Built on the foundation of the Tax Management Portfolios™, Bloomberg BNA Tax & Accounting is a comprehensive tax research solution designed by tax practitioners for tax practitioners.
By Michael A. Lee, Esq.
Arnold & Porter LLP, Washington, D.C.
The New Markets Tax Credit (NMTC) program, which offers incentives to make investments or loans in low-income communities, has received a two-year extension under the recently enacted Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312. The program extension offers significant potential opportunities for banks and other financial institutions.
The NMTC program was created in 2000 to encourage investors to provide capital to low-income communities. Through 2009, the Treasury Department awarded $26 billion in allocations to community development entities (CDEs) to support investments, loans or other assistance to local businesses. Approximately 65% of NMTC investment has been used primarily for commercial real estate projects throughout the United States.
Through leveraged financing structures, the NMTC program offers potential subsidies in the range of 10% to 20% of project costs, depending on the size of the project and other variables.
The program expired at the end of 2009 but has now been extended retroactively for 2010 and for an additional year in 2011. For each year, Treasury has an additional $3.5 billion in credit authority to allocate. The allocations are made to CDEs on a competitive basis, with no predetermined allocations by state or locality, or based on population, poverty rates or other economic indicators.
Key features of the NMTC program are as follows: A federal income tax credit is available to an investor who makes a qualified equity investment (QEI) in a CDE that, in turn, makes a qualified low-income community investment (QLICI) in a qualified active low-income business (QALICB).
The total amount of credits is 39% of the QEI and is spread over seven years (5% in each of the first three years and 6% in each of the next four). The QEI must remain invested for the full seven years.
QALICBs include businesses that operate in low-income communities or that serve primarily low-income populations. The development and sale of housing is a qualified business, although the rental of dwelling units is not. There is no requirement that employees of the business be residents of a low-income community.
Low-income communities include any census tract where the poverty rate is at least 20% or the median family income is not more than 80% of the median for the state or metropolitan area (whichever is greater).
Financial institutions may participate in, and benefit from, the NMTC program in a number of ways, including (1) making equity investments that qualify for the income tax credits, (2) providing the debt capital in a leveraged structure, and/or (3) sponsoring a CDE that makes QLICIs. Moreover, since such investment or lending activities are targeted to low-income communities, they may also qualify for Community Reinvestment Act credit.
For more information in BNA's Tax Management Portfolios, see Maule, 597 T.M., Tax Incentives for Economically Distressed Areas, and in Tax Practice Series, see ¶3170, Other General Business Credits.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)