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IRS Proposes Sweeping New Opportunity Zone (OZ) Reporting Rules

Alert

September 17, 2026

The Department of Treasury (Treasury) and the Internal Revenue Service (IRS) have issued proposed regulations that would significantly expand Opportunity Zone information reporting, as required by P.L. 119-21 or the “One Big Beautiful Bill Act” (OBBBA). The proposed rules convert Form 8996 into a standalone annual information return for Qualified Opportunity Funds (QOFs) that require Qualified Opportunity Zone Businesses (QOZBs) to furnish annual statements to the funds that hold interests in them, create new investor and broker reporting, restructure QOF self-certification, and establish a single, exclusive process for decertification. A new assessable penalty would apply to late or incomplete Form 8996 filings, reaching $500 per day and capped at certain dollar amounts.

Fund sponsors, investors and developers should begin evaluating data collection processes now and consider submitting comments before the comment period closes on October 16, 2026.

IRS Releases Proposed Opportunity Zone Reporting Regulations

The IRS has issued proposed regulations, REG-116506-25, implementing new reporting provisions enacted under the OBBBA.

These regulations address information reporting, certification and penalties. The substantive transition rules previewed in Notice 2026-40, including the post-2026 deferral framework, zone designation periods and the working capital safe harbor conditions, remain pending.

The proposal introduces comprehensive reporting requirements, adds an assessable penalty regime, expands broker reporting, and substantially revises the procedures governing QOF self-certification and decertification.

The certification and decertification rules would apply to taxable years ending on or after publication of final regulations, and the reporting rules would apply to returns and statements originally due on or after that date.

As a result, these provisions are not expected to impact 2026 filings. However, in the unlikely event that final regulations are issued before year-end, the resulting effective dates could cause these requirements to apply to certain 2026 returns and related filings.

Key Dates

Milestone	Date
QOZB statements to QOFs	First day of the second month after the QOZB's tax year end — February 1 for calendar-year QOZBs
QOF statements to investors	March 1 following the calendar year end
QOF statements to brokers	January 15
Applicability	Taxable years ending on or after publication of final regulations

Form 8996 Would Become a Standalone QOF Information Return

One of the most significant changes is the conversion of Form 8996 from an attachment to the entity's tax return into an independent annual information return.

Under the proposal, QOFs would electronically file Form 8996 annually and report substantially more information than is required by the current version of the form. In addition to existing fund-level disclosures, Treasury would collect detailed property, operational and compliance data at the census tract level.

New reporting requirements could include:

Physical addresses of QOF and QOZB business activity, by census tract
NAICS industry classification codes
Values of qualified opportunity zone business property, owned and leased
Residential housing unit counts as of December 31
Average monthly full-time equivalent employee counts
Property acquisition and lease dates
Substantial improvement start dates
Working capital safe harbor expiration dates
Valuation methodology and percentage equity ownership in each QOZB

The proposal also defines how to count full-time equivalent employees, combining full-time employees averaging 30 or more hours per week with the hours of other employees divided by 120. A simplified alternative would let a QOF treat any employee performing 120 or more hours of service in a calendar month as full time.

For many funds, these requirements would necessitate data collection and reporting processes that do not exist today.

QOF Self-certification Would Become a One-time Filing

The proposal separates initial certification from ongoing reporting. An entity would self-certify as a QOF once, on a Form 8996 included with a timely-filed (including extensions) original return for its first taxable year, stating the initial taxable year and first month of QOF status. For all later years, Form 8996 would function purely as an information return with no annual re-certification.

The regulations would also create a narrow relief mechanism for entities that self-certified by mistake. An entity could revoke an inadvertent election only if no qualifying investment was ever made, and only with the Commissioner's consent. The trade-off is permanent: a revoking entity could never self-certify as a QOF again, and its taxpayer identification number could not be used by another entity to self-certify.

Qualified Opportunity Zone Businesses Would Face New Reporting Requirements

The proposed regulations would require QOZBs to furnish annual statements directly to the QOFs that hold interests in them.

These statements would be signed under penalties of perjury and attest that the business satisfied each Opportunity Zone qualification requirement, including:

The 70% tangible property standard
The 50% active gross income test
The 40% intangible property use requirement
The 5% cap on nonqualified financial property
The prohibition on "sin business" activity under Section 144(c)(6)(B)

A QOZB that fails to meet any of the above would instead attest that it is invoking its single allowable cure period and identify the month qualification was lost.

Notably, the proposal excludes trades or businesses operated directly by a QOF from this requirement.

When Are QOZB Statements Due to QOFs?

QOZB statements would be due to the QOF on or before the first day of the second month following the close of the QOZB's taxable year. For calendar-year QOZBs, that is February 1, compressing the timeline for compliance reporting ahead of fund-level filing deadlines.

New QOF Investor Statements and Form 1099-B Broker Reporting

The proposal would create two distinct reporting obligations related to OZ disposition events: a new investor-statement requirement under Section 6039K and expanded Form 1099-B reporting. Although both are tied to reportable disposition events, they serve different reporting purposes and carry separate compliance obligations.

Under the new investor-statement requirement, a QOF would furnish a written statement to each reportable investor whose QOF interest was subject to a disposition event during the applicable calendar year. The QOF would also report information about that investor and the disposition on its annual Form 8996.

Separately, the proposed regulations would expand Form 1099-B broker reporting for certain OZ disposition events, including inclusion events resulting from QOF decertification. These Form 1099-B requirements would operate alongside, rather than replace, the new investor-statement and Form 8996 reporting obligations.

Investor statements generally would include:

Acquisition and disposition dates
Investor name, address and taxpayer identification number
Original capital contribution, including cash and the fair market value (FMV) of contributed property
Units held before and after the disposition
Whether decertification caused the event

The regulations would also expand broker reporting, requiring certain Opportunity Zone disposition events, including inclusion events resulting from decertification, to be reported on Form 1099-B.

When Are QOF Investor Statements Due?

QOF investor statements generally would be due by March 1 of the calendar year following the year in which the disposition event occurred. If the QOF does not know the underlying investor’s identity because the interest is held through a record-holder broker, the statement would instead be furnished to the broker by January 15.

The proposed deadlines could create a compressed reporting window. Although QOFs would already possess much of the required investor-level information, certain disposition events involving an underlying QOZB, such as a sale or liquidation, may require information from that business. For calendar-year QOZBs, the annual QOZB statement would be due February 1, leaving QOFs approximately one month to incorporate relevant information into investor statements due March 1. QOFs may therefore need to establish earlier contractual reporting deadlines and information-sharing procedures with their QOZBs.

QOF Decertification Would Follow a Single, Exclusive Process

The proposed regulations establish what would become the exclusive process for voluntary QOF decertification.

A QOF seeking to decertify would need to:

Maintain contemporaneous written documentation of the intent to decertify, created at the time of the decision — board or partner meeting minutes, for example
Notify all investors, qualifying and non-qualifying, in writing within 15 days of the decertification date
File a final Form 8996 identifying the decertification and its effective month

Failure to maintain contemporaneous documentation would invalidate the decertification entirely. The entity would remain a QOF, subject to all subchapter Z rules including the penalty for failing the 90% investment standard.

Voluntary decertification would be an inclusion event for every QOF owner. Deferred gain that would otherwise be triggered could be deferred again if reinvested in a different QOF within 180 days, but the 10-year FMV basis step-up election would be permanently unavailable on or after the decertification date.

These provisions make it important to evaluate exit strategies and governance procedures well before taking action to terminate fund status.

Opportunity Zone Reporting Penalties Would Reach $500 Daily Under Section 6726

The proposal introduces an assessable penalty under new Section 6726 for failing to timely file a complete and correct Form 8996, including filing on paper when electronic filing is required.

Scenario	Daily Penalty	Annual Cap
Standard QOF	$500	$10,000
QOF with gross assets over $10 million at year end	$500	$50,000
Intentional disregard, standard QOF	$2,500	$50,000
Intentional disregard, large QOF	$2,500	$250,000

Daily accrual would stop on the date a complete and correct Form 8996 is filed. Reasonable cause relief would be available.

The electronic filing requirement deserves particular attention. Under the proposal, Form 8996 would count as a separate return in determining whether a filer meets the 10-return threshold that triggers mandatory electronic filing. Funds that have historically filed on paper may find themselves over that threshold without having changed anything about their operations.

Separately, investor statements and QOZB statements would become payee statements subject to Section 6722 penalties of $250 per failure, subject to inflation adjustment, up to a $3 million annual cap.

Can Taxpayers Rely on the Proposed Opportunity Zone Regulations?

The proposal does not include a reliance provision. Until final regulations are published, QOFs and QOZBs remain governed by the existing final regulations under TD 9889. Funds cannot apply the proposed rules early, and they cannot recreate historical data after the fact, which makes the interim period the practical window for building compliant data collection.

What Opportunity Zone Stakeholders Should Do Now

Although these regulations remain in proposed form, they preview how the post-OBBBA compliance environment is likely to operate. OZ investors, fund managers and developers should:

Inventory the data points the proposal would require and identify gaps against current recordkeeping
Assess whether existing fund accounting and investor tracking systems can capture census tract, employment and housing unit data
Revisit QOZB agreements and subscription documents to build in the new attestation and information flows
Model the timing pressure of a February 1 QOZB statement and a March 1 investor statement
Confirm whether the new electronic filing aggregation rule would push the fund over the mandatory e-file threshold
Evaluate whether to submit comments to Treasury before final regulations are issued

As the OZ program moves into its next phase, compliance and reporting obligations may become as consequential as the underlying tax incentives.

Your Guide Forward

Cherry Bekaert continues to monitor OZ developments affecting investors, developers and fund sponsors. If you have questions about the proposed reporting requirements, fund compliance obligations, or how these rules may affect your OZ strategy, contact your Cherry Bekaert advisor or a member of the Firm's Opportunity Zone consulting team.

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