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Baby season vs. busy season

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Having a second child wasn’t even in the cards for Erica Goode until she knew she was going to quit her accounting job.

Goode started her career at the Big Four before moving to corporate accounting. Instead of a busy tax season, she had a busy audit season, so when she got pregnant with her first kid she requested a part-time schedule for when she returned from maternity leave. 

“I can do the math,” she said. “I realized that my kid was going to spend more of their waking hours with their daycare provider than they would with me, and I just wasn’t OK with that.” 

Her request was approved after some back-and-forth (flexible work schedules were not something her company at the time was accustomed to offering pre-pandemic), and Goode worked 32 hours a week, four days a week, with Fridays off to spend with her newborn. But not long after returning, she was offered a promotion to a director role that didn’t allow for a reduced schedule. Still, she accepted. 

Then she hit rock bottom. Raising an infant while in her new position left her burned out and depressed: “It was probably the lowest point in my career. It was awful. I didn’t feel good at anything.” 

“I always felt like I was dragging my kid behind me through work,” she said. “I couldn’t even fathom having a second child because I felt like I was not excelling at either being an employee or being a mother, and I like to do things excellently.”

“One day, my husband, who’s also a CPA, brought up the idea, ‘If you quit your job, could we have another kid?'” she recalled. “And it wasn’t until the thought of quitting my job that growing our family felt like something we could actually do.”

So that’s what they did. Goode took a demotion to her previous role, she and her husband worked out their finances, she had their second child and worked a reduced schedule for a year before handing in her resignation to be a full-time, stay-at-home mom. 

After two years, she started her own practice. Now, living in Idaho, she works 15 hours a week — Mondays, Tuesdays and Thursdays while her kids are in school — offering fractional CFO, bookkeeping and tax planning services to 10 clients. 

Not alone
Goode is one of many accountants whose plans to start a family were put on hold or rescheduled to accommodate the profession and its busy seasons. 

In June, Logan Graf, a CPA and firm owner based in Texas, made a post on social media that spotlighted this trend: “This is how toxic public accounting is: We feel the need to time the birth of our children around busy seasons. I’m guilty of this. It’s messed up. I’m not letting busy season dictate when I can have another child anymore.”

Graf wrote the post after his wife had a miscarriage as they were trying for their third child, which they planned to have in the summer following tax season. 

“I think we need to recognize that this is toxic, and the way we’re thinking about it is toxic,” Graf said. “We can choose to think about it differently without virtue signaling and try to create more boundaries for ourselves and ultimately our clients and our employers.”

His post struck a nerve. Over 100 accounting professionals responded across Twitter and LinkedIn shared similar stories of how they had also planned their pregnancies around busy season deadlines, how they had returned to work sooner than they wished, how they were fired or penalized by employers for taking time off for their children’s births, how finding work-life balance in the accounting profession can feel near-impossible at times. 

Goode was one of those respondents. She wasn’t surprised to see how many had experienced similar pressures and done the same as her.

“Collectively, we do a really good job of faking it and everybody looks like they’re doing fine, and I was the same. People would tell you that I looked fine, but I was really crumbling on the inside,” she said. “It was so relieving to feel like you’re not alone. But you also can’t openly talk about it because who are you going to talk about it with? The people in your work who either pay you or rely on you as a peer?”

“It’s something that everybody feels and few people talk about,” she said.

The problem
Planning personal milestones around your work schedule is often simply the most practical and logical decision; the accounting profession is by no means unusual in that regard. But this is the crux of the problem: Accountants are making the intimate, personal choice of pregnancy around antiquated aspects of the profession that experts say need to change anyway. 

Of the accountants who “timed it right,” many say they returned to the office sooner than they wished, or they worked remotely while on leave, because they feared falling behind in their career progression.

For example, after Jody Padar, from Wisconsin, had her first child, she returned to work part-time during the day and went to school for her master’s degree in tax at night: “I felt like if I stayed in this part-time mommy track I was going to lose out. I felt like I wasn’t going to be given the same opportunities.”

But despite any amount of planning, babies will come when they will. Two years later, Padar gave birth to her second child a month and a half prematurely. He stayed in the neonatal intensive care unity for six weeks, and she took another six weeks to care for him at home. But when she returned to the office in mid-June, she was fired immediately. She founded her own firm when her daughter was six and her son was four. She later sold that firm in 2020 and is now a speaker and author known as “The Radical CPA.”

Padar isn’t hesitant to admit that the chip on her shoulder is part of the reason why she — and many other women, she believes — is driven to innovation: “When you’re faced with all of that, you work 10X to get to the same place.”

For Sharon Perry, it took a cancer diagnosis to change her perspective on the profession. Perry, who lives in Canada, worked during tax season through all three of her maternity leaves. She changed firms with each pregnancy. After having her first child, she was put on probation when she returned to work. After her second, she was denied her annual raise. After her third, she lost certain work flexibilities that she had previously established. 

She left her last firm to start her own when her youngest was 15 months old. Then she got cancer. Bedridden for six months, she was forced to downsize her firm and let go of roughly three-quarters of her 1,000 clients. Now nearly a dozen surgeries later, she’s working 25 hours a week and making more now with her smaller client base than she did before. 

Perry’s theory on it all? “Firms need to start recognizing that their people come first,” she said. “I think maybe the top have lost perspective on life. Or maybe they’re out golfing and they’re forgetting the grueling hours that they put in, which was at a different time in society. The times have changed. Quality is more productive than quantity.”

The causes
The pressure to avoid having children during busy season reaches beyond CPAs. Rachel Anevski, founder of a human resources consulting agency in New Jersey, felt it when she was working at an accounting firm as an HR director. She planned to have her two children be born in May and August before the start of the second wave of tax returns. 

It’s ingrained in the profession, she said: “I knew over the years that every baby was born outside of tax season. No September-through-October babies, and no January-through-April babies.”

“No one ever said, ‘We encourage you to have babies where it’s not interrupting business,'” she clarified. “It was that your performance was based upon how many hours you put in. Everything is hour-driven.”

Anevski said the problem is multifaceted. First, the hours-based model for high performance is to blame: “Somebody that can take on more work in the same hours as someone that takes on longer work — you’re not comparing apples to apples all the time, because every client possesses their own specific issues. There are too many variables. You also can’t say that someone who works more hours is the more productive one because sometimes the person who works more hours is just slower.”

The profession’s staffing model needs reworking. “There’s a lack of succession planning, cross-training and development of people. It’s like having a baseball team and you only have one pitcher and no backup. That’s how a lot of these firms manage their clientele,” Anevski said.

It was the profession’s weakness in cross-training staff that Terra Scharf, a bookkeeper from Arkansas, felt when she had her firstborn. She tried to plan the birth for after tax season, but the baby arrived early on April 18. She stayed with her child in the NICU for two weeks, and clients came to the hospital to meet with her because there was simply no one else to do the work. With the birth of her second child, she was back in the office after only two weeks.

Heather Chappelle, director of HR at BMSS, an Accounting Today Best Firm to Work for in Alabama, highlighted another root of the problem: The leadership of accounting firms does not always practice what they preach.

“It’s one thing to say you can take off early and go to every basketball game that your son has, but when none of the partners do it, it makes you feel like you can’t actually do it,” Chappelle said. “The younger staff are definitely looking and watching, and when they see all the senior managers and partners sitting in their office for 60 hours a week and missing their kids’ stuff, it makes it hard to feel like you can take advantage of whatever the firm is doing.” 

That was the case for Isaac St. John from Michigan, while working at a Top 15 firm. “Even though the HR policies are there, people aren’t taking it because it’s perceived that it’ll take away from your ability to progress quickly,” he said. 

St. John was on the path to partner when he started his family. Both his children were born in February, and both years St. John apologized to his team partner for what felt like leaving them in the lurch.

“I started to realize that no one was really doing family life like I wanted to,” he said — so he left to start his own firm. 

Aaron Krafft from Indiana calls it “an unwritten rule to not take time off.” It dawned on him while working at the Big Four as a newlywed when he left work to have Valentine’s Day dinner with his wife. Afterward, he returned to the office to make up the hours but was reproached for having left at all.  

“I went through three busy seasons there, and it was blatantly obvious to me that the way I wanted to raise a family was just not going to be possible there,” he said. So Krafft left and started his own firm. He’s two for two on summer births and hates that tax season is the reason why. 

Similarly, Logan Allec from California married while working at a Big Four firm. It wasn’t easy, and that was enough for him to leave and start his own firm before having kids. 

“If I can’t even hack it with just being married, how am I going to hack it with kids? It’s just a recipe for divorce,” Allec said. “And I’ll probably offend some people out there, but at least for me, I could not see how I could be a good husband and father while working those kinds of hours.”

The repercussions
For firms, the consequence of this trend is losing out on innovative talent amid an ongoing labor shortage. Many accountants cited the need for more flexibility to start a family as a reason they founded their own firms. But the impact of the work pressures on the individual accountant can be profound too. 

Jackie Meyer had worked in the Big Four and then at a small firm before starting her own practice in Texas. When she started having kids (both planned and born in December), she was diagnosed with chronic fatigue, a medical condition that causes long-term extreme exhaustion and impacts concentration and short-term memory.

Though the causes of chronic fatigue aren’t well understood, Meyer says the start of her symptoms coincided after the birth of her first child when she was skipping lunches and working through the nights because it was the only time she could work undisturbed. 

“These are basic things that I think accountants tend to overlook all the time because they’re always prioritizing the work,” she said. 

Meyer said these habits were instilled into her. While starting out in the Big Four, she remembers once getting chewed out by a partner for taking a day off during the slow season for Lasik eye surgery, and “constantly competing with other staff members on who would stay the latest and who would show up the earliest.”

The solution
Making resources accessible is the first part of a multistep solution. Wiss, another Accounting Today Best Firm to Work For, based in New Jersey, is taking steps to do this: It uses software called LeaveLogic that helps employees confidentially plan their leaves by pulling together federal and state laws along with the company’s supplemental programming. 

The push to install the system came from its chief people officer Lauren Dunn’s own experience with pregnancy and understanding the feeling of not being ready to tell employers or HR yet, but still wanting to plan ahead.

Building a strong operations or HR department so accountants have support beyond their managers and partners is crucial too. “Ultimately, it’s about being transparent and being human, and communicating that,” Dunn said. 

Many firms have programs for new parents or people planning to start families, but getting accountants to actually utilize those programs and take the time off they want is the real challenge. That requires a greater change at the firm-wide level.

For one, the measure of success needs to shift away from the number of hours an accountant can clock. Wiss, for instance, has no minimum hour requirements, and redesigned its annual performance reviews around alternative measures of success such as collaboration, conscientiousness, attitude, professionalism, communication, IT and computer skills, and problem-solving. When looking to promote, in addition to reviews, they consider factors such as client relationships, business development, financial performance, strategic alignment and leadership potential.

Firm leadership must also play an active role in setting the tone. Wendy Edgar, Americas HR director at EY, points to the Big Four firm’s new global chief executive, Janet Truncale, as an example: “When you have leaders at the very top that also did this — Janet has had her children and done the work — it builds inside the culture. I don’t think it’s as hard for people to say, ‘I’m taking time off. I’m going to be with my family. I’m going to take my full parental leave,’ because they’re working for people that did that too and that was important to them.”

“The more companies that do it, the more it becomes societal,” Edgar added. “If everybody did more with time off, if everybody did more with wellbeing, then the work environment is stronger.” 

The final solution, and perhaps the tallest of orders, is mitigating the slam of busy season by managing client load and client expectations, and establishing processes to distribute the work of the crunch periods throughout the entire year. 

Until then, the pressures on individual accountants need to be alleviated to enable a sustainable work-life balance. This can be achieved by improving the staffing model “by cross-training, by recognizing that you need teams to understand certain clients, and then preparing for it and building strong boundaries,” Anevski said. 

But the hard truth is that some firms simply lack the bandwidth to install sweeping change, and the jury is still out on how quickly — or rather, how slowly — the ones that do have the bandwidth are doing it. 

Goode said that she sees change happening, but not quickly enough: “I don’t think they’re the Big Four yet. I don’t think they’re middle market. I think they’re smaller firms that are doing it right and they will slowly change the path.”

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Tax Fraud Blotter: Big plans

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What becomes of the broken-hearted; the earth moved; Kreative accounting; and other highlights of recent tax cases.

Providence, Rhode Island: Four Florida residents have been convicted and sentenced for what authorities called one of the largest schemes to defraud CARES Act programs.

The defendants defrauded various federally funded programs of more than $4.8 million, and each of the defendants pleaded guilty to charges of conspiracy to commit wire fraud and aggravated identity theft. The schemes involved obtaining and using stolen ID information to submit fraudulent applications to multiple state unemployment agencies, including the Rhode Island Department of Labor and Training, and to submit fraudulent Economic Injury Disaster Loans and Paycheck Protection Program loan applications. The defendants also submitted fraudulent applications in the names of other persons to federal and state agencies to obtain tax refunds, stimulus payments, and disaster relief funds and loans.

The scheme involved using the stolen information to open bank accounts to receive, deposit and transfer fraudulently obtained government benefits and payments and to obtain debit cards to withdraw the money.

Sentenced were Florida residents Tony Mertile, of Miramar, identified in court documents as the leader of the conspiracy, to six years in prison; Junior Mertile, of Pembroke Pines, sentenced to 54 months; Allen Bien-Aime, of Lehigh Acres, to four years; and James Legerme, of Sunrise, to four years. All four were also sentenced to three years of supervised release to follow their prison terms.

The government moved to forfeit a total of $4,857,191, or $1,214,294.75 apiece, proceeds of the conspiracy. The defendants have also forfeited hundreds of thousands of dollars’ worth of Rolex watches and assorted jewelry and more than $1.1 million in cash. Each defendant is also liable for $4,456,927.36 in restitution to defrauded agencies and financial intuitions.

Raleigh, North Carolina: Michon Griffin, 46, who engaged as a money mule (a.k.a. middleman) in an international romance scheme, has been sentenced to two years in prison and three years of supervised release after pleading guilty to conspiracy to commit money laundering and to making false statements on her 1040.

Between 2021 to 2023, Griffin received more than $2 million from the scheme that she deposited into fictitious bank accounts that she controlled. She converted the money to virtual currency and wired the funds to overseas accounts controlled by her co-conspirators in Nigeria.

Griffin received some $300,000 from the romance fraud, which she did not report as income on her 1040 for 2021.

She was also ordered to pay $109,119 in restitution to the IRS.

Las Vegas: Tax preparer Keisy Altagracia Sosa has pleaded guilty to preparing false income tax returns.

Sosa has operated the tax prep business National Tax Service, and from 2016 to 2021 prepared and filed false federal returns for clients. These returns included falsely claimed dependents, and fictitious Schedule A and Schedule C expenses such as sales taxes paid and unreimbursed employee expenses.

Sosa continued to prepare false returns even after the IRS notified her that her returns appeared inaccurate and informed her that she may not be meeting due diligence requirements. 

Sosa caused at least $550,000 in tax loss to the IRS.

Sentencing is June 11. She faces up to three years in prison, as well as a period of supervised release and monetary penalties. 

Hands-in-jail-Blotter

Elk Mound, Wisconsin: Business owner Deena M. Hintz, of Eau Claire, Wisconsin, has been sentenced to a year in prison for failure to pay employment taxes.

Hintz, who pleaded guilty in December, owned and operated Jade Excavation and Trucking for nearly 10 years and at times had up to 15 employees. From 2017 to 2021, Hintz deducted more than $400,000 in federal employment taxes from employees’ pay and, instead of paying those taxes to the government, kept the money.

She was also ordered to pay $482,185.46 in restitution.

Littleton, Colorado: Tax preparer Thuan Bui, 60, has been sentenced to three years in prison and a year of supervised release and ordered to pay a $50,000 fine after pleading guilty to one count of aiding or assisting in preparation of false documents.

From about 2016 to 2021, Bui operated a tax prep business under several names, lying to clients that he was a CPA. On hundreds of returns, Bui overstated or fabricated expenses on Schedules C.

Philadelphia: Resident Joseph LaForte has been sentenced to 15 and a half years in prison for defrauding investors, conspiring to defraud the IRS, filing false tax returns, employment tax fraud, wire fraud, obstruction and other charges.

LaForte defrauded investors using a fraudulent investment vehicle known as Par Funding. Along with conspirators, he caused a loss to investors of more than $288 million.

He and conspirators diverted some $20 million in taxable income from Par Funding to another entity controlled by LaForte and nominally owned by another, then filed returns that did not report this income; he also received more than $9 million in kickbacks from a customer of Par Funding and did not report this income to the IRS. He paid off-the-books, cash wages to some employees, failing to report these wages to the IRS and not paying employment taxes.

The federal tax loss exceeds $8 million. He also caused $1.6 million in state tax loss to the Pennsylvania Department of Revenue by falsely reporting that he and his wife were residents of Florida from 2013 through 2019 when they lived in Pennsylvania.

Hampton Roads, Virginia: Two area residents have pleaded guilty to their roles in a refund scheme involving pandemic relief credits.

Between October 2022 and May 2023, Kendra Michelle Eley of Norfolk, Virginia, filed eight 941s for Kreative Designs by Kendra LLC using the EIN assigned to another company, Kendra Cleans Maid Service. These forms covered four tax periods in 2020 and four in 2021. On each of the forms, Eley falsely reported wages paid and federal tax withholdings for 18 purported employees, knowing there were no such employees.

For the four forms filed for 2021, Eley claimed false sick and family leave credits and Employee Retention Credits, totaling some $975,000. In December 2022, the IRS issued two refund checks payable to the cleaning company totaling $649,050.

That same month, Eley and Rejohn Isaiah Whitehead, of Portsmouth, Virginia, opened a business checking account in the name of Kendra Cleans; signatories on the account were Eley and Whitehead. The two falsely represented the nature and extent of the business, including that it had 16 employees and that the average pay of each was $2,000. Eley funded the account by depositing one of the refund checks in the amount of $389,640. In January 2023, Eley wrote Whitehead two checks from the account totaling $60,000.

Whitehead’s sentencing is June 26 and Eley’s is July 9. They each face up to 10 years in prison.

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Accountants tackle tariff increases after ‘Liberation Day’

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President Trump’s imposition of steep tariffs on countries around the world is likely to drive demand for accounting experts and consultants to help companies adjust and forecast the ever-changing percentages and terms.

On April 2, which Trump dubbed “Liberation Day,” he announced a raft of reciprocal tariffs of varying percentages on trading partners across the globe and signed an executive order to put the import taxes into effect. Finance executives have been gaming out how to respond to the potential tariffs that Trump has been threatening to impose since before he was re-elected, far exceeding those he actually levied during his first term.

“A lot of CFOs are thinking they are going to pass along the tariffs to their customer base, and about another half are thinking we’re going to absorb it and be more creative in other ways we can save money inside our company,” said Tom Hood, executive vice president for business engagement and growth at the AICPA & CIMA. 

The AICPA & CIMA’s most recent quarterly economic outlook survey in early March polled a group of business executives who are also CPAs and found that 85% said tariffs were creating uncertainty in their business plans, while 14% of the business execs saw potential positive impacts for their business from the prospect of tariffs as increased cost of competing products would benefit them, and 59% saw potential negative impacts to their businesses from the prospect of tariffs. This in turn has led to a dimming outlook on the economy among the executives polled.

“CFOs in our community are telling us that, effectively, they’re looking at this a lot like what happened over COVID with a big disruption out of nowhere,” said Hood. “This one, they could see it coming. But the point is they had to immediately pivot into forecasting and projection with basically forward-looking financial analysis to help their companies, CEOs, etc., plan for what could be coming next. This is true for firms who are advising clients. They might be hired to do the planning in an outsourced way, if the company doesn’t have the finance talent inside to do that.”

The tariffs are not set in stone, and other countries are likely to continue to negotiate them with the U.S., as Canada and Mexico have been doing in recent months.

“The one thing that I think we can all count on is a certain amount of uncertainty in this process, at least for the next several months,” said Charles Clevenger, a principal at UHY Consulting who specializes in supply chain and procurement strategy. “It’s hard to tell if it’s going to go beyond that or not, but it certainly feels that way.”

Accountants will need to make sure their companies and clients stay compliant with whatever conditions are imposed by the U.S. and its trading partners. “This is a more complex tariff environment than most companies have experienced in the past, or that seems to be where we’re headed, and so ensuring compliance is really important,” said Clevenger.

Big Four firms are advising caution among their clients.

“Our point of view is we’re advising all of our clients to do a few things right out of the gate,” said Martin Fiore, EY Americas deputy vice chair of tax, during a webinar Thursday. “Model and analyze the trade flows. Look at your supply chain structures. Understand those and execute scenario planning on supply chain structures that could evolve in new environments. That is really important: the ability for companies to address the questions they’re getting from their C-suite, from their stakeholders, is critical. Every company is in a different spot according to the discussions we’ve had. We just are really emphasizing, with all the uncertainty, know your structure, know your position, have modeling put in place, so as we go through the next rounds of discussions over many months, you have an understanding of your structure.”

Scenario planning will be especially important amid all the unpredictability for companies large and small. “They’re going to be looking at all the different countries they might have supply chains in,” said Hood. “And then even the smaller midsized companies that might not be big, giant global companies, they might be supplying things to a big global company, and if they’re in part of that supply chain, they’ll be impacted through this whole cycle as well.”

Accountants will have to factor the extra tariffs and import taxes into their costs and help their clients decide whether to pass on the costs to customers, while also keeping an eye out for pricing among their competitors and suppliers.

“It’s just like accounting for any goods that you’re purchasing,” said Hood. “They often have tariffs and taxes built into them at different levels. I think the difference is these could be bigger and they could be more uncertain, because we’re not even sure they’re going to stick until you see the response by the other countries and the way this is absorbed through the market. I think we’re going through this period of deeper uncertainty. Even though they’re announced, we know that the administration has a tendency to negotiate, so I’m sure we’re going to see this thing evolve, probably in the next 30 days or whatever. The other thing our CFOs are reminding us of is that the stock market is not the economy.”

Amid the market fluctuations, companies and their accountants will need to watch closely as the rules and tariff rates fluctuate and ensure they are complying with the trading rules. “Do we have country of origin specified properly?” said Clevenger. “Are we completing the right paperwork? When there are questions, are we being responsive? Are we close to our broker? Are we monitoring our customs entries and all the basic things that we need to do? That’s more important now than it has been in the past because of this increase in complexity.”

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How to use opportunity zone tax credits in the ‘Heartland’

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A tax credit for investments in low-income areas could spur long-term job creation in overlooked parts of the country — with the right changes to its rules, according to a new book.

The capital gains deferral and exclusions available through the “opportunity zones” credit represent one of the few areas of the Tax Cuts and Jobs Act of 2017 that drew support from both Republicans and Democrats. The impact of the credit, though, has proven murky in terms of boosting jobs and economic growth in the roughly 7,800 Census tracts qualifying based on their rates of poverty or median family incomes. 

Altering the criteria to focus the investments on “less traditional real estate and more innovation infrastructure” and ensuring they reach more places outside of New York and California could “refine the where and the what” of the credit, said Nicholas Lalla, the author of “Reinventing the Heartland: How One City’s Inclusive Approach to Innovation and Growth Can Revive the American Dream” (Harper Horizon). A senior fellow at an economic think tank called Heartland Forward and the founder of Tulsa Innovation Labs, Lalla launched the book last month. For financial advisors and their clients, the key takeaway from the book stems from “taking a civic minded view of investment” in untapped markets across the country, he said in an interview.

“I don’t want to sound naive. I know that investors leveraging opportunity zones want to make money and reduce their tax liability, but I would encourage them to do a few additional things,” Lalla said. “There are communities that need investment, that need regional and national partners to support them, and their participation can pay dividends.”

READ MORE: Unlock opportunities for tax incentives in opportunity zones

A call to action

In the book, Lalla writes about how the Innovation Labs received $200 million in fundraising through public and private investments for projects like a startup unmanned aerial vehicle testing site in the Osage Nation called the Skyway36 Droneport and Technology Innovation Center. Such collaborations carry special relevance in an area like Tulsa, Oklahoma, which has a history marked by the wealth ramifications of the Tulsa Race Massacre of 1921 and the government’s forced relocation of Native American tribes in the Trail of Tears, Lalla notes.

“This book is a call to action for the United States to address one of society’s defining challenges: expanding opportunity by harnessing the tech industry and ensuring gains spread across demographics and geographies,” he writes. “The middle matters, the center must hold, and Heartland cities need to reinvent themselves to thrive in the innovation age. That enormous project starts at the local level, through place-based economic development, which can make an impact far faster than changing the patterns of financial markets or corporate behavior. And inclusive growth in tech must start with the reinvention of Heartland cities. That requires cities — civic ecosystems, not merely municipal governments — to undertake two changes in parallel. The first is transitioning their legacy economies to tech-based ones, and the second is shifting from a growth mindset to an inclusive-growth mindset. To accomplish both admittedly ambitious endeavors, cities must challenge local economic development orthodoxy and readjust their entire civic ecosystems for this generational project.”

READ MORE: Relief granted to opportunity zone investors

Researching the shortcomings

And that’s where an “opportunity zones 2.0” program could play an important role in supporting local tech startups, turning midsized cities into innovation engines and collaborating with philanthropic organizations or the federal, state and local governments, according to Lalla. 

In the first three years of the credit alone, investors poured $48 billion in assets into the “qualified opportunity funds” that get the deferral and exclusions for certain capital gains, according to a 2023 study by the Treasury Department. However, those assets flowed disproportionately to large metropolitan areas: Almost 86% of the designated Census tracts were in cities, and 95% of the ones receiving investments were in a sizable metropolis. 

Other research suggested that opportunity-zone investments in metropolitan areas generated a 3% to 4.5% jump in employment, compared to a flat rate in rural places, according to an analysis by the nonpartisan, nonprofit Tax Foundation.

“It creates a strong incentive for taxpayers to make investments that will appreciate greatly in market value,” Tax Foundation President Emeritus Scott Hodge wrote in the analysis, “Opportunity Zones ‘Make a Good Return Greater,’ but Not for Poor Residents” shortly after the Treasury study. 

“This may be the fatal flaw in opportunity zones,” he wrote. “It explains why most of the investments have been in real estate — which tends to appreciate faster than other investments — and in Census tracts that were already improving before being designated as opportunity zones.”

So far, three other research studies have concluded that the investments made little to no impact on commercial development, no clear marks on housing prices, employment and business formation and a notable boost in multifamily and other residential property, according to a presentation last September at a Brookings Institution event by Naomi Feldman, an associate professor of economics at the Hebrew University of Jerusalem who has studied opportunity zones. 

The credit “deviates a lot from previous policies” that were much more prescriptive, Feldman said.

“It didn’t want the government to have a lot of oversay over what was going on, where the investment was going, the type of investments and things like that,” she said. “It offered uncapped tax incentives for private individual investors to invest unrealized capital gains. So this was the big innovation of OZs. It was taking the stock of unrealized capital gains that wealthy individuals, or even less wealthy individuals, had sitting, and they could roll it over into these funds that could then be invested in these opportunity zones. And there were a lot of tax breaks that came with that.”

READ MORE: 3 oil and gas investments that bring big tax savings

A ‘place-based’ strategy

The shifts that Lalla is calling for in the policy “could either be narrowing criteria for what qualifies as an opportunity zone or creating force multipliers that further incentivize investments in more places,” he said. In other words, investors may consider ideas for, say, semiconductor plants, workforce training facilities or data centers across the Midwest and in rural areas throughout the country rather than trying to build more luxury residential properties in New York and Los Angeles.

While President Donald Trump has certainly favored that type of economic development over his career in real estate, entertainment and politics, those properties could tap into other tax incentives. And a refreshed approach to opportunity zones could speak to the “real innovation and talent potential in midsized cities throughout the Heartland,” enabling a policy that experts like Lalla describe as “place-based,” he said. With any policies that mention the words “diversity, equity and inclusion” in the slightest under threat during the second Trump administration, that location-based lens to inclusion remains an area of bipartisan agreement, according to Lalla.

“We can’t have cities across the country isolated from tech and innovation,” he said. “When you take a geographic lens to economic inclusion, to economic mobility, to economic prosperity, you are including communities like Tulsa, Oklahoma. You’re including communities throughout Appalachia, throughout the Midwest that have been isolated over the past 20 years.”

READ MORE: Can ESG come back from the dead?

Hope for the future?

In the book, Lalla compares the similar goals of opportunity zones to those of earlier policies under President Joe Biden’s administration like the Inflation Reduction Act, the CHIPS and Science Act, the American Rescue Plan and the Infrastructure Investment and Jobs Act.

“Together, these bills provided hundreds of millions of dollars in grant money for a more diverse group of cities and regions to invest in innovation infrastructure and ecosystems,” Lalla writes. “Although it will take years for these investments to bear fruit, they mark an encouraging change in federal economic development policy. I am cautiously optimistic that the incoming Trump administration will continue this trend, which has disproportionately helped the Heartland. For example, Trump’s opportunity zone program in his first term, which offered tax incentives to invest in distressed parts of the country, should be adapted and scaled to support innovation ecosystems in the Heartland. For the first time in generations, the government is taking a place-based approach to economic development, intentionally seeking to fund projects in communities historically disconnected from the nation’s innovation system and in essential industries. They’re doing so through a decidedly regional approach.”

Advisors and clients thinking together about aligning investment portfolios to their principles and local economies can get involved with those efforts — regardless of their political views, Lalla said.

“This really is a bipartisan issue. Opportunity zones won wide bipartisan approval,” he said. “Heartland cities can flourish and can do so in a complicated political environment.”

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