Proposed Permanent Extension and Expansion of New Markets Tax Credit Program

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On June 22, 2020, the U.S. House of Representatives unveiled H.R. 2, the Moving Forward Act, an expansive $1.5 trillion infrastructure bill, proposing an increase in federal funding across a variety of sectors, including improvements to roads and bridges, municipal broadband internet, affordable housing, green energy, and rail. The Moving Forward Act also calls for the improvement and permanent extension of annual allocation authority for the New Markets Tax Credit (“NMTC”) program.

The NMTC program was authorized under the Community Renewal and Tax Relief Act of 2000 to stimulate investment and economic growth in low-income urban neighborhoods and rural communities that lack access to the patient capital needed to support and grow businesses, create jobs, and sustain healthy local economies. NMTCs incentivize community development and revitalization by providing private investors with a federal tax credit for eligible investments made in businesses or economic development projects located in some of the most economically distressed communities in the nation. Although the NTMC program has a 20-year history of stimulating investment and generating economic growth in low-income communities, the longevity of the program has been uncertain as it is currently scheduled to sunset after the $3.5 billion round of 2019 NMTC allocation is awarded later this summer.

Under the Moving Forward Act, the NMTC program would be permanently extended with $5 billion in annual allocation for the year 2020 and all years thereafter. Additionally, the bill proposes an increase in allocation amounts for years 2019 ($500 million), 2020 ($2 billion), and 2021 ($1 billion), to further encourage investments in low-income communities over the next three years following the economic downturn. While access to capital is likely to become more difficult in times of increasing financial uncertainty, the proposed improvements to and extension of the NMTC program under the Moving Forward Act would provide for a proven method to ensure private capital continues to flow into low-income communities in the years to come.

Key NMTC Provisions in the Moving Forward Act:

  • Permanent extension of the NMTC annual allocation authority at $5 billion, indexed to inflation starting with the 2022 round of allocation.
  • $500 million increase the 2019 NMTC allocation (increasing the total allocation from $3.5 billion to $4 billion) with such additional allocation being awarded to CDEs that submitted 2019 allocation applications but either did not receive allocation or received less allocation than was applied for.
  • Increase in NMTC allocation amounts for 2020 ($7 billion) and 2021 ($6 billion) to help aid economic recovery in low-income communities following the economic downturn.
  • Expansion of NMTC program eligibility for tribal areas that otherwise meet NMTC eligibility requirements but may not be located in NMTC eligible census tracts (i.e., Tribal Statistical Area).
  • Instruction for proportionality of NMTC allocation to be provided to Tribal Statistical Areas based on the overall percentage of Native Americans at or below the poverty line.
  • Provide Alternative Minimum Tax relief to taxpayers claiming the NMTCs (starting with NMTC investments made after December 31, 2020).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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