Today’s economy has made it difficult for not-for-profits to raise funds. As a result, many have been forced to find creative ways to meet their fundraising goals or face delaying planned projects.
One opportunity that may be available to not-for-profit organizations is the New Markets Tax Credit (NMTC) program. In specific types of situations, NMTCs can help fill the gap left by shortfalls in fundraising from traditional sources.
Overview of the NMTC Program
In a nutshell, the NMTC program encourages taxpayers to make investments into low income communities by providing them with a tax credit for making those investments. The majority of urban areas and many rural areas qualify as distressed under the NMTC program. The credit equals 39 percent of the investment, earned over seven years. NMTCs can provide a permanent net subsidy to a qualifying not-for-profit organization that receives such an investment of 15 to 20 percent of the budgeted amount of their capital project. The best candidates are not-for-profit organizations that are:
- Located in or serve the residents of a distressed or low-income community
- Seeking financing of $5 million or more
- Either or both of the following:
- Making services or goods available to residents of a distressed community that aren’t currently available in the community
- Creating a significant number of permanent jobs, particularly if such jobs will be available to low income individuals
Can Your Nonprofit Organization Benefit from NMTCs?
There’s no restriction on what type of nonprofit organization can utilize NMTCs—as long as they meet the NMTC eligibility requirements, which are based on census tract data such as poverty rate and median income. Examples of projects sponsored by nonprofit organizations that we have assisted in taking advantage of the NMTC program include:
- Business incubators
- Healthcare facilities
- Human service agencies
- Community facilities
- Charter schools
- College and university facilities
- Community theaters
How to Access NMTC Capital
A nonprofit organization that desires to access funds from the NMTC program should first make sure the project is consistent with the organization’s exempt purpose. Next, the organization would need to determine if its project qualifies and would then need to identify community development entities (CDEs) with an allocation of NMTCs that are interested in utilizing part of such allocation to benefit the project. Plante Moran can quickly determine if your project is eligible for NMTCs if you provide us with the location of the project. We can also help introduce you to CDEs that may be able to provide NMTC allocation to your project. Information regarding CDEs that have been allocated NMTCs is available at www.cdfifund.gov.
In addition, the structure of the proposed arrangement and the nonprofit organization’s potential role in the project should be reviewed to determine the tax consequences to the organization. Depending upon the proposed structure and role, there could be both unrelated business income and tax-exemption issues to consider.