If your company builds, renovates, or supplies construction services in a designated opportunity zone (OZ), you have probably heard of OZ tax breaks. Last month, the IRS proposed a new set of rules that will change how the investors behind projects must report their activity to the Internal Revenue Service(IRS). It’s important for contractors, developers, and subcontractors working in OZs to understand these changes because they might affect how projects are funded, documented, and tracked going forward.

On Sept. 11, 2026, the Treasury Department and the IRS released a detailed proposal explaining how qualified opportunity funds (QOFs) and the businesses they invest in will need to report their activities going forward.

Here is a summary of the key reporting requirements under the September 2026 proposed regulations.

Annual reporting for the investment fund

Every QOF will be required to file a detailed annual report with the IRS. Although this is not a brand-newform (QOFs already file Treasury Form 8996), the new rules expand what must be included. QOFs will now need to report items such as the approximate number of employees working at each project location, the industry classification of the business, the value of real property being held, and the number of residential units created. If you are managing a construction project funded by a QOF, you may expect an investor or developer to start asking you for data on job counts, project classification, and unit counts so they can meet these new obligations.

Reporting on substantial improvement and construction progress

One of the more direct effects on construction businesses is a new requirement for QOFs to report whether a property is being substantially improved and, if so, when that work began. Note that under the OZ program, the tax benefit tied to renovating a building depends on spending enough money within a 30-month window. The new reporting requirement essentially forces QOFs to put a clock on that window by informing the IRS in writing. As a result, it is more important than ever to record and maintain accurate construction start dates, cost tracking, and progress documentation, because compliance now depends on the paper trail a contractor helps create.

Statement from the opportunity zone business to the fund

The businesses operating inside an OZ (e.g., a project company set up specifically to own and build a property) will now be required to send a formal statement to their investment fund with the information the fund needs to complete its own IRS filing. If your company is such a project entity, or works closely with one, you may be asked to help compile and verify details like property addresses, employee counts, and construction timelines so the statement can be prepared accurately and timely.

Notices to investors when a fund winds down

The September 2026 proposed regulations also create clear notification requirements for when a QOF decides to decertify (i.e., give up its status as a QOF). The fund must notify its investors within 15 days of that decision and separately report certain information to the IRS about any investor who sold or exited their investment during the year.

New penalties for missing the paperwork

Perhaps the most significant change is that QOFs can now face real financial penalties for failing to file complete and accurate reports on time. Penalties start at $500 per day for each late or incomplete filing, with annual caps that are higher for larger funds. Also, the penalties increase substantially if the IRS determines a fund intentionally ignored the requirement. This is a meaningful shift from the honor-system approach that existed before, and it gives funds a strong financial incentive to get accurate information, including construction and property data, from their contractors and project partners in a timely way.

Looking ahead

The September 2026 proposed regulations are open for public comment through Oct. 16, 2026. The IRS has scheduled a hearing in November to hear feedback before anything becomes final. That means the details could still shift somewhat, but the overall direction is clear: more transparency, more paperwork, and more accountability for everyone involved in an OZ project.

It should be noted that no proposed change would alter the tax incentives that make OZ deals attractive to investors in the first place. Instead, the September 2026 proposed regulations raise the stakes around documentation and timing.

Construction companies working on these projects should expect more requests for information from developers, fund managers, and project owners, particularly regarding three things: when construction or renovation work started; how much has been spent on improvements relative to the property’s value; and basic project details like unit counts, square footage, and job creation.

In light of the September 2026 proposed regulations, it is more important than ever for construction businesses to keep clean, well-organized records of project milestones, draw schedules, and substantial improvement spending. Contractors that can provide accurate, timely documentation will likely become more attractive partners to QOF managers who now have real compliance deadlines to meet.

Column first appeared in the Oregon Daily Journal of Commerce on October 16, 2026.

This column is intended to provide readers with general information and not legal advice. Consult professional counsel for help regarding specific situations.