In this week’s roundup, we look at the push among a group of senators to revise the definition of a covered fund under the Volcker Rule. Plus, proposed rulemaking is expected next week for opportunity zones, a program introduced by the recent tax reform legislation that will encourage investment in low-income communities in exchange for reduced or deferred capital gains tax.
Senators Urge Changes to Covered Funds Portion of the Volcker Rule
In a letter to the five agencies responsible for administering the Volcker Rule, seven Republican Senators led by Banking Committee Chairman Mike Crapo, R-Idaho, urged regulators to continue examining the Volcker Rule. The group wrote that the current proposed rulemaking is a good start but further changes are needed.
Specifically, the senators want regulators to revisit the definition of a covered fund. Banks are banned from investing in such funds, which include all private equity, venture capital and hedge funds under the current definition.
ACG is drafting a comment letter in response to the proposed Volcker Rule changes, arguing that there should not be a one-size-fits-all definition of a covered fund. Comments are due on Oct. 17.
Opportunity Zones on the Docket
The Office of Management and Budget is set to release initial guidance on the Opportunity Zones program as early as next week. Passed as a part of the Tax Cuts and Jobs Act, the opportunity zones tax break provides a reduction of capital gains taxes if those gains are derived from investments in qualified opportunity funds. Such funds must invest in low-income areas designated as qualified opportunity zones. There are now more than 8,700 zones across the United States.
If the capital gains are reinvested into qualified opportunity zones, the gains are deferred until the sale of the fund, or until 2026. If the investment is held for five years, there is a 10 percent reduction in the capital gains exposed to taxes, and another 5 percent reduction if the investment is held for seven years. For investments held longer than 10 years, the gains are exempt from the capital gains tax altogether.
The Office of Management and Budget will release a notice of proposed rulemaking for initial guidance next week. Additional guidance will be provided in 2019.
Maria Wolvin is ACG Global’s vice president and senior counsel, public policy.
Ben Marsico is ACG Global’s manager of legislative and regulatory affairs.