the OBBBA, funds generally certified themselves as QOFs by filing Form 8996 and reported limited information regarding investments and operations. QOFs and QOZBs, however, did not have comprehensive statutory reporting obligations and generally were not subject to penalties for failing to furnish much of the required Opportunity Zone information.

Proposed regulations

Expanded public reporting framework

To support the OBBBA's annual public-reporting mandate, the proposed regulations would require QOFs and QOZBs to provide the IRS with detailed project-level and census tract-level information. These disclosures would enable Treasury to assess the location, scale and economic effects of Opportunity Zone investments.

At the QOF level, funds would be required to report information for each census tract in which QOZ business property is located, including the physical address of business activities, the applicable NAICS code, the value of owned and leased QOZ business property, the value of real property holdings, the number of residential units and the approximate average monthly number of full-time equivalent employees working within the census tract. QOFs would also be required to disclose when property was acquired and whether property is being substantially improved for Opportunity Zone purposes.

The reporting framework would extend to underlying QOZBs. QOFs would report each applicable QOZB's ownership structure, property holdings, employee levels and compliance status. To supply that information, QOZBs would furnish annual statements to their QOF investors containing census tract-level data on employees, real estate investments, residential development and use of the working capital safe harbor, together with attestations regarding continued QOZB qualification. The proposed regulations also include detailed rules for calculating and reporting employment data.

New QOZB statement requirements

The proposed regulations would implement IRC Section 6039L by requiring applicable QOZBs to furnish annual statements to QOF investors. These statements would include information necessary for QOFs to complete their own reporting obligations and to verify compliance with Opportunity Zone requirements.

Required information would include property values, census tract locations, employee counts, real property and residential unit information, working capital safe harbor usage and attestations concerning compliance with the 70% tangible property standard, gross income requirements and other QOZB qualification rules.

QOZB statements generally would be due by the first day of the second month following the close of the QOZB's tax year. For calendar-year QOZBs, this would generally result in a February 1 due date.

Updated certification and decertification procedures

The proposed regulations would significantly clarify the mechanics of QOF self-certification. An eligible entity would become a QOF on the effective date identified in its self-certification, provided it timely files Form 8996 (or a successor form) with its original federal income tax return for its first tax year as a QOF. The self-certification must identify both the first tax year and the first month in which QOF status becomes effective and must include an affirmative statement that the entity is organized for the purpose of investing in QOZP. The proposed regulations would allow an entity to become a QOF during, rather than at the beginning of, a tax year.

The proposed regulations would clarify that self-certification is generally a one-time event. After validly self-certifying, a QOF would no longer be required to re-certify annually. Instead, the fund would satisfy its continuing obligations by filing annual information returns on Form 8996 (or any successor form) under new IRC Section 6039K. Consequently, a QOF's failure to file a subsequent Form 8996 would not, by itself, require a new self-certification, although it could subject the QOF to the new reporting penalties.

The proposed regulations also would introduce a new mechanism for revoking an inadvertent QOF election, which would apply if no qualifying investment were to be made in the entity during the entire period in which it was certified as a QOF. Revocation would require IRS consent.

The proposed regulations would also establish, for the first time, detailed voluntary decertification procedures. A QOF wishing to terminate its status would be required to maintain contemporaneous written documentation evidencing its intent to decertify, identify the last month for which it seeks QOF status and report the decertification on a final Form 8996. In addition, the QOF would have to notify in writing each investor holding a qualifying or non-qualifying investment by the earlier of 15 days after the voluntary decertification date or the notification date to which the parties agreed.

Decertification would have immediate consequences for investors holding qualifying investments. It would constitute an inclusion event, generally requiring recognition of deferred gain unless the investor timely reinvests in another QOF and otherwise satisfies the applicable deferral rules. Investors also would lose the ability to make the basis step-up election under IRC Section 1400Z-2(c) for the affected investment after decertification.

New penalty provisions

The proposed regulations would implement the OBBBA's new reporting penalty regime. Failure to timely file a complete and correct QOF information return generally would result in a penalty of $500 per day, subject to a maximum penalty of $10,000 per return or $50,000 for large QOFs with more than $10 million in gross assets.

For failures due to intentional disregard, the daily penalty would increase to $2,500, with maximum penalties of $50,000 per return or $250,000 for large QOFs. Reasonable-cause relief under IRC Section 6724 would remain available.

Implications

The proposed regulations would impose meaningful new compliance obligations on QOFs and QOZBs and introduce a penalty regime that did not exist before enactment of the OBBBA. Fund managers should begin assessing their ability to capture the required census-tract-level data — including property values, employee headcounts and working capital safe harbor usage — and should calendar the new February 1 QOZB annual statement deadline.

QOFs should also review their Form 8996 filing history in light of the new penalty for incomplete or late filings and confirm that self-certification records are current. The fact that the certification is one-time and not annual should cut down on the private letter ruling requests that often occurred if the QOF missed a filing accidentally (and were concerned that they lost their status as a valid QOF).

We also now have a proper way for QOFs to voluntarily decertify. Fund managers should be aware of the requirement to notify investors within the 15-day window specified in the proposed regulations and should consult counsel before committing to a decertification timeline.