Economic Opportunity for Distressed Communities Act

Bill Number

H.R. 2292

Origin Chamber

House

Congress

119th Congress, Session 1

Policy Area

Taxation

Status

Introduced

Latest Action

2025-03-24: Referred to the House Committee on Ways and Means.

Last Updated

2025-05-09T15:01:15Z

AI-Generated Summary

Purpose of the Legislation

This bill, titled the "Economic Opportunity for Distressed Communities Act," aims to encourage investment in environmentally contaminated areas—specifically brownfield sites (abandoned or underused properties with potential pollution) and Superfund sites (high-priority hazardous waste locations under federal cleanup laws)—by offering tax breaks on capital gains. It seeks to promote economic development and cleanup in these distressed areas through incentives similar to existing "Opportunity Zone" programs but focused on environmental remediation.

Key Provisions

• Tax Deferral for Capital Gains Investments: Taxpayers can elect to defer taxes on capital gains from selling or exchanging property (with an unrelated party) by investing the gains in a "qualified distressed opportunity fund" within 180 days. The deferred amount is excluded from gross income in the year of the sale but must be recognized later.
• Timing of Gain Recognition:
• Gains are included in income on the earlier of: (1) when the investment is sold or exchanged, or (2) December 31, 2033.
• Initial basis in the investment is zero, but it increases by:
• 10% of the deferred gain after 5 years of holding.
• An additional 5% (total 15% reduction in taxable gain) after 7 years.
• After 10 years, if elected, the basis steps up to the property's fair market value (FMV) upon sale, potentially eliminating tax on post-investment appreciation.
• Qualified Distressed Opportunity Funds:
• These are corporations or partnerships that must hold at least 90% of their assets (measured twice yearly) in "qualified distressed opportunity zone property."
• Eligible property includes stock, partnership interests, or tangible business assets acquired after December 31, 2025, used in a "qualified distressed opportunity zone business" (a trade or business meeting specific income, employment, and location tests, excluding certain "sin" businesses like liquor stores or gambling).
• Investments must start "original use" in the zone or involve "substantial improvement" (additions to basis exceeding the original adjusted basis over 30 months).
• Zones are defined as brownfield sites (per the Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA) or facilities on the National Priorities List (Superfund sites).
• Limitations and Rules:
• Elections cannot be made after December 31, 2033, or if a prior election applies to the same gain.
• Mixed-fund investments are treated separately (only deferred gains qualify for benefits).
• Related parties (with 20% or more ownership) face restrictions on acquisitions.
• Funds failing the 90% asset test pay monthly penalties based on the shortfall and the IRS underpayment interest rate; partnerships pass penalties to partners proportionally (with a "reasonable cause" exception).
• Administration: The IRS Secretary must issue regulations for fund certification, reinvestment rules, and anti-abuse measures. Decedents' estates follow special income inclusion rules.

Significant Changes to Existing Law

• Adds a new Section 1400Z-3 to Subchapter Z of the Internal Revenue Code (IRC), building on the 2017 Tax Cuts and Jobs Act's Opportunity Zone provisions (Sections 1400Z-1 and 1400Z-2) but narrowing the focus to brownfields and Superfund sites instead of broader low-income areas.
• Introduces targeted definitions for "distressed opportunity zones" tied to environmental laws (CERCLA), unlike the geographic census-based zones in current law.
• Modifies basis step-up rules slightly (e.g., 15% total reduction after 7 years vs. 15% after 5 and 10% after 7 in existing Opportunity Zones) and adds penalties for non-compliance, which were not as explicitly detailed before.
• Effective for investments after enactment; no retroactivity.

Potential Impacts

• On Government Agencies: The IRS will need to develop new certification processes and enforce penalties, increasing administrative workload. The Environmental Protection Agency (EPA) may indirectly benefit from spurred cleanups at Superfund and brownfield sites, potentially reducing long-term federal remediation costs.
• On Citizens and Businesses: Investors with capital gains (e.g., from stocks or real estate) gain tax deferral and reduction incentives, encouraging reinvestment in contaminated areas. Distressed communities near these sites could see job creation, property value increases, and economic revitalization through business development and environmental cleanup.
• On International Relations: Minimal direct impact, as the bill focuses on domestic U.S. sites; however, it could attract foreign investment in U.S. environmental projects without altering trade or foreign policy.
• Broader effects include faster remediation of hazardous sites, reducing public health risks from pollution, but success depends on investor participation and fund availability.

Main Stakeholders Affected

• Taxpayers and Investors: Individuals or entities with capital gains seeking tax deferral, particularly high-net-worth individuals or funds interested in real estate and business development.
• Businesses and Funds: Corporations, partnerships, and investment vehicles qualifying as distressed opportunity funds, which must comply with asset and business tests to access incentives.
• Local Communities and Governments: Residents and municipalities in areas with brownfields or Superfund sites, who stand to gain from economic opportunities and cleaner environments.
• Environmental and Regulatory Bodies: EPA and state environmental agencies, as increased private investment could complement public cleanup efforts under CERCLA.
• Federal Government: Primarily the IRS for tax enforcement and Treasury for policy implementation.

Notable Legal, Constitutional, or Political Implications

• Legal: Aligns with existing IRC structures for tax incentives, reducing risks of challenges under equal protection or uniformity clauses (as benefits are tied to objective environmental criteria). References CERCLA ensure consistency with federal environmental law, but IRS regulations will be key to preventing abuse (e.g., sham investments). No new liabilities created, but penalties could lead to disputes over "reasonable cause."
• Constitutional: Appears neutral; promotes general welfare by addressing environmental and economic distress without favoring specific groups unduly, avoiding First Amendment or due process issues.
• Political: Represents a bipartisan push (introduced by Rep. Edwards and Rep. Crockett) for targeted economic policy in underserved areas, potentially appealing to environmentalists and urban developers. It extends Opportunity Zone concepts amid criticisms of the original program's benefits to wealthy investors, possibly sparking debates on equity and effectiveness in Congress or during IRS rulemaking. Expiration in 2033 provides a sunset for evaluation.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. Edwards, Chuck [R-NC-11]

Cosponsors (1)

Rep. Crockett, Jasmine [D-TX-30]

Recent Actions

• 2025-03-24: Referred to the House Committee on Ways and Means.
• 2025-03-24: Introduced in House
• 2025-03-24: Introduced in House

Bill Versions

• Economic Opportunity for Distressed Communities Act — issued 2025-03-24 — PDF (15 pages)