The opportunity zone program, initially implemented as part of the Tax Cuts and Jobs Act of 2017 (TCJA) and expanded under the One Big Beautiful Bill Act (OBBBA), has long been criticized for lacking sufficiently detailed reporting requirements that would enable evaluation of whether the program actually fulfills its objectives of spurring investment and economic growth in low-income communities. In response to these criticisms, the OBBBA delegated broad authority to the Treasury secretary to require additional reporting. This increased focus on reporting comes as the opportunity zone program prepares for its next phase, with 6,576 census tracts designated as opportunity zones on November 5, 2026, effective January 1, 2027.[1]
Proposed regulations published by the IRS and Treasury Department on September 11, 2026, explain how the new reporting requirements would work in practice. The proposal would expand annual reporting for qualified opportunity funds (QOFs), implement new reporting responsibilities for qualified opportunity zone businesses (QOZBs), and clarify the penalties applicable to failures to comply with these reporting requirements. These rules are summarized below.
These expanded reporting requirements place greater emphasis on documenting investments and sharing information between QOZBs and QOFs, as well as between QOFs and their investors. Failure to comply could result in penalties for QOFs and QOZBs, even if the underlying investments themselves qualify for the program's tax benefits.
Expanded Reporting for QOFs and QOZBs
QOFs already are required to file Form 8996 with the IRS to certify their status and report certain information about their investments, including whether they hold at least 90% of their assets in qualified opportunity zone property. The proposed regulations would expand these reporting obligations, requiring more detailed information about investment locations, property values, residential development, and employment. QOFs that own interests in QOZBs also would be required to report information about the QOZBs, including the QOF's ownership interest in the QOZB, the property values for certain assets of the QOZB, and other information. The additional information is intended to help the IRS monitor compliance and support public reports on the opportunity zone program's economic impact.
The proposal also would implement a new requirement for QOZBs to provide annual written statements, signed under penalties of perjury, to their QOF owners to help them complete the expanded QOF reporting obligations. These statements would be provided to QOFs rather than filed directly with the IRS. They would cover business locations, property, employees, and development activities, along with confirmation that the QOZB meets certain opportunity zone requirements. For calendar-year QOZBs, the proposed deadline for providing this information to their QOF owners would be February 1 of the following year. A QOZB that fails to provide the required statement in a timely manner could face penalties while also making it more difficult for the QOFs holding interests in the QOZB to meet their reporting obligations.
Additional Reporting for Investor Transactions
QOFs also would face expanded reporting when investors sell or otherwise dispose of their interests in the QOF or experience other events affecting their investments. Certain distributions, redemptions, and other transactions that cause previously deferred gains to become taxable (i.e., inclusion events) also would trigger reporting, even in the absence of a traditional sale.
Specifically, a QOF would be required to report to the IRS identifying information and relevant transaction details for affected investors. Investor transactions generally would be reported on a calendar-year basis, even for QOFs that use a fiscal taxable year. QOFs also would be required to provide corresponding statements to affected investors, generally by March 1 of the following calendar year. For fund sponsors, these requirements would make it important to track distributions and other transactions that may trigger reporting.
Financial Penalties for Reporting Failures
The OBBBA established new financial penalties for failure to comply with these expanded reporting and information sharing requirements, and the proposed regulations clarify how they apply. A QOF that fails to file a complete and accurate annual information return (i.e., Form 8996) on time could face a penalty of $500 per day, up to $10,000 per return. For QOFs with more than $10 million in gross assets, the maximum penalty would increase to $50,000. For intentional disregard of the reporting requirements, the daily penalty would increase to $2,500, with maximum penalties of $50,000 or $250,000 for larger QOFs.
Separate penalties would apply to a QOF if the QOF fails to provide required investor statements or to a QOZB if the QOZB fails to furnish statements to its QOF owner(s). The statutory penalty would be $250 per statement, subject to an annual cap of $3 million, and would increase to $500 per statement without an annual cap for intentional disregard.
Importantly, reporting penalties could apply even when a QOF's underlying investments otherwise qualify for opportunity zone tax benefits or a QOZB otherwise satisfies the program's requirements. The OBBBA also requires QOFs to file their annual information returns electronically, and filing in the wrong format could be treated as a failure to file on time under the proposed regulations. All of these penalty amounts are subject to inflation adjustments.
Voluntary QOF Decertification
The proposed regulations also establish more detailed procedures for QOF decertification, providing the exclusive means by which funds that no longer intend to operate as QOFs may terminate their status. Under existing rules, voluntarily ending QOF status could cause investors to recognize previously deferred gains and lose the opportunity to exclude future gains on their QOF investments from taxation. The proposed regulations clarify these consequences and would require QOFs that voluntarily decertify to notify investors in writing within 15 days after the effective date of decertification, or earlier if required by agreement. The notice may be provided using any reasonable method, without a prescribed IRS form, while the decertification itself would be reported on the QOF's final Form 8996.
The proposal also would require a QOF seeking to voluntarily decertify to document its decision in writing when it is made, such as through meeting minutes. Without this documentation, the decertification would be invalid, meaning the fund would continue to be treated as a QOF and remain subject to applicable requirements, including annual reporting obligations, the 90% investment standard, and potential penalties for noncompliance.
What Should Funds and Businesses Consider Now?
The proposed regulations would make accurate recordkeeping, timely filing of information returns, and information sharing between QOFs and QOZBs increasingly important. Funds should coordinate with the QOZBs in which they invest to establish procedures for timely delivery of the required information, while QOZBs should consider who will be responsible for preparing and signing their annual statements. Both should assess whether their existing systems can track the additional information required, including investment locations, employment, residential development, and property improvements. If their tracking systems are currently inadequate to capture the information necessary to comply with the proposed regulations, then now is the time to begin improving those systems so as to be prepared for compliance once the regulations become effective.
The additional reporting requirements that would be imposed by the proposed regulations are not currently law, and taxpayers do not need to comply with those proposed reporting requirements unless and until final regulations are published. Although the regulations are not yet final, reviewing these practices now could help funds and businesses prepare for expanded reporting obligations and reduce the risk of penalties. Our Transactional Tax team can assist in evaluating the proposed requirements and preparing for their implementation.
[1] U.S. Dep't of the Treasury, Cmty. Dev. Fin. Insts. Fund, Opportunity Zones Resources (Nov. 5, 2026), https://www.cdfifund.gov/opportunity-zones (providing the full list and interactive map of newly designated opportunity zones).