Resources

Thomson Reuters Tax & Accounting News

Featuring content from Checkpoint

Back to Thomson Reuters Tax & Accounting News

Subscribe below to the Checkpoint Daily Newsstand Email Newsletter

End date of empowerment zone nominations deemed extended to reflect PATH Act

In a Notice, IRS has explained how a State or local government amends the nomination of an empowerment zone to provide for a new termination date, as provided for by Code Sec. 1391, as amended by §171(a) of the Protecting Americans from Tax Hikes (PATH) Act of 2015 (P.L. 114-113, 12/18/2015). In general, the termination date is deemed to be extended through Dec. 31, 2016, unless the nominating entity declines the extension.

Background. Under Code Sec. 1391, enacted in ’93, the designation of an economically depressed census tract as an “Empowerment Zone” renders businesses and individual residents within such a Zone eligible for special tax incentives. These tax incentives include: the 20% wage credit under Code Sec. 1396; liberalized Code Sec. 179 expensing rules ($35,000 extra expensing and the break allowing only 50% of expensing eligible property to be counted for purposes of the investment-based phaseout of expensing); tax-exempt bond financing under Code Sec. 1394; deferral under Code Sec. 1397B of capital gains tax on sale of qualified assets sold and replaced; and partial exclusion of capital gains on certain sales of qualified small business stock under Code Sec. 1202(a)(2).

The designation of an area as an empowerment zone was originally to be effective beginning on the date of designation and ending on the close of the 10th tax year beginning on or after the designation date. Under the Community Renewal Tax Relief Act of 2000 (CRTRA, P.L. 106-554, 12/21/2000), the designation of those empowerment zones was extended through Dec. 31, 2009. Subsequent amendments to Code Sec. 1391(d)(1)(A) further extended the designation period through Dec. 31, 2014.

In 2013, IRS issued Notice 2013-38, 2013-25 IRB 1251, under which any nomination for an empowerment zone that was in effect on Dec. 31, 2009, was deemed to be amended to provide for a new termination date of Dec. 31, 2013, unless the nominating entity declined the extension in a written notification to IRS (which none did). Accordingly, the designations of all empowerment zones that were in effect on Dec. 31, 2009 had a termination date of Dec. 31, 2013. In 2015, IRS issued Notice 2015-26, 2015-13 IRB 814, which provided that any nomination for an empowerment zone that was in effect on Dec. 31, 2013, was deemed to be amended to provide for a new termination date of Dec. 31, 2014, unless the nominating entity declines the extension. No nominating entities declined the extension, so the designations of all empowerment zones currently have a termination date of Dec. 31, 2014.

Late in 2015, Congress extended the period for which an empowerment zone designation is in effect by an additional two years. (Code Sec. 1391(d)(1), as amended by PATH Act §171(a)(1)) Accordingly, any designation of an empowerment zone ends on the earliest of:

A. Dec. 31, 2016 (Code Sec. 1391(d)(1)(A));
B. the termination date designated by the State and local governments as provided for in their nomination (Code Sec. 1391(d)(1)(B)); or
C. the date the appropriate Secretary (of Housing and Urban Development, or Agriculture) revokes the designation. (Code Sec. 1391(d)(1)(C))

§171(a)(2) of the PATH Act provides that where a nomination of an empowerment zone included a termination date of Dec. 31, 2014, Code Sec. 1391(d)(1)(B) will not apply with respect to the designation if, after the date of the enactment of the PATH Act, the entity that made such nomination amends the nomination, in such manner as the Secretary of the Treasury may provide, to provide for a new termination date. The amendments made by §171(a) of the PATH Act apply to periods after Dec. 31, 2014.

Thus, under the PATH Act, to have an empowerment zone designation remain in effect through Dec. 31, 2016, the entity that made the nomination of the empowerment zone must amend the nomination to provide for a new termination date of Dec. 31, 2016, as provided in Notice 2016-28.

Amendment of a nomination to extend empowerment zone designation. Notice 2016-28 provides that any nomination for an empowerment zone with a current termination date (as amended by CRTRA, Notice 2013-38, and Notice 2015-26) of Dec. 31, 2014, is deemed to be amended to provide for a new termination date of Dec. 31, 2016, unless the nominating entity sends written notification to IRS declining the extension by May 24, 2016.

If the entity that nominated an empowerment zone does not send written notification, the nomination of that empowerment zone will be deemed extended from Dec. 31, 2014 through Dec. 31, 2016. Accordingly, Code Sec. 1391(d)(1)(B) does not apply and, under Code Sec. 1391(d)(1)(A)(i), the designation of that empowerment zone ends on Dec. 31, 2016.

References: For period that empowerment zone and enterprise community designations remain in effect, see FTC 2d/FIN ¶  J-3382; United States Tax Reporter ¶  13,914; TaxDesk ¶  384,020; TG ¶  15029.

Tagged with →