On April 24, 2013, the U.S. Department of the Treasury's Community Development Financial Institutions Fund (the CDFI Fund) announced the community development entities (CDEs) selected to receive the $3.5 billion in New Markets Tax Credit (NMTC) allocations awarded for the Program's 2012 Round. Awardees for the 2012 Round. The award makes an additional $1.365 billion in NMTCs available to qualifying projects in the U.S.
The NMTC Program (the Program) was established by Congress in 2000 to incentivize investment in businesses and real estate projects located in "low-income communities." Pursuant to the Program, the CDFI Fund awards NMTC allocation authority to select CDEs. Investors in such CDEs are then entitled to claim a "new markets tax credit" on their "qualified equity investment" (QEI) in such CDEs. Each dollar of QEI by an investor generates a $0.39 NMTC, which is earned over a period of seven years. (For example, a $10 million QEI generates $3.9 million in NMTCs taken over a seven-year period.) The CDEs, in turn, invest or loan substantially all of their QEI proceeds to select qualifying projects via "qualified low-income community investments" (QLICIs). By using a "leveraged structure," selected qualifying projects can net a significant subsidy from such QLICIs (i.e., generally between 15-25 percent of the NMTC allocation allotted to it).
There are very few requirements for a project to qualify for the NMTC Program. Qualifying projects must be either operating business or non-residential real estate projects located in a "low-income community." A "low-income community" is defined by reference to census tract characteristics and historically has included about 39 percent of all U.S. census tracts. Common examples of qualifying projects are non-residential construction projects, facility renovations, new facility construction and working capital funding of operating businesses. However, due to wide demand, obtaining a NMTC allocation for a project is highly competitive.
With the announcement of the 2012 Round award winners, CDEs will be in a position to commit NMTC allocations to qualifying projects so that transactions can proceed to closing.
BakerHostetler's Tax Credit Practice group has nationwide experience assisting clients with the planning, structuring, negotiating and documenting of NMTC transactions. Specifically, we have extensive experience representing project sponsors and developers and leverage lenders. Our attorneys aim to maximize a project's NMTC subsidy through leveraging and other creative legal structures while ensuring compliance with complex Federal, state and local statutory regimes.