OZ 2.0 Proposed Regulations: What QOFs and Investors Need to Know

On September 11, 2026, the Internal Revenue Service (IRS) issued proposed Treasury Regulations to amend certain existing regulations and add new regulations pertaining to opportunity zones. The proposed regulations provide for (i) information returns and required reporting to certain investors, (ii) clarification on self-certification and decertification rules for qualified opportunity funds (“QOF”), and (iii) clarification on the applicability of certain penalties. We have summarized some of the key provisions from the proposed regulations below.

Information Returns and Reporting

Expanded Annual Reporting for QOFs – Proposed Treasury Regulation § 1.6039K-1

The proposed regulations promulgate new regulations under section 6039K, which, in part provides, annual QOF return requirements. The proposed regulation generally provides that a QOF must file an annual information return (Form 8996) due with the QOF’s Federal tax return.

The information required of the QOF and each applicable QOZB would expand well beyond what the current Form 8996 requires. Such information includes, among other items, census tract addresses, NAICS codes, first property acquisition and substantial improvement dates, the value of real property and the number of residential units as of December 31, and the approximate average monthly number of full-time equivalent employees.

Reporting Requirements for QOZBs – Proposed Treasury Regulation § 1.6039L-1

The proposed regulations promulgate new regulations under section 6039L, which in part provides information reporting requirements for QOZBs. As noted above, Prop. Treas. Reg. § 1.6039K-1 requires that a QOF report certain information on Form 8996 pertaining to each applicable QOZB. Thus, the purpose of Prop. Treas. Reg. § 1.6039L-1 provides the definition of an “applicable QOZB” and requires such applicable QOZB to furnish a QOZB information statement to each QOF that holds an interest in such applicable QOZB.

Among other items, the QOZB information statement must include an attestation that the QOZB satisfied the requirements of section 1400Z-2(d)(3) and Treas. Reg. § 1.1400Z2(d)-1(d). Those requirements include the 70-percent tangible property standard, the active trade or business requirements, the limitation on nonqualified financial property, and that the QOZB is not a business described in section 144(c)(6)(B). If the QOZB failed to qualify, the statement must instead identify the month in which qualification was lost and confirm that the QOZB is invoking the cure period.

QOZB information statements would generally be due on or before the first day of the second month following the close of the QOZB’s taxable year, or February 1 for a calendar year QOZB. The proposed regulations include the timing and manner that the applicable QOZB must furnish such QOZB information statement.

Expanded Broker Reporting – Proposed Treasury Regulation § 1.6045-1

The proposed regulations also expand broker reporting under section 6045. Prop. Treas. Reg. § 1.6045-1(a)(9)(i) broadens the definition of a “sale” that a broker must report to include an inclusion event caused by the voluntary decertification of a QOF. Additionally, Prop. Treas. Reg. § 1.6045-1(d)(2)(i)(A) requires the broker to report whether a transaction constitutes a disposition of an ownership interest in a QOF or an inclusion event.

Self-Certification, Decertification, and Revocation

Changes to QOF Self-Certification – Prop. Treas. Reg. § 1.1400Z2(d)-1

The existing Treasury Regulations under Treas. Reg. § 1.1400Z2(d)-1 provide certain rules related to qualification of an eligible entity as a QOF or QOZB, including certification and decertification of an eligible entity as a QOF. Under the existing regulations, an eligible entity is required to annually self-certify that it meets the QOF investment standards and qualified opportunity zone property requirements. An eligible entity must file Form 8996 annually to self-certify, which includes calculating whether the QOF investment standard was met for the applicable tax year along with any penalties for failing to meet the standard, summarizing the qualified opportunity zone (QOZ) property owned or lease by the eligible entity, and a summary of QOZ stock or partnership interests held by the eligible entity.

Generally, the proposed regulations revise existing self-certification requirements to clarify the self-certification procedures and annual reporting requirements. Notable proposed revisions to the self-certification regulations include: (i) clarifying that the self-certification as a QOF is effective from the date a valid self-certification is effective (i.e., the self-certification date); (ii) tying the timely filing requirements of the initial self-certification to the Form 8996 filing; and (iii) clarifying that annual filings after the initial self-certification do not require the QOF to re-certify its status as a QOF.

Decertification – Current Treas. Reg. § 1.1400Z2(d)-1

The existing regulations contemplate that an eligible entity can elect to decertify as a QOF “in such form and manner as prescribed by the Commissioner.” However, no mechanism exists currently to formally decertify a QOF.

New Process for Voluntary Decertification – Prop. Treas. Reg. § 1.1400Z2(d)-1

The proposed regulations significantly expand the decertification regulations from a single paragraph to multiple paragraphs. As a practical matter, an entity may wish to voluntarily decertify where it no longer intends to operate as a QOF. Reasons for not wanting to remain a QOF may include: stopping the continued accrual of penalties under section 1400Z-2(f) for failing to satisfy the 90-percent investment standard, or avoiding the new annual reporting obligations and associated penalties described above. Generally, the voluntary decertification of a QOF can be broken down into the following parts:

• The QOF must timely file a final Form 8996 with a voluntary decertification election made.
• The QOF must maintain “contemporaneous written documentation” in its books and records. Such contemporaneous written document must memorialize the entity’s intent to terminate its certification as a QOF, including identifying the final month the entity will be a certified QOF. Contemporaneous written documentation is defined in the proposed regulations as “written documentation created at the same time a QOF makes the determination that it will terminate its certification as a QOF.” Notably, a failure to maintain contemporaneous written documentation invalidates the voluntary decertification. In that event, the entity remains a certified QOF subject to all of the requirements of subchapter Z, including the section 1400Z-2(f) penalty for failing to satisfy the 90-percent investment standard.
• The QOF must notify “final investors” in writing of the voluntary decertification. A final investor is defined in the proposed regulations as an “investor that holds a qualifying or non-qualifying investment in the QOF on the QOF’s effective date of voluntary decertification.” The written notification must be furnished to each such investor by the earlier of 15 days after the effective date of voluntary decertification or the date the parties contracted for receipt of the notification. The notification must (i) inform the investor that an election under section 1400Z-2(c) may no longer be made with respect to the investor’s qualifying investment and (ii) include information sufficient for the investor to report the resulting inclusion event. This 15-day notification is separate from, and in addition to, the investor statement that Prop. Treas. Reg. § 1.6039K-1 would require the entity to furnish on or before March 1 of the calendar year following the calendar year in which the voluntary decertification occurred.

Revocation – Prop. Treas. Reg. § 1.1400Z2(d)-1

The existing regulations do not contain a revocation process for taxpayers who inadvertently self-certify as a QOF.

The proposed regulations contemplate that an entity may inadvertently self-certify as a QOF if, for example, a QOZB mistakenly files a Form 8996 self-certifying as a QOF. In such circumstances, the proposed regulations provide a mechanism for the taxpayer to revoke the QOF self-certification. The revocation election may only be made if (i) no qualifying investment in the QOF was made, and (ii) the consent of the IRS commissioner is obtained. Lastly, the regulations state that once an entity revokes a self-certification as a QOF, it may not self-certify as a QOF at any future date, and the taxpayer identification number assigned to that entity may not be used by another entity to self-certify as a QOF in the future.

QOZ Business Property and Testing Dates – Prop. Treas. Reg. §§ 1.1400Z2(d)-1 and 1.1400Z2(d)-2

Beyond the reporting and certification rules, the proposed regulations would clarify the testing dates used to measure compliance where a QOF and an applicable QOZB have different taxable years. Prop. Treas. Reg. § 1.1400Z2(d)-2(d)(3)(iii) would clarify that a QOZB determines whether it satisfies the 70-percent use test on its own semiannual testing dates, rather than those of the QOF. Prop. Treas. Reg. § 1.1400Z2(d)-1(b)(2)(i)(C) would permit a QOF with a taxable year different from that of an applicable QOZB to apply the 90-percent investment standard using information furnished by the QOZB as of the QOZB’s testing dates. The proposed regulations would also replace references to an “eligible entity” in § 1.1400Z2(d)-2 with separate references to QOFs and QOZBs to emphasize that holding period testing differs between the two.

New and Increased Reporting Penalties – Prop. Treas. Reg. § 301.6726-1

The proposed regulations promulgate new regulations under section 6726, which provides for certain penalties for failure to file an annual QOF information return on Form 8996. The proposed regulations provide that a QOF that fails to either (i) timely file the Form 8996 (or other such information return as required by the IRS in the future), or (ii) fails to file the Form 8996 with correct information, will have a penalty imposed of $500 for each day that the return is not filed, generally up to a maximum of $10,000 or, in the case of a “large QOF,” $50,000. A large QOF is defined as a QOF with gross assets (determined on the last day of the QOF’s taxable year) that exceed $10,000,000. However, in the event of a failure to file due to intentional disregard of the return requirement, the penalty would be increased to $2,500 a day, with the maximum penalty increased to $50,000 or, in the case of a large QOF, $250,000. The proposed regulations clarify that each return can only be subject to one penalty, even where more than one failure occurs with respect to such information return.

The proposed regulations would also conform the payee statement penalty rules to the new reporting regime. Prop. Treas. Reg. § 301.6722-1(e)(2)(xxxix) and (xl) would add investor statements required under section 6039K(c) and QOZB statements required under section 6039L to the definition of “payee statements,” subjecting a failure to furnish (or a failure to furnish a correct) statement to the section 6722 penalty of $250 per failure, as adjusted for inflation. On a more favorable note, Prop. Treas. Reg. § 301.6724-1 would confirm that the reasonable cause exception under section 6724 applies to penalties imposed under section 6726, and Prop. Treas. Reg. § 301.6726-1(a)(1) would include a cross-reference to those waiver rules.

Proposed Applicability Dates and Reliance

The proposed regulations would generally apply prospectively, keyed to the publication of final regulations in the Federal Register. The certification, decertification, and QOZ business property rules under section 1400Z-2 would apply to taxable years ending on or after the date of publication of final regulations. The information return rules under sections 6039K(a) and 6045(a) and the section 6726 penalties would apply to information returns and investor statements required to be filed or furnished (without regard to extensions of the filer’s annual return) on or after that date. The statement rules under sections 6039K(c), 6045(b), and 6039L, and the section 6722 penalties would apply to statements required to be furnished on or after that date. The electronic filing rules under sections 6011 and 6037 would apply to returns required to be filed on or after that date.

Next Steps – Request for Comment and Public Hearing

The proposed regulations contain numerous requests for comment on specific topics, as well as a general request for comment. The IRS is accepting comments from the public on the proposed regulations through October 26, 2026. A telephonic public hearing is scheduled for November 5, 2026, at 10 a.m. Eastern time, regarding the comments submitted.

If you have questions regarding the proposed treasury regulations or any other questions related to opportunity zone reporting, compliance, and strategy, reach out to our Real Estate Finance team.