Friday, June 21, 2013

U.S. Treasury awards $3.5 billion in New Markets Tax Credit allocations

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. The award makes an additional $1.365 billion in NMTCs available for 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 an NMTC on their "qualified equity investment" (QEI) in such CDEs. Each dollar of QEI held 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 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 12 to 20 percent of the NMTC allocation allotted to the project). 

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Contributed by:
Ron DeGrandis, Partner, Cleveland 
Dorinna Unger, Director, Cleveland 
Paul Nadin, Manager, Cleveland 

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