IRS Proposes New QOF Reporting Rules Under the OBBBA

On September 11, 2026, the IRS and Treasury published a Notice of Proposed Rulemaking (REG-116506-25) that would significantly expand the compliance obligations of Qualified Opportunity Funds (QOFs) and the businesses they invest in. Driven by new statutory requirements in the One Big Beautiful Bill Act (OBBBA), these proposed regulations introduce mandatory annual information returns, investor statements, and business-level reporting — along with stiff new penalties for non-compliance.

If you hold an interest in a QOF, or if your real estate business has received QOF investment, here is what the proposed rules would mean for you.

Background: Opportunity Zones and the OBBBA

Qualified Opportunity Zones were created by the Tax Cuts and Jobs Act of 2017 to incentivize investment in low-income census tracts. Investors who roll capital gains into a QOF can defer — and in some cases permanently exclude — a portion of those gains. The program has attracted billions in real estate investment, but it has also operated with relatively limited transparency and reporting requirements.

The OBBBA, enacted July 4, 2025, changed that. Section 70421 of the OBBBA made several significant amendments to the opportunity zone rules, including:

• Establishing recurring 10-year QOZ designation cycles beginning July 1, 2026
• Adding new Code sections 6039K and 6039L requiring annual information returns and investor/business statements
• Creating a new penalty regime under Code section 6726 for QOFs that fail to comply
• Appropriating funds for IRS to publish annual public reports on QOF investment activity

The proposed regulations in REG-116506-25 implement these statutory changes and also clarify the QOF self-certification and voluntary decertification procedures.

New Annual Reporting: What QOFs Would Be Required to File

Under proposed regulations implementing new Code section 6039K, every QOF would be required to file an annual information return with the IRS. The IRS anticipates updating Form 8996 to capture the required information once these regulations are finalized. The annual return would include:

In addition to the annual return, QOFs would be required to furnish investor statements to any investor who disposed of all or part of their QOF interest during the year. These statements must include the investor's name, address, TIN, acquisition date(s), disposition date(s), and the amount of the investment disposed of.

New QOZB Reporting: Obligations for QOZ Businesses

New Code section 6039L, also added by the OBBBA, creates a parallel reporting obligation at the business level. Under the proposed regulations, an applicable Qualified Opportunity Zone Business (QOZB) would be required to furnish a written statement to each QOF that holds an interest in it. This applies to any QOZB that is:

• A trade or business of a QOF (i.e., directly operated)
• A corporation in which a QOF holds QOZ stock
• A partnership in which a QOF holds a QOZ partnership interest

The QOZB statement is designed to give QOFs the information they need to satisfy their own reporting obligations under section 6039K. The IRS will prescribe the specific content of these statements in regulations and forms guidance.

Penalties for Non-Compliance

The OBBBA introduced a new penalty regime under Code section 6726 specifically targeting QOFs that fail to file complete and correct annual returns. The proposed regulations clarify how these penalties apply:

Penalty amounts are subject to cost-of-living adjustments. Importantly, the reasonable cause waiver under Code section 6724 applies — a QOF that can demonstrate the failure was due to reasonable cause and not willful neglect may avoid the penalty.

Separately, failures to furnish investor statements (section 6039K) and QOZB statements (section 6039L) are treated as failures to furnish payee statements under Code section 6722, carrying a penalty of $250 per statement (up to $3 million annually), with increased penalties for intentional disregard.

Clarified Self-Certification and Decertification Rules

The proposed regulations also address longstanding ambiguities in the QOF self-certification process. Under current rules, an eligible entity self-certifies as a QOF by filing Form 8996 with its tax return. The proposed regulations would clarify:

• Inadvertent certification revocation: A QOF that inadvertently certified — for example, due to a clerical error or misunderstanding of the requirements — would have a formal procedure to revoke that certification without triggering an inclusion event for investors.
• Voluntary decertification: The proposed rules would provide a clear, formal procedure for a QOF to voluntarily wind down its QOF status, building on the existing regulatory framework and the 2021 correction to TD 9889.
• Decertification as inclusion event: The regulations confirm that decertification remains an inclusion event under § 1.1400Z2(b)-1(c)(15), triggering recognition of deferred gain for investors.

Annual Public Reports on QOF Activity

The OBBBA also directs the IRS to publish annual public reports on QOF investment activity, funded through September 30, 2028. Beginning with the first report after enactment, these reports will include aggregate data on total dollars invested in opportunity zones, the percentage of eligible census tracts receiving investment, employment figures, residential units created, and investment sector breakdowns. Starting in 2031, the reports will include longitudinal economic impact data — unemployment rates, poverty rates, median income, and demographic shifts — for designated QOZ census tracts. This transparency push is significant: it signals that Congress and Treasury intend to evaluate whether the opportunity zone program is actually delivering community benefits.

What This Means for Real Estate Investors

If you are currently invested in a QOF — or if your real estate entity has received QOF capital — these proposed rules have direct implications:

• QOF managers and sponsors should begin assessing their systems for tracking investor information, disposition events, and QOZB data. The annual return and investor statement requirements will add meaningful compliance overhead.
• QOZ businesses that have received QOF investment will need to establish processes to furnish QOZB statements to their QOF investors — a new obligation that did not exist before the OBBBA.
• Individual investors who disposed of QOF interests in 2026 or later should expect to receive investor statements from their QOF, and should ensure their tax filings reflect the correct gain recognition and basis information.
• Penalty exposure is real. At $500/day with a $10,000–$50,000 annual cap, a QOF that misses its filing deadline faces meaningful penalties — especially larger funds where the cap rises to $50,000 per return.

These are proposed regulations — they are not yet final. The comment period provides an opportunity for QOF sponsors, investors, and advisors to weigh in on the implementation details. We will continue to monitor the rulemaking and update clients as the regulations progress toward finalization.