Orlando, Florida Lands Publix

Publix announced the construction of a $188.5 million facility for frozen food and produce that will pay an average salary of $46,325.  The facility will be located right outside of Orlando, Florida.  Publix received $3.6 million in state and local incentives to construct the facility.  The facility will employ about 150 people when it is complete in 2015.

Converting a Partnership to a Limited Liability Company

The conversion of a partnership to an LLC taxed as a partnership is not treated as an exchange, regardless of how the conversion is accomplished for state tax purposes. Thus, the conversion of the partners' interests to LLC interests (1) doesn't result in gain or loss to any of the partners, (2) doesn't affect the basis or holding period of any of the partners in his interest, and (3) doesn't terminate the partnership for tax purposes. Accordingly, the LLC will continue to file partnership returns using the partnership's employer identification number and tax year.

If the conversion results in a shift in the partners' shares of partnership liabilities, the partners whose shares are increased are treated as making contributions to the partnership that increase the basis of their partnership interests, and the partners whose shares are decreased are treated as receiving distributions from the partnership that, first, reduce the basis of their partnership interests to zero, and then, cause them to recognize gain to the extent the reduction exceeds their basis.

The conversion of the partnership to an LLC may cause a change in the partners' shares of the partnership's debts. For instance, since no partner will be at risk for the LLC's liabilities, partnership debts that were formerly recourse may become nonrecourse, affecting the allocation of the debts. In addition, the creditors may, as a condition of agreeing to the conversion, demand that some or all of the partners guarantee the partnership's debts; these guarantees may affect the allocation of the debts.

Therefore, in order to determine the effects of the conversion, it is necessary to review the documents relating to the partnership debts (including any loan agreements and guarantee agreements), as well as the partnership agreement and the proposed LLC agreement. With proper planning, we can ensure (subject to the business arrangements among the partners) that any shift in the partners' shares of partnership liabilities will not result in gain to any of the partners.

Section 179 Expense Election

Generally, the cost of property placed in service in a trade or business can't be deducted in the year it's placed in service if the property will be useful beyond the year. Instead, the cost is “capitalized” and depreciation deductions are allowed for most property (other than land), but are spread out over a period of years. Capitalization delays the tax benefits of business expenditures. For example, you may spend $50,000 on a new computer system today, but must spread your depreciation deductions over several years. That's why the election to take immediate deductions is valuable.

The expense election is made available, on a tax year by tax year basis, under Section 179 of the Internal Revenue Code (the “Code”), and is often referred to as the “Section 179 election” or the “Code Section 179 election.”

Subject to a dollar limit, the election allows you to deduct, in the tax year for which the election is made, the cost of qualifying property (described below) placed in service during the tax year. The immediate deductions allowed are in lieu of capitalization and later depreciation deductions. The deduction limit is $500,000 for a tax year beginning in 2011 ($139,000 for a tax year beginning in 2012). As discussed below, the deduction is phased out (i.e., gradually reduced) if (1) more than $2,000,000 of qualifying property is placed in service during a tax year beginning in 2011 or (2) more than $560,000 of qualifying property is placed in service during a tax year beginning in 2012.

Qualifying property. To qualify for the election, the property must be “tangible personal” property. This means that real estate (buildings and their structural components) does not qualify, nor do intangibles such as patent rights. However, the following types of property also qualify: (1) for a tax year beginning in 2011, up to $250,000 of real property consisting of certain leasehold improvements, retail improvements or restaurant property, and (2) for tax years beginning before 2013, off-the-shelf computer software. Also, to qualify, property must be “purchased.” Thus, if, for example, you acquired the property in a tax-free exchange, by gift or inheritance, or from an individual or entity to which you bear a close relationship specified in the Code, the property does not qualify.

Dollar limit. The dollar limit doesn't mean the election can't be made for property costing more than that amount. For example, if you buy a machine for $600,000 and place it in service in a business in a tax year beginning in 2011, you can elect to immediately deduct $500,000 of its cost for that year. The remainder of the cost ($100,000) qualifies for 100% bonus depreciation. Also, you can make the election for two or more separate assets, as long as the total cost covered by the election doesn't exceed the dollar limit for that year.

As mentioned above, if the total cost of qualifying property that you place in service during a tax year beginning in 2011 is over $2,000,000 (over $560,000 for a tax year beginning in 2012) (i.e., the “phaseout” amount), the immediate deduction limit is reduced by that extra amount. For example, if you place in service $2,200,000 of qualifying property in a tax year beginning in 2011, you can make the election for no more than $300,000 of property ($500,000 minus $200,000 [excess of $2,200,000 over $2,000,000]).

Taxable income limit. If your taxable income from all of your trades or businesses is less than the dollar limit for that year, the amount for which you can make the election is limited to that taxable income. However, for most types of property, any amount you can't immediately deduct because of the taxable income limitation is carried forward and can be deducted in later years (to the extent that the applicable dollar limit, the phaseout rule, and the taxable income limit permit).

Recapture. If you dispose of the property, or stop using it in a trade or business, before the end of the cost recovery period that would have applied to the property had you not made the election for the property, all or part of the amount of the deduction you claimed under the election must be taken back into income (“recaptured”). Exactly how much will depend on the type of property and how long you used the property in a trade or business.

The above information covers the essential elements of the Code Section 179 election. Clearly, many considerations go into each decision to acquire business assets, and many involve non-tax factors. However, the election should play a role; accelerated tax benefits may enable you to obtain the property you need earlier and at reduced after-tax costs.

Overview: Low Income Housing Tax Credit

The low-income housing credit is claimed annually over a ten-year credit period, unlike other credits which are claimed all at once. Thus, you will have to file a completed Form 8586, Low-Income Housing Credit, with your federal income tax return for each tax year you claim the credit.

The credit percentages are set so that over the ten year period, the credits will equal a present value of 70% of the basis of a new building which is not federally subsidized, and 30% of the basis of an existing building or federally subsidized new building. Rehabilitation expenditures qualify for the credit only if they exceed a per-unit minimum amount ($6,200 for expenditures treated as placed in service for calendar year 2012, $6,100 for calendar year 2011, as adjusted for inflation). A 9% minimum credit rate applies to certain new non-federally subsidized buildings placed in service after July 30, 2008 and before Dec. 31, 2013.

A higher credit is allowed for buildings located in certain high cost areas.

A building qualifies for the credit if either: 20% of the units are occupied by individuals with incomes of 50% or less of area median income, or at least 40% of the units are occupied by individuals with income of 60% or less of area median income.

Further, the rent charged to tenants can't exceed 30% of the “imputed income limitation” applicable to the unit in which those tenants live. That limitation is the income limitation applicable to individuals occupying the unit if (a) only one individual occupies the unit where the unit doesn't have a separate bedroom or (b) not more than 1.5 individuals occupy each separate bedroom in the case of a unit that has one or more separate bedrooms.

These requirements must be satisfied over a fifteen year period known as the compliance period. In addition, no credit is allowed with respect to any building for a tax year unless an extended low-income housing commitment is in effect at the end of that year. An “extended low-income housing commitment” is any agreement between the building owner and the relevant state housing credit agency that includes a number of required provisions. The penalty for noncompliance is recapture of the credit (i.e. loss of the credit previously allowed).

There is a limit on the total amount of credits available for buildings not financed with tax-exempt bonds subject to certain state volume limitations. Each state is permitted to annually allocate low-income housing credits with a ceiling amount, for calendar year 2012, equal to the greater of (1) $2.20 multiplied by the state population or (2) $2,525,000. For calendar year 2011, the ceiling amount was equal to the greater of (1) $2.15 multiplied by the state population or (2) $2,465,000. At least 10% of this ceiling amount must be reserved for projects developed by certain nonprofit organizations. Buildings financed with tax-exempt bonds are eligible for the credit without regard to the state ceiling, since these bonds are subject to other limitations.

Choice of Entity: Limited Liability Companies

A limited liability company (LLC) is somewhat of a hybrid entity in that it can be structured to resemble a corporation for owner liability purposes and a partnership for federal tax purposes. This duality can provide the owners with the best of both worlds.

Like the shareholders of a corporation, the owners of an LLC (called “members” rather than shareholders or partners) are generally not liable for the debts of the business except to the extent of their investment. Thus, the owners can operate the business with the security of knowing that their personal assets are protected from the entity's creditors. This protection is far greater than that afforded by partnerships. In a partnership, the general partners are personally liable for the debts of the business. Even limited partners, if they actively participate in managing the business, can have personal liability.

Unlike a regular or “C” corporation, an LLC can be structured to be treated as a partnership for federal tax purposes. This can provide a number of important benefits to the owners. For example, partnership earnings are not subject to an entity-level tax; instead, they “flow-through” to the owners, in proportion to the owners' respective interests in profits, and are reported on the owners' individual returns. Thus, earnings are taxed only once. In addition, since you are actively managing the business, you can deduct on your individual tax return your ratable shares of any losses the business generates. This, in effect, allows you to shelter other income that you and your spouse may have.

An LLC that is taxable as a partnership can provide special allocations of tax benefits to specific partners. This can be an important reason for using an LLC over an S corporation (a form of business that provides tax treatment that is similar to a partnership). Another reason for using an LLC over an S corporation is that LLCs are not subject to the restrictions the Internal Revenue Code imposes on S corporations regarding the number of owners and the types of ownership interests that may be issued.

In summary, an LLC would give you corporate-like protection from creditors while providing you with the benefits of taxation as a partnership. For this reason, you should seriously consider operating your business as an LLC. Please give me a call at your earliest convenience so that we can discuss in more detail how use of an LLC might benefit you and the other owners.

Wind Energy Production Tax Credit

A tax credit is available for producing electricity from certain renewable resources. Basically, this credit is 1.5¢ per kilowatt hour of electricity (indexed annually for inflation) (1) produced from qualified energy resources at a qualified facility originally placed in service before 2013 and (2) sold to an unrelated party during the tax year. The credit is generally available for ten years, beginning on the qualifying facility's placed-in-service date. Some additional rules may limit the credit amount.

For this purpose, wind is a qualified energy resource, and a “wind farm” (wind turbines, and their towers and supporting pads) is a qualified facility.

You may be involved as an investor in or developer of wind energy through a partnership that owns a wind farm. Questions have arisen as to how to allocate the credit among partners in these partnerships. IRS has stated that it will not issue guidance via letter rulings in this area, so partnerships and partners cannot ask IRS to rule on whether a given allocation is acceptable.

However, IRS has issued “safe harbor” rules for partnerships consisting of wind energy developers and investors. (For this purpose, “safe harbor” rules are legal provisions that, if followed, reduce or eliminate Federal tax liability, as long as good faith is demonstrated.) These rules must be met to qualify for the safe harbor, but are not intended to provide substantive rules and are not to be used as audit guidelines. If the partnership, developer and investor(s) all meet these rules, the IRS will respect a partnership's allocation of the credit to partners. Nevertheless, returns claiming Code Sec. 45 wind energy production tax credits are subject to examination by IRS. The safe-harbor rules are generally in effect for transactions entered into after Nov. 4, 2007 but, in some cases, may apply to transactions entered into before that date.

The safe-harbor rules provide strict requirements for the developer's and investor's percentage interests in the partnership. There are also rules addressing an investor's minimum unconditional investment, limits on contingent consideration, purchase rights, sale rights, and restrictions on guarantees and loans. Further, the credit must be allocated in accordance with a specific regulation.

Non-Profit/For-Profit Partnerships and Affordable Housing

In order to avoid risking its tax exemption, a tax-exempt organization on must focus on two areas when structuring development partnerships with for-profit entities.  First, it is critical that an organization maintain control over the activities of the partnership in order to assure that the partnership furthers its charitable purpose.  Second, if the organization does not maintain formal control of the partnership with for-profit developers, the partnership must be “an insubstantial part” of the organization’s activities.  The organization risks losing its tax exemption (or, depending on whether the activity is substantial, being subject to unrelated business income tax (“UBIT”)) unless: (i) the partnership’s governing documents are compliant with Rev. Rul. 2004-51, and the for-profit partner acts in accordance with those documents; or (ii) the organization can demonstrate effective control of the day-to-day management of the partnership, based on both the rights provided in the governing documents and a demonstrated willingness to exercise those rights.  In the absence of formal control or compliance with Rev. Rul. 2004-51, retention of effective control is a highly fact-specific analysis that does not yield itself to sound planning.

The substantiality of the non-charitable activities of an exempt organization/for-profit partnership will determine the effect of ceding control to the for-profit partner.  Substantiality is also a highly fact-specific inquiry, and reliance on percentage limitations established in prior cases is risky.  If control of an exempt organization/for-profit partnership is ceded to the for-profit partner but the activity is not “substantial,” the exempt organization will not lose its Code § 501(c)(3) status, but it will be subject to the UBIT.  Conversely, if control is ceded and the unrelated business activity is “substantial,” the exempt organization will lose its tax exemption.

Arrangements between nonprofit housing corporations and for-profit developers will be closely examined to be sure that they do not result in impermissible private benefit or inurement.  Rev. Proc. 96-32 provides: If an organization furthers a charitable purpose such as relieving the poor and distressed, it nevertheless may fail to qualify for exemption because private interests of individuals with a financial stake in the project are furthered.  For example, the role of a private developer or management company in the organization’s activities must be carefully scrutinized to ensure in the absence of inurement or impermissible private benefit resulting from real property sales, development fees, or management contracts.

Most of the literature in connection with nonprofit/for-profit partnerships deals with nonprofit hospitals which, like nonprofit housing corporations, are exempt as “charitable” organizations under Code § 501(c)(3). Because both types of organizations must meet the same general tests for tax exemption under Code § 501(c)(3), these materials are instructive on how a tax-exempt organization must structure its partnerships.  The IRS has also issued several private letter rulings dealing with nonprofit housing corporations that, although not reliable as binding precedent, are indicative of how the IRS views these arrangements.

More NMTC Info

The New Markets Tax Credit Program (NMTC Program) was established by Congress in 2000 to spur new or increased investments into operating businesses and real estate projects located in low-income communities. The NMTC Program attracts investment capital to low-income communities by permitting individual and corporate investors to receive a tax credit against their Federal income tax return in exchange for making equity investments in specialized financial institutions called Community Development Entities (CDEs). The credit totals 39 percent of the original investment amount and is claimed over a period of seven years (five percent for each of the first three years, and six percent for each of the remaining four years). The investment in the CDE cannot be redeemed before the end of the seven-year period.

Since the NMTC Program’s inception, the CDFI Fund has made 664 awards allocating a total of $33 billion in tax credit authority to CDEs through a competitive application process. This $33 billion includes $3 billion in Recovery Act Awards and $1 billion of special allocation authority to be used for the recovery and redevelopment of the Gulf Opportunity Zone.

An organization wishing to receive awards under the NMTC Program must be certified as a CDE by the Fund.

To qualify as a CDE, an organization must: be a domestic corporation or partnership at the time of the certification application; demonstrate a primary a mission of serving, or providing investment capital for, low-income communities or low-income persons; and maintain accountability to residents of low-income communities through representation on a governing board of or advisory board to the entity.

$90 Million in Tax Credits

Two Cincinnati, Ohio non-profit developers have been awarded $90 million in tax credits aimed at spurring hundreds of millions of dollars in new housing and retail developments across several Cincinnati neighborhoods.


The full article can be found here:


$90 Million in Tax Credits

Advancements in Sustainable Algal Production

The Department of Energy is requesting applications to support outdoor phototrophic algae research and development in two areas: nutrient and water use in algal production systems, and the development of algal technology testbed facilities.  The full funding solicitation can be found at the following link:


ASAP Funding Solicitation

State Initiatives That Encourage Bioscience Industry Growth

The following is a great article on state incentives for biotech start-ups:

State Incentives

Community Reinvestment Act and Tax Credits

The Community Reinvestment Act (“CRA”), enacted by Congress in 1977 (12 U.S.C. § 2901) and implemented by Regulations 12 CFR §§ 25, 228, 345, and 563e, is intended to encourage certain financial institutions to help meet the credit needs of the communities in which they operate. Pursuant to 12 CFR § 25, national banks are required to undergo a CRA assessment by the Office of the Comptroller of the Currency (“OCC”). The assessment involves CRA compliance tests and an overall CRA compliance rating. In order to receive credits towards higher ratings, national banks may invest in or lend to Low Income Housing Tax Credit (“LIHTC”) projects, New Market Tax Credit (“NMTC”) projects, and Historic Tax Credit (“HTC”) projects.

In enacting the CRA, Congress required each appropriate federal financial supervisory agency to assess an institution's record of helping to meet the credit needs of the local communities in which the institution is chartered, consistent with the safe and sound operation of the institution. 12 CFR § 25. Each assessment includes tests for CRA compliance and an overall rating based on that compliance. The ratings scale and assessment tests, relevant to the OCC and national banks, are codified in 12 CFR § 25. The OCC has authority to assess all national banks including wholesale national banks, limited purpose national banks, and small and intermediate national banks.

Pursuant to 12 CFR § 25, the lending test evaluates a national bank’s record of helping to meet the credit needs of its assessment areas through its lending activities by considering a bank’s home mortgage, small business, small farm, and community development lending. If consumer lending constitutes a substantial majority of a bank’s business, the OCC will evaluate the bank’s consumer lending in one or more of the following categories: motor vehicle, credit card, home equity, and other secured and unsecured loans.  In addition, at a bank’s option, the OCC will evaluate one or more categories of consumer lending only if the bank has collected and maintained the data for each category that the bank elects to have the OCC evaluate.  The OCC considers originations, purchases of loans, and other loan data the bank may choose to provide, including data on loans outstanding, commitments, and letters of credit.  A bank may ask the OCC to consider loans originated or purchased by consortia in which the bank participates (or by third parties in which the bank has invested) only if the loans meet the definition of community development loans.

The OCC evaluates a bank’s lending performance pursuant to Lending Activity (the number and amount of the bank’s home mortgage, small business, small farm, and consumer loans, if applicable, in the bank’s assessment areas).  The OCC also evaluates Geographic Distribution (the geographic distribution, dispersion and proportion, of the bank’s products between low, moderate, middle, and upper income geographies in the bank’s assessment areas) and Borrower Characteristics (the distribution of the bank’s products between low, moderate, middle, and upper income individuals and businesses). The assessment also includes Community Development Lending (the bank’s community development lending, including the number and amount of community development loans, and their complexity and innovativeness) and Innovative or Flexible Lending Practices (the bank’s use of innovative or flexible lending practices in a safe and sound manner to address the credit needs of low or moderate income individuals or geographies). Lending by affiliates or in consortium may also be considered if applicable.

The investment test evaluates a bank’s record of helping to meet the credit needs of its assessment areas through qualified investments that benefit its assessment areas or a broader statewide or regional area that includes the bank’s assessment areas.  Activities considered under the lending or service tests may not be considered under the investment test.  At a bank’s option, the OCC will consider, in its assessment of a bank’s investment performance, a qualified investment made by an affiliate of the bank, if the qualified investment is not claimed by any other institution. Donating, selling on favorable terms, or making available on a rent-free basis a branch of the bank that is located in a predominantly minority neighborhood to a minority depository institution or women’s depository institution will be considered as a qualified investment.

The OCC evaluates the investment performance of a bank pursuant to: “(1) The dollar amount of qualified investments; (2) The innovativeness or complexity of qualified investments; (3) The responsiveness of qualified investments to credit and community development needs; and (4) The degree to which the qualified investments are not routinely provided by private investors.”

The service test evaluates a bank’s record of helping to meet the credit needs of its assessment areas by analyzing both the availability and effectiveness of a bank’s systems for delivering retail banking services and the extent and creativity of its community development services.  Community development services must benefit a bank’s assessment areas or a broader statewide or regional area that includes the bank’s assessment areas.  At a bank’s option, the OCC will consider, in its assessment of a bank’s service performance, a community development service provided by an affiliate of the bank, if the community development service is not claimed by any other institution.

The OCC evaluates community development services pursuant to “the extent to which the bank provides community development services, and the creativity and responsiveness of community development services.”

The OCC applies the small bank performance standards in evaluating the performance of a small bank or a bank that was a small bank during the prior calendar year, unless the bank elects to be assessed as a large bank.  A small bank may elect to be assessed as a large bank only if it collects and reports certain data required for other large banks.

For intermediate small national banks with over $280 million but less than $1.122 billion in assets, performance also is evaluated pursuant to: “(1) The number and amount of community development loans; (2) The number and amount of qualified investments; (3) The extent to which the bank provides community development services; and (4) The bank’s responsiveness through such activities to community development lending, investment, and services needs.”

At the national bank’s request, the OCC will assess a bank’s record of helping to meet the credit needs of its assessment areas under a strategic plan if the bank has submitted the plan to the OCC, the OCC has approved the plan, the plan is in effect, and the bank has been operating under an approved plan for at least one year.  A plan may have a term of no more than five years, and any multi-year plan must include annual interim measurable goals under which the OCC will evaluate the bank’s performance.  Other variables must be met if a bank chooses to implement CRA compliance by way of a strategic plan.

A national bank must delineate one or more assessment areas within which the OCC evaluates the bank’s record of helping to meet the credit needs of its community. The OCC does not evaluate the bank’s delineation of its assessment areas as a separate performance criterion, but the OCC reviews the delineation for CRA compliance.   A bank may adjust the boundaries of its assessment areas to include only the portion of a political subdivision that it reasonably can be expected to serve.  The OCC uses the assessment areas delineated by a bank in its evaluation of the bank’s CRA performance unless the OCC determines that the assessment areas do not comply with the requirements set for in the CFR.

The OCC assigns to a bank a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial noncompliance” based on the bank’s performance under the lending, investment and service tests, the community development test, the small bank performance standards, or an approved strategic plan, as applicable.  Each area’s rating is compiled into the bank’s overall rating which is published by the OCC.

Low Income Housing Tax Credit projects are qualified investments under the CRA. CMTY. AFFAIRS DEP’T., OFFICE OF THE COMPTROLLER OF THE CURRENCY, COMMUNITY DEVELOPMENTS FACT SHEET: LOW-INCOME HOUSING TAX CREDIT PROGRAM 1, 2 (Oct. 2009).  LIHTC projects receive full favorable consideration during the assessment process.

The LIHTC program creates market incentives for the acquisition and development or rehabilitation of affordable rental housing.  The LIHTC program authorizes state housing credit agencies to award 9 percent and 4 percent federal tax credits to developers of affordable rental housing.  The tax credits are used by developers to raise equity financing for their projects.  The equity capital generated from the tax credits lowers the debt burden on LIHTC properties, making it easier for owners to offer lower, more affordable rents; while investors, such as banks obtain a dollar for dollar reduction in their federal tax liability.

Under the authority of the Internal Revenue Service, state housing credit agencies to administer the LIHTC programs through qualified allocation plans. States are allowed to set specific allocation criteria for awarding tax credits and must develop qualified allocation plans that identify and prioritize housing needs, especially for low-income renter households.  State housing credit agencies award tax credits to developers based on the housing needs identified and selection criteria established.

Investments are typically structured as real estate limited partnerships or limited liability companies.  A national bank, as a limited partner or member, can generate additional returns with the pass through of depreciation and cash flow in these real estate investments.

In addition to reducing federal tax liability and earning returns, banks receive positive CRA consideration for LIHTC project investments, provided they benefit a bank’s assessment area.  Banks may receive positive CRA consideration for investments made in LIHTC projects and funds that benefit a broader statewide or general area that includes the bank’s assessment areas, provided that they have otherwise adequately addressed the community development needs of their assessment areas.  Banks will also receive CRA consideration if they provide predevelopment financing or construction/permanent financing to LIHTC projects and funds.

The OCC has also stated that investments in Community Development Financial Institutions (“CDFI”) or investments in NMTC-eligible Community Development Entities (“CDEs”) are qualified investments under the CRA. CMTY. AFFAIRS DEP’T., OFFICE OF THE COMPTROLLER OF THE CURRENCY, COMMUNITY DEVELOPMENTS FACT SHEET: NEW MARKET TAX CREDITS 1 (Oct. 2010).

The NMTC program is an economic development tax incentive administered by the United States Department of the Treasury CDFI Fund.  The purchase of NMTCs by investor banks provides equity capital to further commercial economic development activities in underserved geographies.  NMTCs are allocated by CDFI to CDEs under a competitive application process.

National bank investors receive a credit against federal income taxes for making qualified equity investments in CDEs.  NMTCs, when combined with interest income on loans to small businesses located in underserved geographies can provide banks with competitive returns.   In order to utilize CDEs, a bank can form a subsidiary CDE and apply to the CDFI Fund for allocation of NMTCs.  Also, a bank can invest in another entity’s CDE.  Some non-bank CDEs that have received NMTC allocations are seeking investors to provide equity by purchasing the tax credits.

Some projects that receive Historic Tax Credits may also meet the definition of community development in the CRA regulation and therefore may receive favorable CRA consideration. CMTY. AFFAIRS DEP’T., OFFICE OF THE COMPTROLLER OF THE CURRENCY, COMMUNITY DEVELOPMENTS FACT SHEET: HISTORIC TAX CREDIT PROGRAM 1, 2 (Oct. 2009).

The HTC program encourages the rehabilitation of certified historic buildings through the provision of tax credits to property owners equal to twenty percent of the qualified renovation expenditures.  The program is used to attract new private capital to historic centers and main street towns across the nation. To receive HTCs, property owners must complete a three-part historic preservation certification application process administered by the National Park Service and respective state historic preservation officers.

Typically, if developers of HTC projects cannot use the credits, they will offer the credits to third parties, including banks, to raise the funding for a project and thereby reduce the financing costs for property rehabilitation.  National banks seeking to provide financing to HTC projects must either request prior OCC approval or submit an after-the-fact notice to the OCC, depending on the bank’s safety and soundness profile, CRA performance, and the nature of the project financing.

Access to DOE Laboratories

Department of Energy recently announced that eight of its national laboratories will participate in a pilot initiative to make it easier for private companies to use the laboratories' research capabilities.  The Agreements for Commercializing Technology (ACT) program will employ the United States' advantages in innovation to create jobs and accelerate the development of new clean energy technologies.

Previously, companies wishing to partner with the laboratories for commercial research had two options: signing a cooperative research and development agreement or a work-for-others agreement. The eight laboratories participating in this pilot program intend to offer a less constrained ACT option. Under an ACT, more flexibility will be available to negotiate the intellectual property rights for technologies created at a laboratory; there will also be more adaptability in other issues ranging from payment to project structures.

Army Testing Renewable Energy Sources

The United States Army unveiled a fleet of 16 hydrogen fuel cell vehicles that the Army, Navy, Air Force, and Marines are testing in an effort to research renewable energy sources and reduce dependence on oil. The zero-emission vehicles were funded by the Army Tank Automotive Research Development Engineering Center, Office of Naval Research, and Air Force Research Laboratories. The fuel cell vehicles, powered by renewable hydrogen, travel up to 200 miles on a single charge and refuel in five minutes.

The fleet of fuel cell vehicles is the latest effort of the Hawaii Hydrogen Initiative, a partnership of 13 agencies, companies, and universities. The group is also testing hydrogen infrastructure elements so that other states can adopt a similar approach. DOE's Office of Energy Efficiency and Renewable Energy is providing technical and economic analysis of the vehicles. DOE has been funding the research and development of hydrogen and fuel cell technologies, such as catalysts and membranes, over the last decade. Such technologies are enabling the deployment of fuel cell vehicles and stations like those in Hawaii.

BRIDGE Funding

The Department of Energy recently announced that $3 million is available in 2012 to support research to significantly lower the cost of solar energy. The Bridging Research Interactions through Collaborative Development Grants in Energy (BRIDGE) funding will enable collaborative research teams from industry, universities, and national laboratories to work together in DOE's research centers. The research teams will support the goal of DOE's SunShot Initiative to make solar energy cost competitive with other forms of energy by the end of the decade.

The BRIDGE funding will enable researchers to leverage the tools and expertise of scientists at DOE research facilities so that fundamental scientific discoveries can be rapidly transitioned to existing product lines and projects. The BRIDGE program is the first to provide engineers and scientists developing photovoltaic and concentrating solar power technologies with the tools and expertise of DOE's research facilities. Those will include major facilities for x-ray and neutron scattering, nanoscale science, advanced microcharacterization, environmental molecular sciences, and advanced scientific computing. This collaborative approach will accelerate innovations to lower the cost of photovoltaic and concentrating solar power technologies. Full applications are due May 21, 2012 and can be found on the DOE Office of Energy Efficiency and Renewable Energy website.

OOC Extends CRA Deadlines in Coastal Areas

This bulletin communicates guidance that extends the time period for consideration of Community Reinvestment Act (CRA) activities that support the revitalization and recovery of the areas that hurricanes Katrina and Rita devastated.

OOC Update

HUD 2012 Budget and Program Initiatives

Small towns and rural communities across America are facing an acute need for more affordable housing, while also pursuing sustainable economic development strategies that link rural housing and transportation to job centers.  HUD’s partnership with rural communities spans from direct funding of rural competition grants to supporting the housing needs of hundreds of thousands of families through larger programs like HOME investment partnerships, FHA insurance for homeowners, and the Housing Choice Voucher Program. HUD’s field offices in rural communities continue to serve as technical assistance resources and a link to other HUD programs and other federal agencies. Moreover, through programs like the Indian Housing Block Grant, HUD partners with rural American Indian and Alaska Native tribal governments to support efforts to create locally-driven solutions to economic development challenges.

You can find a copy of the 2012 Budget and Program Initiatives below:

2012 HUD Initiatives

2012 Community Lending Plan

The Federal Home Loan Bank of Boston has identified affordable housing and economic development needs as being some of the most significant challenges for its members in 2012.

The following link will take you to the Federal Home Loan Bank of Boston's Community Lending Plan for 2012:

2012 Community Lending Plan

USDA REAP Guaranteed Loans

The REAP Guaranteed Loan Program encourages the commercial financing of renewable energy (bioenergy, geothermal, hydrogen, solar, wind and hydro power) and energy efficiency projects. Under the program, project developers will work with local lenders, who in turn can apply to USDA Rural Development for a loan guarantee up to 85 percent of the loan amount.

To assist you in determining which program best fit your needs this comparison chart identifies the programs common and distinct requirements in an easy to read format.

Guaranteed Loan Specifications – Loans Limits:

Loans up to 75% of the project’s cost

Maximum of $25 million, minimum of $5,000

Maximum percentage of guarantee (applies to whole loan):

85% for loan of $600,000 or less

80% for loans greater than $600,000 but $5 million or less

70% for loans greater than $5 million up to $10 million

60% for loans greater than $10 millon up to $25 millon

Fees and Interest Rates:

Lender customary interest rate, fixed or variable, negotiated by lender and business Lender customary fees, negotiated by lender and business

One-time guarantee fee equal to 1% of guaranteed amount

Annual renewal fee

Benefits to Businesses

Benefits include higher loan amounts, stronger loan applications, lower interest rates and longer repayment terms that can assist businesses that may not qualify for conventional lender financing.

Benefits to Lenders

Lender benefits include expanding lender loan portfolio, allowing lenders to make loans above loan limits, protecting guaranteed portion of loan against loss by the Federal Government, existing secondary market for REAP guarantees, helping to satisfy Community Reinvestment Act (CRA) requirements, and allowing lenders to use their own forms, loan documents, and security instruments.

Eligible feasibility studies for renewable energy systems include projects that will produce energy from wind, solar, biomass, geothermal, hydro power and hydrogen-based sources. The energy to be produced includes, heat, electricity, or fuel.

For all projects, the system must be located in a rural area, must be technically feasible, and must be owned by the applicant.

Borrowers must be an agricultural producer or rural small business. Agricultural producers must gain 50% or more of their gross income from their agricultural operations. An entity is considered a small business in accordance with the Small Business Administration (SBA) small business size standards NAICS code.(http://www.sba.gov/size/index.html). . Most lenders are eligible, including national and state-chartered banks, Farm Credit System banks and savings and loan associations. Other lenders may be eligible if approved by USDA.

Eligible project costs include: 1) post-application purchase and installation of equipment, 2) post-application construction or improvements, 3) energy audits or assessments, 4) permit or license fees, 5) professional service fees, 6) feasibility studies and technical reports, 7) business plans, 8) retrofitting, 9) construction of a new energy efficient facility only when the facility is used for the same purpose, is approximately the same size, and based on the energy audit will provide more energy savings than improving an existing facility, 10) working capital, 11) land acquisition.

Rural Development REAP Program

The REAP/Feasibility Grant Program provides grants for energy audits and renewable energy development assistance. It also provides funds to agricultural producers and rural small businesses to conduct feasibility study for a renewable energy system.

The grants are awarded on a competitive basis and can be up to 25% of total eligible project costs. Grants are limited to $50,000 for renewable energy feasibility studies.

The program is designed to assist farmers, ranchers and rural small businesses. All agricultural producers, including farmers and ranchers, who gain 50% or more of their gross income from the agricultural operations are eligible. Small businesses that are located in a rural area can also apply. Rural electric cooperatives may also be eligible to apply.

Eligible feasibility studies for renewable energy systems include projects that will produce energy from wind, solar, biomass, geothermal, hydro-power and hydrogen-based sources. The energy to be produced includes, heat, electricity, or fuel.  For all projects, the system must be located in a rural area, must be technically feasible, and must be owned by the applicant.

SunShot Notice of Funding

The SunShot Incubator program is designed to help small businesses make the leap from a great idea to the alpha/prototype phase or to the launch of their project, and thus accelerate the next generation of solar energy products into the market within a few years. Through the Incubator program, SunShot successfully leverages the expertise, capabilities, and facilities of DOE’s National Renewable Energy Lab and other national labs to support small businesses as they transition to industry.

This round of the SunShot Incubator Program is for both hardware and non-hardware solutions that reduce the cost of systems that convert solar energy into electric potential.   

The SunShot Incubator program consists of three tiers to which applications may be submitted:

The first tier includes awards up to $1,000,000 with a 20% cost share requirement over 12 months to accelerate the development of innovative hardware technologies from a proof of concept to a prototype.

Included in the second tier are awards up to $500,000 with a 20% cost share requirement over 12 months to accelerate the development of innovative non-hardware technologies to the prototype/alpha product stage.

The third tier includes awards up to $4 million with a 50% cost share requirement over 18 months that transition innovative hardware and non-hardware solutions into a pilot release and eventually full-scale deployment.

The application deadline is May 29, 2012.

Accelerate Alabama

Accelerate Alabama, the economic development strategic plan for the state, was developed during a six-month period led by the Alabama Economic Development Alliance (Alliance), created in July 2011 by Executive Order of Governor Robert Bentley. The Alliance engaged Boyette Strategic Advisors (BSA) to facilitate the development of the plan. Accelerate Alabama is meant to provide direction for Alabama’s economic development efforts over the next three years.  A copy of the plan can be found at the following link:

Accelerate Alabama

Tennessee Enhanced Job Credit Guidance

A letter ruling issued by the Tennessee Department of Revenue discusses the enhanced job tax credit against the corporate income and franchise taxes where the taxpayer has added headquarters staff jobs. The compensation requirement for each qualified job created by the taxpayer for purposes of the additional annual job tax credit was at least 150% of Tennessee's average occupational wage for the month of January of the year in which the job is created. The taxpayer could claim the $5,000 “basic” job tax credit in the tax year in which it made the required capital investment and created a total of 25 qualified jobs, provided that the investment was made and the jobs were created within 12 months of the effective date of the business plan. Where the taxpayer met the statutory requirements, the taxpayer was also allowed to claim the $5,000 additional annual job tax credit for a period of three years beginning with the first tax year after the initial job tax credit was created. The “basic” job tax credit could not exceed 50% of the taxpayer's combined Tennessee corporate income and franchise tax liability shown on the return before any credit is taken. Nevertheless, the additional annual job tax credit could be used to offset up to 100% of the taxpayer's Tennessee franchise and excise tax liability for that year.

Iowa Incentivizes Investments in Entrepreneurial Efforts

In order to qualify for a qualified business or community-based seed capital fund investment credit under these regulations, the taxpayer must make an equity investment in either a qualifying business or community-based seed capital fund on or after Jan. 1, 2011.

The maximum amount of credit allowed for an investment is $50,000 per qualifying business and a taxpayer may not claim a credit for more than five different investments in five different qualifying businesses.

The regulations also explain the verification requirements for qualifying businesses and community-based seed capital funds. Once the qualifying business or community-based seed capital fund has been verified and registered by the authority, the Iowa Economic Development Board will approve the issuance of a tax credit certificate to the taxpayer.

In addition, the regulations address the requirements for the innovation fund investment credit, which are similar to those of the qualified business or community-based seed capital investment credit. For tax years starting on or after Jan. 1, 2011, a taxpayer may claim a credit equal to 20% of the taxpayer's equity investment in a certified innovation fund.

An innovation fund is a private, early-state capital fund certified by the board.

If the taxpayer is a venture capital investment fund allocation manager for the Iowa fund of funds, or a taxpayer who receives a credit for the same investment in a community-based seed capital fund or qualifying business, then the taxpayer must not claim the innovation fund credit.

The regulations explain the procedure for verifying innovation funds and approving credits.

For fiscal year 2012 and beyond, the aggregate amount of credits that may be allocated cannot exceed $8 million.

American Petroleum Institute Quantifies Impact of President Obama's Tax Reform

The American Petroleum Institute estimates that the impact of President Obama's proposals to repeal oil and gas industry tax preferences and to reform the tax code will cost the energy industry an estimated $86 billion over the next decade.

The oil and gas industry is lobbying Capitol Hill and conducting a high-profile media campaign in key election-year states to defeat the administration's proposals.

Jack Gerard, API president, said in a Feb. 23 conference call that the tax hike “would chase energy investment out of the country, stifle job creation, drive up imports and our trade deficit, and would increase the volatility of gasoline markets.”

The president's fiscal 2013 budget request, unveiled Feb. 13, calls for eliminating tax preferences for the oil and gas industry in light of $100-per-barrel oil prices and record industry profits.

NETL NOFA Smart Grid

The U.S. Department of Energy National Energy Technology Laboratory, on behalf of the Office of Electricity Delivery and Energy Reliability is seeking applications aimed at empowering consumers to better manage their electricity use by enabling access to electricity consumption data by customers and their authorized third parties and providing or supporting the use of third party tools and software products that utilize the available data to deliver a value added service to the customer. Projects under this Funding Opportunity Announcement will be comprised of two Phases. Under Phase I applicants will need to demonstrate the capability for electricity customers and or designated third parties to access their usage data and the functionality of their proposed tool or software product to provide this access. Phase II involves adoption of the tools and software products demonstrated in Phase I to an entire service territory, region or community within the jurisdiction of the applicant or the utility partner of the applicant.


NOFA:


Smart Grid

National Park Service 2011 Annual Report Federal Historic Preservation Tax Credit Program

The Federal Historic Preservation Tax Incentives Program, administered by the National Park Service and the Internal Revenue Service in partnership with the State Historic Preservation Offices, is the nation’s most effective program to promote historic preservation and community revitalization through historic rehabilitation. The tax credit program has generated over $62 billion in the rehabilitation of income-producing historic properties since its inception in 1976. With over 38,000 approved projects, the program is the largest federal program specifically supporting historic preservation. It has been instrumental in preserving the historic places that give cities, towns, and rural areas their special character and in attracting new private investment to the historic cores and Main Streets of the nation’s cities and towns. The tax incentives also generate jobs, enhance property values, create affordable housing, and augment revenues for the Federal, state and local governments. This 2011 annual report can be found at the following link:

2011 Annual Report

Tennessee House Passes Nexus Bill

On February 16, 2012, the Tennessee House of Representatives unanimously passed H2370, which is the result of a compromise between the state and Amazon.com regarding affiliate nexus. Federal case law establishes that a seller must have sufficient connections, or nexus, with Tennessee in order for the state constitutionally to subject a seller in the state to sales and use tax collection responsibilities. This bill would provide requirements for determining whether affiliates have physical presence in Tennessee sufficient to establish nexus with the state. The law would sunset by January 1, 2014, if not before. It is expected to be taken up by the Tennessee Senate shortly.

Water and Waste Disposal Loan Guarnatees

To provide a loan guarantee for the construction or improvement of water and waste disposal projects serving the financially needy communities in rural areas.  This purpose is achieved through bolstering the existing private credit structure through the guarantee of quality loans that will provide lasting benefits.  The water and waste disposal guarantee loans are to serve a population not in excess of 10,000 in rural areas

Guaranteed loans are made and serviced by lenders such as banks, savings and loan associations, mortgage companies and other eligible lenders under the Guarantee Loan Program. These funds are available to be used by public bodies, non-profit corporations and Indian tribes. To qualify, applicants must be unable to obtain the required credit without the loan guarantee from private, commercial or cooperative sources at reasonable rates and terms. Each borrower must have or will obtain the legal authority necessary to construct, operate and maintain the proposed facility and services. The facilities must be located in a rural area. All facilities financed under this provision shall be for public purposes. Guaranteed loans may be made in combination with direct loans.

The lender will structure repayment as established in the loan agreement between the lender and borrower. Normally, guarantees do not exceed 80 percent of the loan. Interest rates are fixed or variable and are determined by the lender and borrower subject to USDA Rural Development review and approval. The maximum time allowable for final maturity for a guaranteed Water and Waste Disposal loan will be limited to the useful life of the facility, not to exceed 40 years. Balloon payments at the end of the loan are prohibited.

USDA Utility Program Loans and Grants

The USDA Rural Development Electric Program offers the following sources of financing assistance: FFB Guaranteed Loans, Hardship Loans, Treasury Rate Loans, Municipal Rate Loans, and Assistance to Rural Communities with Extremely High Energy Costs (loan and grant assistance). The primary differences between the programs are the qualifying criteria and the interest rate for each type of financing.

Guaranteed Loans are provided by USDA Rural Development primarily through the Federal Financing Bank (FFB), National Rural Utilities Cooperative Finance Corporation (CFC), and the National Bank for Cooperatives (CoBank). The FFB is an agency within the Treasury Department, providing funding in the form of loans for various government lending programs, including the guaranteed loan program. FFB loans are guaranteed by USDA and are available to all electric borrowers. FFB interest rates are fixed to the prevailing cost of money to the United States Treasury, plus an administrative fee of one-eighth of 1%. Under this program, loans are executed by the borrower and FFB, CFC, or CoBank, with payment of principal and interest guaranteed by USDA. CFC and CoBank rates are negotiated between the lender and the borrower.

Hardship Loans are used to finance electric distribution and sub-transmission facilities at the 5% hardship rate to qualified borrowers. These direct loans are made to applicants that meet rate-disparity thresholds and whose consumers fall below average per-capita and household income thresholds. In addition, Hardship loans can be made to qualified applicants if the Administrator determines that the borrower has suffered a severe unavoidable hardship, such as a natural disaster.

Treasury Rate Loans are used to finance distribution and sub-transmission facilities of both distribution and power supply borrowers, including, under certain circumstances, the implementation of demand-side management and energy conservation programs. The standard interest rate on direct Treasury rate loans is established daily by the United States Treasury. Borrowers may select interest rate terms for each advance of funds. The minimum interest rate term is 1 year. Interest rate terms are limited to terms published by the United States Treasury.

Municipal Rate Loans are used to finance distribution and sub-transmission facilities of both distribution and power supply borrowers, including, under certain circumstances, the implementation of demand-side management and energy conservation programs. The interest rate is based on interest rates available in the municipal bond market for similar maturities. In most cases, borrowers are required to seek supplemental financing for 30% of their capital requirements under this program. Borrowers may choose from several loan maturity alternatives with associated varying interest rates, which track investment securities and change quarterly.

Assistance to Rural Communities with Extremely High Energy Costs provides grants and loans to be used to acquire, construct, extend, upgrade, and otherwise improve energy generation, transmission, or distribution facilities serving communities in which the average residential energy expenditure for home energy is at least 275% of the national average. Eligible entities are persons, State and local governments, and federally recognized Indian tribes and tribal entities.

In addition, grants and loans may be provided to the Denali Commission, a State-Federal rural development entity, to improve energy facilities serving high-energy-cost communities in Alaska. Interested communities may apply to the Denali Commission.

There is a statutory cap of 4% on planning and administrative expenses for funds made available under these programs.

Renewable Energy Projects, including renewable energy systems, such as solar, wind, hydropower, biomass, or geothermal, can be financed through Guaranteed Loans.