Will financial advisors’ clients continue to salivate for investments in Opportunity Zones if the U.S. Treasury attaches more reporting requirements to the tax benefits?

Treasury officials inched closer to taking such a step last week when they called for proposals about what rules they should create requiring Opportunity Zone investors to help collect, gather, and report more data on their assets in economically-neglected neighborhoods.

The Treasury seeks the data to determine the social impact of the Opportunity Zone program – a program one financial advisor dubbed a “Roth IRA for the rich.”

The existing regulations only require investors to report the amount of assets in funds that Opportunity Zone investors are required to establish and use as conduits for buying stakes in the neighborhoods, and also to identify the portion of those assets that are property in a zone.

Opportunity Zones entered the investment world’s lexicon with the passage of the Tax Cuts and Jobs Act of 2017. With that legislation, Congress identified capital gains tax relief as a way to induce investment into long-neglected U.S. neighborhoods.

Ultimately, the Treasury approved some 8,700 census tracts located in all 50 states as economically disadvantaged enough to be eligible for Opportunity Zone investments.

With the program, investors may be able to defer capital gains taxes — and even avoid some entirely — if they use recently-realized capital gains to buy stakes for the long haul in the designated communities.

To achieve the maximum tax benefits, investors are required to make a 10-year commitment, and to receive maximum tax-sheltering benefits investors must purchase their stakes by a December 2019 deadline.

Opportunity Zone program advocates have estimated that investors nationwide share some $6 trillion in unrealized capital gains nationwide, after 10 years of booming equity markets, which the new program will tempt them to pour into neglected neighborhoods.

“The purpose of information collection and tracking is to measure the effectiveness of the policy in achieving its stated goals, and ensure that this investment opportunity remains an attractive option for investors to use,” Treasury officials wrote in their request for data-collection proposals, which they posted on the Federal Register.

The data that the existing regulations require to be collected “lacks sufficient granularity for the Treasury Department to determine the amount and type of investment that flows into an individual qualified opportunity zone,” the officials wrote.

But additional data “would be valuable for evaluating the success of the qualified opportunity zone tax incentive on increasing investment and economic activity within qualified opportunity zones,” they added.

Financial advisors, investors' representatives and lawyers working with investors welcome the Treasury’s call for more data collection. Some of them had encouraged Treasury officials to take this step before they did.

“We believe that data will be essential to creating new economic opportunities and to ensure that people living and working the zones today are the ultimate beneficiaries,” Fran Seegull told Treasury officials at a hearing in February. Seegull is the executive director of the U.S. Impact Investing Alliance, an advocacy organization which has 800 investors and financial intermediaries who engage in impact investing as members.

Now that Treasury officials have asked for the proposals, others are cheering on their initiative, recognizing the Opportunity Zone program’s potential to draw naysayers who view it as offering lucrative tax benefits for wealthy people, and no measurable social impact gains.

“The criticism of the program was the total lack of tracking,” says Ronald Fieldstone, a partner in Saul Ewing Arnstein & Lehr in Miami, who is advising real estate investors eyeing stakes in Opportunity Zones. Lawmakers will want to know “if it really was benefiting the people it was intended to benefit,” Fieldstone says.

Treasury officials ultimately could ask investors to report about how their Opportunity Zone investments have increased jobs and services for lower-income populations in the designated neighborhoods, Fieldstone says. Such reporting would likely most often be the responsibility of fund managers.

“If you don’t have reporting, the danger is the government will give tax breaks on $6 billion in capital gains and there won’t be any other side of the story,” predicts Neil Faden, a law partner at Manatt, Phelps & Phillips in New York, who has helped organize Opportunity Zone funds and has counseled investors eyeing the zones.