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Accounting

The regulatory forecast under Trump: Less, and lighter

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Get ready for a very different regulatory environment. 

President Donald Trump and his administration have been aggressively overhauling the federal government, with hiring freezes and layoffs, while rolling back rules and regulations at the Public Company Accounting Oversight Board and the Securities and Exchange Commission, as well as threatening to overhaul the Internal Revenue Service and the Treasury Department. 

Only a few days after Trump’s inauguration, the SEC rescinded a Staff Accounting Bulletin on safeguarding cryptocurrency assets, which had been criticized by the crypto industry. The commission later withdrew the PCAOB’s standards on firm and engagement metrics and firm reporting after the American Institute of CPAs and auditing firms urged it to reject the proposed rules. The acting chair of the SEC, Mark Uyeda, also announced that the commission would no longer be litigating its climate-related disclosure rule, which had already been paused after multiple industry lawsuits. 

The SEC in general appears to be taking a more industry-friendly approach than under its previous chairman, Gary Gensler, who stepped down on Inauguration Day. Uyeda is one of the Republican commissioners, but Trump has nominated Paul Atkins, a former commissioner who has been critical of the PCAOB, to fill Gensler’s place. Atkins has been more supportive of the crypto industry than Gensler, while also being critical of the PCAOB and its budget. The Heritage Foundation’s Project 2025 planning document that was circulated prior to Trump’s election called for the PCAOB to be abolished, along with the Financial Industry Regulatory Authority, and said that their regulatory functions should be absorbed into the SEC.

Donald Trump speaking at his 2025 inauguration
Donald Trump speaking at his 2025 inauguration

Kenny Holston/Bloomberg

AICPA & CIMA president and CEO Mark Koziel warned a group of accountants about this possibility during a speech at a meeting in New York of the Accountants Club of America.

“There are rumors we’re dealing with currently, and Paul Atkins, in his prior stint with the SEC, was already pretty vocal about the fact that he wouldn’t mind seeing the PCAOB be shut down, and anything that the PCAOB does get rolled up into the SEC,” said Koziel. “So that is something that we are working on today in preparation. People have said, ‘Are you for or against PCAOB?’ For us, whatever they decide to do, we’re going to work with whatever regulator we need to work with as a profession to make sure that we’re serving the public interest the way it needs to be.”

More changes at the audit overseer?

Other observers also see the likelihood of a shakeup of the board members at the PCAOB, as happened during the previous Trump administration and again during the Biden administration.

“I suppose it’s probably pretty likely that there will be maybe a complete change in the membership of the board,” said Dan Goelzer, one of the original members of the PCAOB and later an acting chair. “That happened both of the last times around when there was a change in administration. I don’t really say that with any pleasure. I’d rather see a less political PCAOB. But as a practical matter, I certainly think the new SEC would look to change the chair of the PCAOB — I suppose that’s quite likely at least — and some of the other board members as well.”

There may be a restructuring of the PCAOB as well, along with its possible absorption into the SEC. “The other big picture issue is whether broad efforts to restructure or streamline the government are going to include the idea of folding the PCAOB into the SEC,” said Goelzer. “That came up during the prior Trump administration and was actually proposed in one of Trump’s budgets, and it’s in the Heritage Foundation report. I suspect that will come up as a discussion item, at least. Whether it would actually make it through Congress is far from clear.”

The PCAOB was created under the Sarbanes-Oxley Act of 2002, so it would theoretically take an act of Congress to abolish the board. However, other agencies such as the U.S. Agency for International Development and the Consumer Financial Protection Bureau were also created by Congress, yet the Trump administration and Elon Musk’s Department of Governmental Efficiency have nevertheless moved to dismantle them.

The Center for Audit Quality has been watching the changes at the PCAOB and the SEC closely, and CEO Julie Bell Lindsay noted that the SEC will be dealing with the impact of two Supreme Court decisions last year limiting the use of administrative law judges and court reliance on agency regulations under the longstanding “Chevron deference” doctrine. In the wake of those two decisions in the Jarkesy and Loper Bright cases, several lawsuits have been filed against the PCAOB by plaintiffs seeking a jury trial, including outside the board’s home venue of Washington, D.C. 

It’s not clear if the PCAOB will be as busy with rolling out new standards as it was during the Biden administration, especially after encountering objections from the auditing profession to proposed standards like the one on noncompliance with laws and regulations, or NOCLAR, which has been on hold, as well as the firm and engagement metrics and reporting standards that were recently withdrawn

“Over the past couple of years, at the CAQ, we’ve been supportive of the PCAOB modernizing and updating their standards, which have not been updated for 20-plus years,” said Bell Lindsay. “We’ve been supportive of that, but we’re also certainly pointing out areas of concern where we feel that there could be unintended consequences.”

She noted that the CAQ submitted comment letters on nine PCAOB proposed standards and rules, five of which were supportive, and four of which were not. “Generally, when we’ve expressed concerns or have not been supportive of a particular standard from the PCAOB, it really comes down to three different areas of concern,” said Bell Lindsay. “One is the lack of data-driven analysis, where what is the problem trying to be solved is something that we’re focused on. To the extent we can, we have tried to provide data and research to the board to inform the standard-setting process. The second area is lack of cost-benefit analysis. For example, on the NOCLAR proposal, there was not even a cost estimate included in that proposal by the PCAOB. We and other stakeholders in the ecosystem attempted to put together a cost analysis of the proposed standard, but needing to fully understand that is very important.”

The PCAOB and the SEC will probably be expected to provide more rigorous cost-benefits analysis for any new standards, rules and regulations. One of the PCAOB board members, Christina Ho, has called for the board to do a more rigorous economic analysis of the standards before finalizing them, and to not rush to do them by the end of the year.

Bell Lindsay would like to see the PCAOB create more outside advisory groups apart from its Investor Advisory Group and Standards and Emerging Issues Advisory Groups so it can consult with a greater variety of outside stakeholders. 

As for the SEC, she is hopeful about Atkins becoming chair since she used to work with him while they were both at the SEC. “I had the privilege of serving at the commission when Paul was a commissioner,” said Bell Lindsay. “I was there from 2002 to 2005, so I do know him fairly well. He was there during the standing up of the PCAOB in the mid-2000s. Officially, we’re not sure where Paul is going to stand on things. What I have found is that Paul is very reasonable, and I do believe he appreciates the key role that the public company audit profession serves in the capital markets and the need for effective, transparent oversight of the audit profession.”

Enforcement and inspections

Goelzer anticipates less emphasis on enforcement now at the PCAOB. “One change I would expect is that, at least to my perception, these enforcement programs have become more focused on violations that don’t directly relate to the auditing process or failures in the auditing process — things like filing Form AP on time or not including some participating firm in the Form AP, that type of thing —  and then fairly substantial monitoring penalties for those violations,” he said. “I would expect that to change. Enforcement programs might go back more to focusing on what I would call substantive audit failures.”

The SEC and the PCAOB may end up backing away from the stepped-up enforcement seen in recent years under Gensler and PCAOB chair Erica Williams. There may even be a complete overhaul of the membership of the board, as occurred under both the Biden administration and the previous Trump administration.

“The current board’s priorities were to use enforcement as a regulatory tool, more standards and more enforcement,” said Jackson Johnson, president of Johnson Global Advisory, a Washington, D.C.-based firm that helps auditing firms navigate the PCAOB inspection process. “The next board will be quite different. The next board will have a more collaborative mindset with firms, more information-gathering with stakeholders, more economic analysis to inform standard-setting, more robust economic analysis to inform standard-setting.”

He acknowledged that the PCAOB had accomplished a great deal under Williams, including the QC 1000 quality control standard, which will be a major overhaul for some firms. However, he also pointed to Christina Ho’s complaint about “midnight rulemaking” as the board rushed to finalize standards before the end of 2024.

“For me, what I want for firms will be a period of recalibration and digesting what has been thrown on them over the last couple years through all of these new standards,” said Johnson. 

He anticipates a slowdown in rulemaking at the board. “I’m not sure how much of a flurry of new enforcement cases will be brought,” he said. “I think right now, we are going to be for some time in this transitional stage. As soon as some of these board members at the PCAOB depart voluntarily or involuntarily, there will be a lack of a quorum at the board, so there will be a temporary stoppage of action, and that will affect everything from inspection reports to opening investigations. All of those things need a majority board to approve. The last time we did an administrative change, there was a holdup of inspection reports for a while, and it took some time before the PCAOB had a full board back in place. While I’m working on enforcement cases right now, I think when the board starts to shuffle, there might be a period of time where we see a slowdown in new investigations, but frankly, other things too, like new proposed standards and new inspection reports getting issued, because all of these things require a board vote.”

The PCAOB could be returning to its roots in some ways in the new administration. “I think what you’ll see is kind of a return to the core mission,” said Steven Richards, a senior managing director at Ankura in Washington, D.C., who was a previous advisor to the PCAOB and an assistant chief accountant at the SEC. “They’ve been very aggressive in upstaffing. Their budget has gone up, so I think what you’ll see is the commission, through the chair, put some constraints on that kind of stuff, and actually I think you’ll see the budget shrink. I think it will be a return to their core mission around investor protection through high-quality audits. I think you’ll see them focus very much on the inspection program. They’ve had an increase in both fines and case counts, but the majority of the case count increases have been really more compliance-oriented things being turned into enforcement matters that used to go through other processes of the board, like remediation and the inspection division. I don’t think you’ll see that anymore. I think those kinds of cases will go away and go to a different mechanism.”

He believes monetary penalties will go down as well. “You’ll see something around the civil monetary penalties having a better relationship to the conduct,” said Richards. “Before this last administration, penalties were too low, but they swung too far and now they got completely out of hand relative to the type of conduct. I think what you’ll see is a revision more toward the norm and a refocusing on the core mission. The inspection division drives a lot of good audit improvement. I think you’ll see that division continue to function more or less like it has the past, but with much more focus on core audit, the performance of the audit, and probably a little less around some of these other compliance things that don’t have as direct an intersection with poor performance of the audit or the quality control system around it. Generally speaking, the commission is going to control the board through its budget. … I don’t think it’s unlikely that they’re going to have to replace some members of the commission to do that. I think those are most likely: a smaller, leaner, more focused-on-core-mission PCAOB and probably some turnover at the board.”

He doesn’t expect to see the PCAOB folded into the SEC, as was proposed in a bill in 2022 by Rep. Bill Huizenga, R-Michigan. 

“I wouldn’t expect that to be at the top of their agenda,” said Richards. “I think more likely what you’re going to see, just because it doesn’t require an active Congress, is control of the direction and priorities of the PCAOB and the SEC through the appropriations and budget process. Both are going to be under pressure, and they’re likely to make some changes at the board level, and that will also bleed out to the organization.”

During a recent AICPA conference, Rep. French Hill, R-Arkansas, and Mark Uyeda, who is now acting chair after the departure of Gary Gensler, shed light on what regulatory reform could look like under the new administration, including integrating the PCAOB into the SEC as a way to reduce redundancy, lower costs and streamline oversight.

“The administration’s direction is further underscored by the appointment of Paul Atkins, known for his skepticism of the PCAOB, to SEC chair,” said Jennifer Wood, assurance service line leader at Top 100 Firm The Bonadio Group. “These events reflect a broader shift toward capital formation and reduced compliance burdens. Reduced compliance costs and increased efficiency sound appealing, but there’s also a risk of losing the rigorous oversight that underpins accurate financial reporting and protects the public interest. If managed thoughtfully, a revamped PCAOB could streamline processes and refocus on high-impact areas. However, audit quality, transparency and investor protection are non-negotiables for a thriving financial system, and they must remain front and center as we navigate this transition.”

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Accounting

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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Accounting

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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Accounting

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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