A federal tax break meant to help poor communities that became a windfall for wealthy investors is being investigated by the Treasury Department, the agency’s deputy inspector general said on Wednesday.
The inquiry is being conducted at the request of three Democratic lawmakers, Senator Cory Booker of New Jersey, Representative Emanuel Cleaver II of Missouri and Representative Ron Kind of Wisconsin.
The lawmakers made their request after articles in The New York Times and ProPublica raised questions about the Opportunity Zone tax break.
The legislation, part of the 2017 tax overhaul, is supposed to encourage new investment in poor neighborhoods, leading to new housing, businesses and jobs. However, wealthy investors are piling into the initiative, including developers with ties to the Trump administration.
Last year, The Times reported how money eligible for the tax break — supported by both Democrats and Republicans — was going to luxury projects in affluent neighborhoods, including deals that were underway long before the tax break took effect.
In October, The Times described how the financier Michael Milken stood to benefit from a move the Treasury Department made over the objections of some agency officials to permit a census tract in Nevada to qualify for the Opportunity Zone tax break. Mr. Milken is a longtime friend of Treasury Secretary Steven Mnuchin’s.
“Despite these warnings from staff, Secretary Mnuchin instructed Treasury officials to allow the otherwise ineligible tract to qualify for the incentive,” the lawmakers wrote in seeking the inquiry. “If the Treasury Department provided a stamp of approval as a political favor, it is not only unacceptable, but in complete violation of the congressional intent of the Opportunity Zones.”
The Treasury’s internal watchdog expects “to complete our work and respond to the congressional requesters in early spring,” Rich Delmar, the department’s deputy inspector general, said in a statement.
Other potential beneficiaries of the Opportunity Zone tax break, The Times reported last year, were billionaire financiers like Leon Cooperman; Chris Christie, the former New Jersey governor; Richard LeFrak, a New York real estate titan who is close to the president; and the family of Jared Kushner, Mr. Trump’s son-in-law and senior adviser.
The initiative allows people to sell stocks or other investments and delay capital gains taxes for years — as long as they put the proceeds into projects in federally certified opportunity zones. Investors can avoid federal taxes on any profits from those projects.
In late December, the administration finished the program’s regulations. Officials said the regulations gave investors more clarity and flexibility on how to deploy their money, and push more funds into designated areas.
NBC News earlier reported the news of the inquiry.