a new way to finance activities in low income communities

Since its creation by Congress in December 2000, the New Markets Tax Credit (NMTC) program has begun to attract significant investment in low income communities. The benefits of this program can be considerable to business owners, nonprofit organizations, and real estate developers in such areas. Plante & Moran can help assist businesses, nonprofit organizations, and developers in understanding the NMTC program so that they can take advantage of its benefits.

Overview

Under the NMTC program, the Department of Treasury has authority to grant approximately $6 billion of federal tax credits through 2007 to taxpayers who make investments in or loans to qualified businesses or organizations located in low income communities. These tax credits are equal to 39 percent of the amount invested in or loaned to the qualified organization. Investors claim the credits over a seven-year period, beginning with the date of the initial investment.

Investors can claim NMTCs if they make an equity investment in a Community Development Entity (CDE) that has received an allocation of NMTCs from the CDFI Fund of the Department of Treasury. Substantially all of the qualified equity investment must in turn be used by the CDE to provide investments in low income communities. Authority to provide NMTCs is awarded annually to CDEs under a competitive application process. To date, the CDFI Fund has made 170 awards totaling more than $3 billion in available tax credits.