Treasury Department, Internal Revenue Service, Notice of Proposed Rulemaking: Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures, REG-116506-25, RIN 1545-BR82, 26 CFR Parts 1 and 301, 91 FR _____ (scheduled for publication Sept. 11, 2026)

On September 11, 2026, the Department of the Treasury and the Internal Revenue Service issued Notice of Proposed Rulemaking REG-116506-25 (RIN 1545-BR82), titled Information Reporting Regarding Qualified Opportunity Zones and Updated Qualified Opportunity Fund Certification and Decertification Procedures. This regulatory package implements new statutory mandates enacted under Section 70421 of Public Law 119-21, 139 Stat. 72 (July 4, 2025), commonly known as the One, Big, Beautiful Bill Act (OBBBA). The OBBBA permanently extended subchapter Z of chapter 1 of the Internal Revenue Code (Code) and established rigorous information reporting regimes under Code Sec. 6039K and Code Sec. 6039L, backed by severe daily assessable penalties under Code Sec. 6726.

The proposed regulations amend Income Tax Regulations (26 CFR Part 1) under Code Secs. 1400Z-2, 6039K, 6039L, and 6045, as well as Procedure and Administration Regulations (26 CFR Part 301) under Code Secs. 6011, 6037, 6722, 6724, and 6726. Treasury issued these proposed rules pursuant to express delegations of statutory authority under Code Sec. 1400Z-2(e)(4) (authorizing certification rules for Qualified Opportunity Funds (QOFs) and anti-abuse provisions); Code Sec. 6039K(a), (b)(9), and (c) (prescribing annual QOF returns and investor disposition statements); Code Sec. 6039L(a) (mandating operational disclosures from Qualified Opportunity Zone Businesses (QOZBs) to QOFs); Code Sec. 6045(a) (governing broker information reporting); and Code Sec. 7805 (general rulemaking authority).

For tax professionals—specifically CPAs and Enrolled Agents (EAs) advising QOFs, QOZBs, and opportunity zone investors—these proposed regulations fundamentally alter the compliance landscape. The regulations convert Form 8996 (Qualified Opportunity Fund) into an independent annual information return, establish exclusive procedural mechanics for voluntary QOF decertification and inadvertent election revocation, create mandatory inter-entity reporting flows between QOZBs and QOFs, and enforce compliance through non-waivable per-day administrative penalties.

Rationale and Statutory Imperatives Driving the Proposed Regulations

Treasury and the IRS articulated four primary legal and administrative imperatives that prompted the release of REG-116506-25:

Implementation of OBBBA Statutory Mandates

Prior to the OBBBA, subchapter Z contained no statutory information reporting requirement for QOFs or QOZBs, nor did it impose information reporting penalties for failures to file Form 8996 or supply underlying business data. Although Treasury exercised its anti-abuse authority under Code Sec. 1400Z-2(e)(4) to mandate Form 8996 attachments under TD 9889 (85 FR 1866), “no information reporting penalty applies to QOFs that do not file Form 8996” or to QOZBs that withhold necessary operational metrics from QOF equity holders. Congress addressed this enforcement deficit by enacting Code Secs. 6039K, 6039L, and 6726 under OBBBA Sec. 70421(d). The proposed regulations provide the administrative mechanics required to operationalize these statutory mandates.

Resolution of QOF Self-Certification Ambiguities

Treasury acknowledged that practitioners and stakeholders raised substantial operational questions regarding existing Treas. Reg. § 1.1400Z2(d)-1(a)(2)(i) and Form 8996 instructions. Specifically, “stakeholders have questioned whether an entity’s self-certification as a QOF must be renewed annually through the filing of Form 8996, which would then create an annual option for voluntary decertification”. Others questioned whether failing to file Form 8996 triggered penalties or resulted in automatic decertification. Treasury noted that “the proposed regulations would revise the QOF self-certification and annual reporting procedures (including as imposed by section 6039K) that are intended to clarify these procedures and facilitate taxpayer compliance”.

Elimination of Audit Exposure for Inadvertent Certifications

Stakeholders alerted Treasury that entities such as standalone QOZBs occasionally self-certified as QOFs by mistakenly filing Form 8996. Because no investor held a qualifying investment in these inadvertently certified entities, “no owner of such entity would have derived any specified opportunity zone tax benefit at any time”. Allowing a formal revocation mechanism removes these noncompliant entities “from audit consideration due to their noncompliance with the statutory and regulatory requirements under section 1400Z-2(d)(2), while permitting the IRS to consider whether the entities met the other requirements of section 1400Z-2(d)(3), if applicable”. Furthermore, it “eliminate[s] unnecessary compliance obligations for investors in these entities who never had any intention to achieve a specified opportunity zone tax benefit”.

Fulfillment of OBBBA Public Reporting Mandates

OBBBA Sec. 70421(e) directs the Secretary to publish comprehensive annual public reports detailing opportunity zone investment volume, census tract coverage, employment impact, housing unit creation, and NAICS industry sector distribution, alongside longitudinal outcome evaluations scheduled for 2031 and 2036. Under OBBBA Sec. 70421(e)(5), Treasury must ensure that public reports protect confidential return information. Collecting standardized, granular data on Form 8996 and QOZB statements enables Treasury to fulfill these statutory public reporting duties while maintaining taxpayer privacy.

Comprehensive Analysis of Regulatory Additions, Revisions, and Deletions

The proposed regulations introduce detailed structural modifications across 26 CFR Parts 1 and 301. Below is a comprehensive analysis of the substantive revisions, additions, and deletions.

QOF Certification and Annual Information Reporting Architecture

The proposed regulations restructure Treas. Reg. § 1.1400Z2(d)-1(a)(2) to bifurcate initial QOF self-certification from ongoing annual reporting:

Initial Year Certification: Under Prop. Reg. § 1.1400Z2(d)-1(a)(2)(ii)(A), an eligible entity must effect its self-certification on Form 8996 filed with a timely original federal income tax return (including extensions) for its first taxable year. The self-certification must explicitly state the initial taxable year and first month of QOF status and contain an “affirmative statement that the entity is organized for the purpose of investing in QOZ property as required by section 1400Z-2(d)(1)”. If an entity fails to specify a month, self-certification defaults to the first month of its taxable year. Investments made prior to the effective month are non-qualifying investments.
Subsequent Annual Information Returns: For second and subsequent taxable years, Prop. Reg. § 1.1400Z2(d)-1(a)(2)(iii) eliminates annual re-certification. Instead, QOFs must file an annual information return on Form 8996 under Code Sec. 6039K. Treasury emphasized that “these annual information returns for taxable years after the initial self-certification taxable year would not require the QOF to provide an annual self-certification”.

Revocation of Inadvertent QOF Self-Certifications

Prop. Reg. § 1.1400Z2(d)-1(a)(2)(iv) creates a narrow, strictly circumscribed relief mechanism for revoking inadvertent QOF elections:

Strict Eligibility Standard: Under Prop. Reg. § 1.1400Z2(d)-1(a)(2)(iv)(B), “an entity self-certified as a QOF may revoke its inadvertent election to self-certify as a QOF only if no qualifying investment in the QOF was made” throughout the entire certification period.
Procedural Mandates: Revocation requires express Commissioner consent in accordance with future IRB guidance or form instructions.
Permanent Disqualification: Under Prop. Reg. § 1.1400Z2(d)-1(a)(2)(iv)(D), an entity revoking an inadvertent election “may not self-certify as a QOF at any future date, and the TIN assigned to that entity may not be used by another entity to self-certify as a QOF in the future”.

Exclusive Voluntary Decertification Procedures and Investor Tax Consequences

Treasury deleted former informal decertification references and established Prop. Reg. § 1.1400Z2(d)-1(a)(3) as the single, exclusive mechanism for voluntary QOF decertification:

Contemporaneous Written Documentation Requirement: A QOF may voluntarily decertify “only if the certified entity maintains contemporaneous written documentation of the intent to decertify” in its books and records. Under Prop. Reg. § 1.1400Z2(d)-1(a)(3)(iii)(A), contemporaneous documentation is defined as “written documentation created at the same time a QOF makes the determination that it will terminate its certification as a QOF,” such as formal board or partner meeting minutes.
Invalidation Penalty for Non-Compliance: Under Prop. Reg. § 1.1400Z2(d)-1(a)(3)(v), failing to maintain contemporaneous written documentation invalidates the voluntary decertification. The entity remains a QOF subject to all subchapter Z rules, including Code Sec. 1400Z-2(f) penalties for failing the 90-percent investment standard.
Effective Date and Final Return: Voluntary decertification takes effect on the last day of the month specified in the contemporaneous documentation. The QOF must file a final Form 8996 with its original tax return for the voluntary decertification year, indicating final decertification and its effective month.
Mandatory 15-Day Investor Notice: Under Prop. Reg. § 1.1400Z2(d)-1(a)(3)(iv), the QOF must furnish written notice to ALL investors (qualifying and non-qualifying) within 15 days of the decertification date or contracted notice date. The notice must explicitly state that the Code Sec. 1400Z-2(c) 10-year fair market value basis step-up election is no longer available and provide information necessary to report an inclusion event.
Tax Consequences to Investors:
- Inclusion Event: Under Prop. Reg. § 1.1400Z2(b)-1(c)(15) and Prop. Reg. § 1.1400Z2(d)-1(a)(3)(vi)(B)(1), voluntary decertification constitutes a binding inclusion event for all QOF owners as of the decertification date.
- Rollover Relief: Under Prop. Reg. § 1.1400Z2(d)-1(a)(3)(vi)(B)(2), inclusion gain remains eligible for continued deferral if reinvested in another QOF with a different TIN within 180 days pursuant to Code Sec. 1400Z-2(a)(1)(A).
- Disallowance of 10-Year Step-Up: Under Prop. Reg. § 1.1400Z2(d)-1(a)(3)(vi)(C), QOF owners are permanently barred from making a Code Sec. 1400Z-2(c) election on or after the voluntary decertification date.

QOF Annual Information Reporting Regime Under Code Sec. 6039K

Prop. Reg. § 1.6039K-1 governs annual QOF information reporting on Form 8996:

Entity-Level Disclosures: Form 8996 requires organizational structure, 90-percent investment standard calculations, Sec. 1400Z-2(f) penalty computations, valuation methodology (applicable financial statement vs. alternative valuation under Treas. Reg. § 1.1400Z2(d)-1(b)), census tract physical addresses, NAICS codes, first property acquisition/lease dates, substantial improvement start dates, real property values as of December 31, and residential housing unit counts as of December 31 .
Full-Time Equivalent (FTE) Employee Rules: Prop. Reg. § 1.6039K-1(a)(4) defines monthly FTE employees as full-time employees (averaging 30+ hours/week) plus non-full-time employee hours divided by 120. Prop. Reg. § 1.6039K-1(a)(4)(ii)(A) adopts a simplified alternative rule permitting QOFs to classify any employee performing 120+ service hours in a calendar month as a full-time employee. Non-full-time calculations must be rounded to the nearest whole number.
QOZB Investment Disclosures: QOFs must report each applicable QOZB’s TIN, physical address, NAICS code, QOF percentage equity ownership, testing-date equity values, tangible property values (owned and leased), Dec. 31 real property values, Dec. 31 residential unit counts, FTE employee numbers, initial property acquisition dates, substantial improvement dates, working capital safe harbor end dates, valuation methods, and QOZB compliance attestations (or cure period notifications) .
Reportable Investor Disposition Reporting and Investor Statements: QOFs must report all disposition events (inclusion events under Treas. Reg. § 1.1400Z2(b)-1(c)) occurring during the calendar year. For each reportable investor, the QOF must report their name, address, TIN, disposition date, acquisition date, initial capital contribution (cash plus FMV property), prior and disposed unit counts, and whether decertification caused the event.
Investor Statement Due Dates: Under Prop. Reg. § 1.6039K-1(h)(2)(i), investor statements under Code Sec. 6039K(c) must be furnished by March 1 following the calendar year. For publicly traded QOFs where interests are held through street name, investor statements must be furnished to record-holder brokers by January 15.

Applicable QOZB Information Reporting Regime Under Code Sec. 6039L

Prop. Reg. § 1.6039L-1 mandates annual operational disclosures from applicable QOZBs to QOFs:

Scope and Definition: Applies to corporations (QOZ stock) and partnerships (QOZ partnership interests) in which a QOF holds an interest. Prop. Reg. § 1.6039L-1(a)(3) explicitly excludes trades or businesses operated directly by a QOF.
Mandatory Attestation: Under Prop. Reg. § 1.6039L-1(b)(5), the QOZB statement must contain a formal attestation, signed under penalties of perjury, that the entity satisfied all Code Sec. 1400Z-2(d)(3) requirements, including: (1) the 70-percent tangible property standard; (2) the 50-percent active gross income test; (3) the 40-percent active intangible property rule; (4) the 5-percent nonqualified financial property cap; and (5) the sin-business prohibition under Code Sec. 144(c)(6)(B).
Cure Period Attestation: If noncompliant, Prop. Reg. § 1.6039L-1(b)(6) requires an attestation that the QOZB is invoking the single allowable cure period under Treas. Reg. § 1.1400Z2(d)-1(d)(6), identifying the exact month qualification was lost.
Due Date: QOZB statements must be furnished to relevant QOFs on or before the 1st day of the second month following the close of the QOZB’s taxable year (February 1 for calendar-year QOZBs).

Broker Information Reporting Expansions Under Code Sec. 6045

Prop. Reg. § 1.6045-1 expands Form 1099-B broker reporting to encompass QOF disposition events:

Prop. Reg. § 1.6045-1(a)(9)(i) amends the definition of a reportable “sale” to include any inclusion event under Treas. Reg. § 1.1400Z2(b)-1(c) resulting from QOF decertification.
Prop. Reg. § 1.6045-1(d)(2)(i)(A) requires brokers to indicate on Form 1099-B whether a transaction constitutes a disposition of a QOF interest or an inclusion event.

Assessable Penalties and Procedural Rules

The proposed regulations establish severe civil administrative penalties for noncompliance:

Code Sec. 6726 Information Reporting Penalty: Prop. Reg. § 301.6726-1(a)(1) imposes an assessable penalty of $500 per day for failing to file a complete and correct Form 8996 timely or in the prescribed e-file format.
- Standard Annual Cap: $10,000 per return.
- Large QOF Annual Cap: For QOFs with gross assets exceeding $10,000,000 at tax year-end, the annual cap increases to $50,000 per return.
- Intentional Disregard: Under Prop. Reg. § 301.6726-1(c), intentional disregard elevates the penalty to $2,500 per day, with annual caps increasing to $50,000 for standard QOFs and $250,000 for Large QOFs. Intentional disregard is evaluated based on facts and circumstances, including pattern of conduct, promptness of correction, compliance within 30 days of IRS request, and compliance cost relative to penalty exposure.
- Penalty Termination: Per-day accrual terminates on the date a complete and correct Form 8996 is filed.
Code Sec. 6722 Payee Statement Penalties: Prop. Reg. § 301.6722-1(e)(2)(xxxix) and (xl) add Code Sec. 6039K(c) investor statements and Code Sec. 6039L QOZB statements to the definition of payee statements subject to a $250 penalty per failure (inflation adjusted) up to a $3,000,000 annual cap.
Reasonable Cause Waiver: Prop. Reg. § 301.6724-1 amends reasonable cause rules to explicitly extend penalty waiver protection to Code Sec. 6726 penalties.
Electronic Filing Aggregation: Prop. Reg. §§ 301.6011-2, 301.6011-3, 301.6011-5, and 301.6037-2 establish that Form 8996 is counted as a separate return in determining whether a QOF satisfies the 10-return threshold triggering mandatory e-filing under Code Sec. 6011(e)(8).

Treasury and IRS Statutory Analysis and Legal Justifications

Treasury articulated comprehensive statutory and administrative justifications for the specific policy choices embodied in REG-116506-25:

Reconciling Statutory Authority Under Code Secs. 6039K and 4980H for Employee Metrics

Code Sec. 6039K(d)(2) directs Treasury to calculate full-time equivalent employees by combining full-time employees (defined under Code Sec. 4980H(c)(4) as averaging 30+ hours/week) with non-full-time employee hours divided by 120. In analyzing Pension Excise Tax Reg. § 54.4980H-1(a)(21)(ii)—which establishes a 130-hour monthly threshold—Treasury observed a statutory inconsistency. Treasury explained:

“Because using the more restrictive (130 hours of service) monthly equivalent rule merely converts employees that would be full-time employees under section 6039K(d)(2)(A) into other employees under section 6039K(d)(2)(B), proposed § 1.6039K-1(a)(4)(ii)(A) would use a monthly equivalent rule that is consistent with the 120-hour divisor used to calculate the number of other employees under section 6039K(d)(2)(B).”

This statutory synthesis provides administrative simplicity while preserving data integrity for congressional public reports.

Rationale for Calendar-Year Reporting of Investor Dispositions

Addressing Code Sec. 6039K(b)(8)’s ambiguous mandate to report investor dispositions “during the year,” Treasury analyzed whether reporting should follow the QOF’s fiscal year or the calendar year. Treasury justified adopting calendar-year reporting under Prop. Reg. § 1.6039K-1(f) based on three statutory points:

“First, IRS information reporting generally is required on a calendar year basis... Second, the calendar year is the standard accounting period for most individual taxpayers and the default accounting period for corporations and partnerships that do not keep formal books and records or otherwise do not qualify for a fiscal taxable year... Finally... requiring QOFs to report this information on a calendar year basis would also facilitate a single due date for investor statements that is conducive to the tax reporting needs of the reportable investors.”

Legal Justification for Contemporaneous Decertification Documentation

To justify the strict contemporaneous documentation requirement under Prop. Reg. § 1.1400Z2(d)-1(a)(3)(iii), Treasury noted that formal written records are essential to establish tax certainty and prevent abusive tax planning. Treasury reasoned:

“The Treasury Department and the IRS view the requirement to maintain contemporaneous written documentation as necessary because it demonstrates the entity’s intent to self-decertify as of a certain date and that the entity is not acting with inappropriate hindsight.”

Preventing tax-motivated hindsight ensures that QOF owners cannot manipulate inclusion event timing or retroactively evade Sec. 1400Z-2(f) statutory penalties.

Narrowing the Definition of Applicable QOZB Under Code Sec. 6039L

Code Sec. 6039L(b)(1) defines an applicable QOZB to include a trade or business of a QOF. However, Prop. Reg. § 1.6039L-1(a)(3) intentionally narrows this definition to exclude direct QOF trades or businesses. Treasury justified this administrative exclusion:

“Proposed § 1.6039L-1(a)(3) would generally follow this definition of an ‘applicable QOZB’ except it would not include a trade or business of a QOF in the definition because these trades or businesses are conducted by the QOF itself. Therefore, QOFs should generally have the ability to obtain the information they need from such trades or businesses without being subject to the furnishing requirements of section 6039L and the penalties under section 6722 that would apply if these trades or businesses of the QOF failed to comply with these furnishing requirements.”

Proposed Applicability Dates and Taxpayer Reliance Analysis

The proposed regulations establish specific prospective effective dates keyed to the publication of final regulations in the Federal Register:

QOF Certification, Decertification, and QOZ Business Property Rules: Prop. Reg. §§ 1.1400Z2(b)-1(c)(15), 1.1400Z2(d)-1(a)(2)-(3), and 1.1400Z2(d)-2(d) are proposed to apply to taxable years ending on or after the date of publication of a Treasury decision adopting these rules as final regulations in the Federal Register.
QOF Returns, Investor Statements, Broker Reports, and Sec. 6726 Penalties: Prop. Reg. §§ 1.6039K-1, 1.6045-1, and 301.6726-1 are proposed to apply to information returns and investor statements originally due (without extensions) on or after the date of publication of final regulations in the Federal Register.
QOZB Statements and Sec. 6722 Payee Penalties: Prop. Reg. §§ 1.6039L-1 and 301.6722-1 are proposed to apply to QOZB statements required to be furnished on or after the date of publication of final regulations in the Federal Register.
Electronic Filing Aggregation Rules: Procedural amendments under 26 CFR Part 301 are proposed to apply to returns required to be filed on or after the date of publication of final regulations in the Federal Register.

Critical CPA Analysis Regarding Taxpayer Reliance

A critical technical question for tax practitioners is whether taxpayers may rely on these proposed regulations prior to their publication as final regulations.

An exhaustive examination of Notice of Proposed Rulemaking REG-116506-25 reveals that Treasury and the IRS did NOT include a general reliance provision in the preamble or regulatory text. Unlike certain prior opportunity zone notices (such as Notice 2025-50) or proposed regulations that expressly authorize taxpayers to rely on proposed provisions provided they are applied consistently and in their entirety, REG-116506-25 contains no such reliance authorization.

Under long-standing administrative tax law principles, proposed regulations lacking an express reliance clause do not constitute binding authority and cannot be relied upon by taxpayers to override existing final regulations (see Treas. Reg. § 601.601; Helvering v. Reynolds, 313 U.S. 428). Consequently:

Governing Law Pending Finalization: Taxpayers and QOFs remain governed by existing final regulations under TD 9889 (85 FR 1866) until Treasury decision adopting REG-116506-25 as final regulations is published in the Federal Register.
Immediate Action Required: Although the proposed reporting rules and Sec. 6726 penalties will not take effect until final regulations are published, CPAs and EAs must advise QOF and QOZB clients to immediately upgrade their accounting software, information-gathering protocols, and investor tracking systems. Because QOZBs will be required to furnish QOZB statements by February 1 following the close of their taxable year and QOFs face daily $500 penalties for noncompliant Form 8996 filings, retroactive compliance will be impossible once final regulations are issued.

Prepared with assistance from Gemini Notebook.