NMTCs General Overview

The New Markets Tax Credit Program (the “Program”) was enacted in December of 2000 as part of the Community Renewal Tax Relief Act of 2000.  Section 45D of the Internal Revenue Code of 1986, as amended (the “Code”), provides an income tax credit against Federal income tax liability (the “Credit”) for investors that make qualified equity investments into community development entities (“CDEs”).  CDEs must then take the qualified equity investments and invest such in qualified low income community investments, businesses and real estate projects in low income communities.

The Credit is taken over a period of 7 years at a rate of 5% of the original investment amount in each of the first 3 years and 6% of the original investment amount in each of the final 4 years.  The total Credit equals 39% of the original investment amount.

The Community Development Financial Institutions Fund, which is part of the Department of Treasury, is responsible for allocating the Credits to CDEs.  The CDEs then sell the Credit to an equity investor in exchange for an equity investment.

A CDE can be either a domestic corporation or a partnership that serves as an intermediary for the provision of loans or equity in low income communities.  The CDE must demonstrate that it has a primary mission of serving, or providing investment capital for, low income communities or low income persons.

A low income community is a census tract: with at least 20% poverty rate, where the median family income does not exceed 80% of the area median family income, has a population of less than 2,000 that is contained within a Federally designated Empowerment Zone or where the median family income does not exceed 85% of the area median family income provided that the census tract is located in a high migration rural county.