Treasury Department Opens Probe Into Opportunity Zones

The U.S. Department of the Treasury has opened an investigation into the federal government’s opportunity zone program, the agency said late Wednesday.

Acting Treasury Inspector General Richard Delmar confirmed the move to NBC News, which first reported the story.

Introduced as part of the Tax Cuts and Jobs Act of 2017, the OZ program allows investors to forgo capital gains taxes on investments made in low-income, distressed neighborhoods. It encompasses 8,800 zones designated by state governors and the District of Columbia.

It has come under increasing scrutiny after multiple news outlets reported on wealthy, well-connected investors who had benefited from the program. Some states came under fire after designating high-income, thriving areas as targets for investment, including a yacht marina in Florida.

The probe was sparked after inquiries from legislators Ron Kind (D-Wis.), Emanuel Cleaver II (D-Mo.) and former presidential candidate Cory Booker (D-NJ).

"The underlying legislation, the Investing in Opportunity Act, was intended to support the growth and revitalization of our nation's most economically underserved communities," they said in a letter to the department in October. "It was not the intent of Congress for this tax incentive to be used to enrich political supporters or personal friends of senior administration officials, as recent reports indicate."

The Internal Revenue Service recently released more detailed guidance on how OZ investments could be made, including relaxing some definitions and rules, a development that was met with enthusiasm by some CRE investors.

High-profile investors in OZs have included former New Jersey governor Chris Christie, banker Michael Milken, CRE mogul Richard LeFrak and the family business of the president’s son-in-law Jared Kushner.

This is a developing story.