The IRS recently released proposed regulations that will significantly expand the reporting and compliance obligations for Qualified Opportunity Funds (QOFs) and Qualified Opportunity Zone Businesses (QOZBs). If you are an investor in, or operator of, a QOF or QOZB, these changes will directly affect you, and some of them will require action earlier in the year than you may be used to.
Here is a breakdown of what is being proposed and what it means for you.
Annual QOF Reporting: A New, Standalone Requirement
Currently, QOFs attach Form 8996 to their federal tax return. Under the proposed rules, Form 8996 would also become a separate, standalone information return that must be filed with the IRS each year. This return would include:
- Basic organizational and ownership information about the QOF
- Calculations demonstrating compliance with the 90% investment standard
- Any penalties owed for failing to meet that standard
- Detailed information about each underlying QOZB
- Property and employee data at the census-tract level
- Information about investors who experienced a disposition or other inclusion event during the year
Electronic filing would be required. Penalties for non-compliance would generally be $500 per day, capped at $10,000 per year — or $50,000 per year for QOFs with gross assets exceeding $10 million. Higher penalties apply when a violation is intentional.
Statements to Investors and Brokers: New Deadlines to Put on Your Calendar
When an investor experiences a reportable disposition event — such as selling or otherwise transferring their QOF investment — the QOF would be required to send that investor a written statement. This statement would include the investment and disposition dates, the amount disposed of, relevant basis information, and whether the event resulted from a voluntary decertification of the QOF.
The proposed deadlines are:
- March 1 of the following year for statements sent directly to investors
- January 15 of the following year for statements sent to brokers who are record holders (used when the QOF does not know the underlying investor’s identity)
For publicly traded QOFs, brokers would carry corresponding reporting and customer-notification responsibilities.
Annual QOZB Statements: New Obligations for Underlying Businesses
Each applicable QOZB would also be required to furnish an annual statement — signed under penalties of perjury — to every relevant QOF. This statement would cover:
- Ownership interests in the QOZB
- Tangible property used in the business and the census tracts where it is located
- Real property holdings and residential units
- Employees and business activity
- Property acquisition and substantial improvement activity
- Use of the working-capital safe harbor
- Overall compliance with QOZB qualification requirements
For calendar-year QOZBs, the proposed deadline for furnishing this statement to the relevant QOF would be February 1 of the following year. Failure to provide these statements on time would be subject to penalties under IRC Section 6722.
QOF Certification and Decertification: Clarifications That Matter
The proposed regulations also provide important clarification on how QOF certification works — and what happens when a QOF needs to stop operating as one.
Certification is a one-time election. The IRS is clarifying that QOF self-certification is generally a one-time election, not an annual renewal. The entity simply needs to timely file Form 8996 for its first QOF taxable year and identify its first effective month.
Voluntary decertification procedures are now defined. The proposed rules establish a formal process for voluntarily decertifying a QOF, which includes:
- Revoking an inadvertent certification when no qualifying investment was actually made
- Maintaining contemporaneous documentation of the decertification decision
- Filing a final Form 8996
- Notifying all investors of the decertification
Voluntary decertification would generally be treated as an inclusion event for investors holding qualifying investments, meaning they would recognize deferred gain at that time. However, investors may be able to preserve their deferral by reinvesting the includible gain into another QOF, provided the statutory requirements are met.
What Happens Next?
It is important to note that these are proposed regulations, not final law. The new requirements would generally take effect for returns and statements due on or after the date final regulations are published in the Federal Register. The IRS is accepting public comments through October 26, 2026, and has scheduled a telephonic public hearing for November 5, 2026.
We are closely monitoring these developments and will keep you informed as the rules are finalized. In the meantime, now is a great time to review your current QOF and QOZB reporting processes to identify any gaps — and to make sure you are ready to meet the new requirements when they go into effect.
If you have questions about how these proposed changes may affect you or your investments, please do not hesitate to reach out to your Saville team member.