The U.S. Department of the Treasury recently issued guidance on the qualified opportunity zone (“QOZ”) tax incentive, which was added to the Internal Revenue Code by the Tax Cuts and Jobs Act of 2017.  The tracts of land in Virginia that are eligible for special tax treatment as QOZs have since been chosen by the Governor, and certified by the U.S. Treasury Secretary.  This is exciting news for the development community because the U.S. Department of the Treasury is one step closer to implementing this tax incentive which specifically targets real estate investors.

The goal of the QOZ tax incentive is to provide a deferral of capital gains taxes to developers that invest in property and businesses in areas of the United States that would benefit especially from increased economic stimulus.  The Governor of Virginia was delegated the authority to decide which tracts of land in Virginia qualify as QOZs.  Therefore, QOZs are areas of Virginia that the Governor has determined present a great opportunity for investors to substantially increase economic stimulus in such areas through real estate and business venture investments.  There are two steps, outlined below, that are part of the process for investors to be eligible to receive the QOZ tax incentive.

The first step in the process to be eligible for the tax incentive is for the investor to determine whether it will invest directly in qualified opportunity zone property, or indirectly in an entity that owns the qualified opportunity zone property.  A number of entities can qualify for the tax incentive, including limited liability companies, C-Corporations, partnerships, or any other entity classified as a domestic corporation or domestic partnership.

If the investor chooses to create a Qualified Opportunity Fund (“QOF”) and purchase assets directly with it, the QOF must hold at least 90% of its assets in qualified opportunity zone property, or have at least 90% of its capital invested directly in qualified opportunity zone property.  Depending on the investor’s portfolio, the requirements to qualify as a QOF by holding only direct investments may be quite onerous because 90% of the QOF’s real and tangible property must qualify as qualified opportunity zone property.

The investor may find it easier to meet the requirements of becoming a QOF by qualifying a parent entity as the QOF, and using a subsidiary entity that qualifies as an Opportunity Zone Business (“OZB”) to invest in qualified opportunity zone property.  Indeed, “qualified opportunity zone property” also includes “qualified opportunity zone business property” or equity interests in an OZB.  In this situation, the qualified opportunity zone property held by the QOF could be stock or partnership interests in an entity that qualifies as an OZB.

An entity can qualify as an OZB if at least 70% of the tangible property it owns or leases is qualified opportunity zone business property when the QOF acquires its interest in the entity, and during substantially all of the time the QOF holds its interest in the entity.  “Qualified opportunity zone business property” is tangible property used in the trade or business of the OZB, and (i) acquired after December 31, 2017; (ii) the original use of the property begins with the OZB, or the OZB substantially improves the property; and (iii) during substantially all of the time the OZB holds the property, substantially all of the property’s use was in the QOZ.  For example, a corporation can qualify as a QOF if 90% of its investments are membership interests in a limited liability company, and 70% of the limited liability company’s assets and investments are held in qualified opportunity zone business property.

Additionally, there is a safe harbor contained in the guidance, which allows a QOF to hold assets and working capital that are not qualifying, such as cash, which results in the QOF having less than 90% of its total investments in qualifying property.  The safe harbor allows the entity to remain a QOF if (i) the QOF has a written business plan that identifies the property and explains how the non-qualifying property is being held for the acquisition, construction, or substantial improvement of qualified opportunity zone property, (ii) the QOF has a written schedule that itemizes how the non-qualifying property will be utilized in a 31 month period, and (iii) the QOF stays on course with its written plan and schedule for its use of the non-qualifying property.  This safe harbor is a means by which investors can hold cash in a QOF for purposes of investing in qualifying property, and maintain the status of the QOF, even though the 90% rule has been broken by holding the non-qualifying property.

The second step to become eligible to receive the tax incentive is to invest capital gains that were realized after December 21, 2017 from the sale of real property to a third party into a QOF, or OZB as the case may be, within 180 days of the date those capital gains were realized.  The tax incentives include a deferral of taxes on capital gains that would have been realized prior to December 31, 2026.  If the investment is held for ten years, there will be an increase in the basis of the investment equal to its fair market value on its sale or exchange date.  If the investment is held for longer than seven years there will be a 15% reduction of the deferred capital gain, and if the investment is held for longer than five years there will be a 10% reduction.

It is important for investors to begin considering whether they want to take advantage of this program and how they will become eligible to do so because the proposed guidance suggests there could be cut-off dates for eligibility under the program.  The guidance suggests the designation of the QOZ areas will expire on December 31, 2028.  Property purchased after that time will not be eligible under the program, while property purchased prior to that time will be eligible so long as the investment is sold or exchanged by January 1, 2048.  We have yet to see what other restrictions are contained in the regulations, and how the current proposal is changed prior to its implementation.

A map which shows the locations of the QOZs in the jurisdictions of Virginia where Walsh, Colucci, Lubeley and Walsh, P.C. focuses its practices is available upon request.  Please contact Chuck McWilliams with questions regarding forming new or converting existing entities to take advantage of the program, or purchasing property in any of the QOZs.  Please also note that this article does not incorporate the proposed rules and guidance released by the IRS after April 17, 2019, but we plan to publish another article in the near future to address that guidance.

 

On March 19, the Fairfax County Board of Supervisors unanimously approved a new residential mixed-use project known as “Hanover Tysons” at the intersection of Jones Branch Drive and Westbranch Drive in Tysons.  The site was once part of the expansive West*Park office campus and is developed with a vacant office building and surface parking. With the adoption of the new Tysons Plan in 2010, Fairfax County re-planned the site and the surrounding area for predominately residential area at a FAR of 1.50.  Senior Land Use Planner Elizabeth Baker led the development team through the approval process.

The approval permits the developer, The Hanover Company, to redevelop the 5.8 acre site with a mixed use building with 420 multi-family dwelling units and up to 5,700 square feet of retail space on the ground floor. Up to seven stories in height, the building features a wrapped parking deck and an interior amenity courtyard. The designation of twenty percent of the units as workforce housing keeps with Fairfax County’s goal of more affordable housing in the rapidly transforming Tysons area, and provided Hanover with twenty percent bonus in intensity, bringing the approved FAR to 1.80.

As with any Tysons proposal, street grid improvements were a key element of the proposal. These upgrades include a new collector street on the western boundary with on-street parking and bike lanes. In the future, this street will be extended to provide a new point of access to the Dulles Toll Road.

Public park space is always a principle element in any Tysons rezoning.  Fairfax County has established urban park standards based on an expected resident and employee population. Essentially 400 multi-family units generate the need for one acre of publically accessible park space. The Hanover Company plans include a one acre public park along its southern boundary. This provides an opportunity for a future athletic field in the space if adjacent property redevelops and adds to the park space. This aspect of the development impressed the Board members who were seeking a creative park proposal.

Brian Prater joined the Firm in 2018 and primarily works in the Land Use and Zoning practice group in the Prince William Office. His practice focuses on securing zoning and land use entitlements such as rezonings, special permits, and special exceptions. Prior to joining the Firm, Brian practiced as an associate at Greehan, Taves & Pandak, where he gained experience in local government and land use litigation. During law school, Brian served on the editorial board of Quinnipiac Probate Law Journal.

In this month’s Employee Spotlight, we will learn a lot more about Brian Prater.

Thank you for participating in this month’s Employee Spotlight, Brian! Tell us a little about yourself — where did you grow up?

I grew up in Maryland, outside of Baltimore.

What did you think you wanted to be when you were younger?

As any young sports player, I wanted to be either a professional basketball or baseball player. When I soon realized that was not going to be an option, I thought I would work in finance. However, a dean at my college gave me the advice to consider law school based on my academic strengths and interests and I followed through on this advice.

What interested you about the legal field, specifically land use law?

Based on the advice I received from that dean in college, I pursued a degree in philosophy. The aspects of philosophy, such as analytical thinking and deductive reasoning, made law school and the legal field a strong candidate for my future profession. Shortly into law school I knew that the legal field was right choice. I was always interested in real estate, so property law made sense. My first internship was with the City of Waterbury and then a law firm that handles a lot of land use and zoning. I built an appreciation for the niche area of law and decided it would be my desired area in which to practice.

What aspect of your role do you enjoy the most?

I enjoy that, as Land Use Attorneys, our role is often to be the quarterback of the zoning process. We are tasked with coordinating the many facets of the process – engineering, environmental concerns and traffic impacts just to name a few – to reach the ultimate goal of receiving zoning approval. I also enjoy that it focuses on personal skills and building relationships with clients and local staff and officials.

Who would you consider a mentor at the Prince William office and why?

I work with and learn from so many of the people on our Land Use Team that it is hard to pick just one. But if you’re going to make me pick, I think I will go with Jonelle Cameron. I do most of my work with her and she has been immensely helpful in teaching me the tricks of the trade for zoning in Prince William County. Just getting to observe her interact with clients, elected officials and County staff has taught me so much about the process.

Aside from a very busy schedule and being part of the Land Lawyers Mushball team, what do you like to do for fun outside of work?

I try to play as much golf as I can, but also spend a lot of time with friends and family. Lately, a significant amount of my time has been dedicated to my upcoming wedding.

Fondest memory from The Mushball Cup victory in September?

I think my favorite part was the team bonding and getting to know colleagues that I typically do not spend any time with. Well, that and the fact that we won! The celebration afterward was something to remember.

What’s the one thing about you few people know?

I really enjoy the National Parks and visiting the great parks throughout this County. My parents introduced me to some of these great parks and I really developed an affinity for hiking and the outdoors.

Why do you think Walsh, Colucci, Lubeley & Walsh is a great place to work?

I truly appreciate the fact that it is family oriented and that it is such a friendly environment. Not all offices and professions, especially legal, have people with such pleasant dispositions.

Thank you, Brian!

Congratulations to Bob Brant who was named to the Alexandria Chamber of Commerce 40 Under 40, Class of 2019. The 40 under 40 program was established in 2016 by the Chamber to recognize top men and women, age 40 and under, who are shaping Alexandria’s future.  The recognized individuals are engaged in a variety of fields including business, law, technology, nonprofit management, civic life, public service, education, and the arts,

The land use practice deals with difficult legal questions, citizen opposition, long hours, and demanding clients. Bob adeptly handles the challenges posed by law practice with a positive attitude and an invaluable sense of humor that routinely boosts morale at the office. He consistently puts in the time necessary to secure positive results while serving as a resource to younger attorneys and urban planners. In addition to putting in long hours at the office, Bob also dedicates his time to the community. He is currently active in the Alexandria Chamber of Commerce as a Volunteer Ambassador and Membership Committee Member. Bob also volunteers as a reading mentor for the Everybody Wins DC reading program at Key Elementary School. These leadership qualities and accomplishments lead to his recognition in the Alexandria Chamber of Commerce 40 Under 40.

Congratulations to our very own Kathryn Taylor for receiving one of the 2019 FBA President’s Awards for her dedicated and exceptional service to the Fairfax Bar Association over the course of 2018.

Kathy earned this outstanding achievement through her various contributions to the FBA, including serving on the Board of Directors for the Young Lawyers Section and assisting on the planning committees for both the 2018 FBA Annual Convention to Nashville and the 10^th Annual Heroes and Villains Run for Justice 5K.

She was also recognized for her positive energy and dependable commitment to the FBA.  Congrats, Kathy!

Meet our summer associates. Thank you so much for all your help!

 

 

 

 

Meet our interns who joined us for the summer. Thanks for all your help!