The Internal Revenue Service recently released Revenue Procedure 2026-12, offering procedural guidance for the next generation of qualified opportunity zones (“QOZs”) under §§ 1400Z-1 and 1400Z-2 of the Internal Revenue Code. The guidance implements statutory changes enacted as part of the One, Big, Beautiful Bill Act and establishes the process by which states and territories will nominate census tracts for designation as QOZs effective January 1, 2027.
Sections 1400Z-1 and 1400Z-2 established the opportunity zone regime, under which taxpayers may defer and potentially exclude certain capital gains by investing in qualified opportunity funds (QOFs) located in designated low-income communities. The 2025 legislation significantly revises these provisions, effectively launching a new round of opportunity zone designations beginning in 2027.
Revenue Procedure 2026-12 clarifies that a QOZ remains a population census tract that qualifies as a low-income community and is formally designated through a nomination and certification process involving both state executives and the U.S. Department of the Treasury. Importantly, the updated statute introduces additional concepts, such as rural opportunity zones and revised investment incentives, that will influence how states prioritize nominations.
Revenue Procedure 2026-12 prescribes the procedures by which a state’s governor nominates eligible census tracts for QOZ designation. Under the guidance:
- States may nominate only a limited percentage of eligible low-income census tracts, consistent with statutory caps.
- Nominations must follow a structured submission process to the Treasury Department, which retains authority to certify designated tracts.
- The IRS anticipates the use of an electronic nomination tool to facilitate submissions and standardize data collection.
The revenue procedure also reflects changes to how eligibility is determined, including updated definitions of low-income communities and rules governing contiguous tracts. These revisions will require states to reevaluate previously designated zones and prioritize new areas consistent with the revised statutory framework.
Revenue Procedure 2026-12 also addresses several transitional and jurisdiction-specific issues. Notably, it eliminates the prior automatic designation of all low-income communities in Puerto Rico as opportunity zones. Instead, Puerto Rico will now participate in the same nomination process applicable to other states and territories, subject to the same percentage limitations.
The guidance also confirms that existing opportunity zones designated under prior law will generally remain in effect through the end of their original designation period (December 31, 2027), after which the new regime will take effect.
While Revenue Procedure 2026-12 is directed primarily at state governments, it carries important implications for taxpayers and investors participating in the opportunity zone program. The forthcoming redesignation process will reshape the geographic landscape of eligible investment areas, potentially altering the availability and attractiveness of QOF investments beginning in 2027.
In particular, the enhanced focus on rural areas and revised incentive structures may shift investment toward regions that were not prioritized under the original opportunity zone framework. Taxpayers considering long-term opportunity zone investments should closely monitor state nomination decisions and Treasury certifications over the next several years. For more information, contact Liskow attorneys Leon Rittenberg III, Caroline Lafourcade, and Kevin Naccari, and visit Liskow’s Tax Practice page.