August 11, 2020

Volume X, Number 224

August 10, 2020

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IRS Extends Due Dates For Making Investments For New Markets Tax Credit

As part of its ongoing response to COVID-19, the Internal Revenue Service (IRS) released Notice 2020-49, which extends certain time criteria related to the New Markets Tax Credit (NMTC) program. Under the notice, any due dates for making investments, making reinvestments and expending amounts for the construction of real property that would have fallen between April 1, 2020, and December 31, 2020, are extended until December 31, 2020. The Community Development Financial Institutions Fund is currently authorized to make new allocations of the NMTC through the calendar year 2020 allocation round.

The NMTC under section 45D provides tax incentives for investors who make qualified equity investments (QEI) in qualified community development entities (CDE). The NMTC is intended to increase investments and create jobs in low-income communities by providing funding for projects such as financing small businesses, including retail and small manufacturers, and improving community amenities, including healthcare facilities and daycare centers. Investors are allotted tax credits equal to 39% of their QEI and then claim the NMTC over seven years. Investors may claim a credit equal to 5% of the total QEI in each of the first three years and 6% of the investment in each of the subsequent four years. Taxpayers may generally claim other tax benefits—such as the section 47 Rehabilitation Credit or the section 1400Z Opportunity Zone Program—in addition to the NMTC, however, the NMTC may be limited for projects that claim the section 42 Low-Income Housing Credit.

Generally, a CDE must make initial investments within a 12-month period from when the CDE is funded by a taxpayer to qualify for the credit. Additionally, a CDE must reinvest payments received for capital, equity or principal within 12 months of the date of receipt to be treated as continuously invested. Further, proceeds of a capital or equity investment or loan by a CDE that will be expended for construction of real property within 12 months are treated as a reasonable amount of working capital and thus satisfy an exception to the amount of nonqualified financial property held by a qualified active low-income community business.

Notice 2020-49 extends these time limits until December 31, 2020, if the end of the 12-month period would have occurred between April 1 and December 31, 2020. The extension provides relief to all taxpayers claiming the NMTC, and taxpayers do not need to show evidence they faced particular disruptions due to the COVID-19 pandemic.

© 2020 McDermott Will & EmeryNational Law Review, Volume X, Number 167

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About this Author

Martha Groves Pugh, Federal Income Tax Attorney, McDermott Will Emery Law Firm
Counsel

Martha Groves Pugh is counsel in the law firm of McDermott Will & Emery LLP and is based in its Washington, D.C., office.  She focuses her practice on federal income tax issues with a particular emphasis on the nuclear and energy industries.  Marty has helped clients seek and receive many private letter rulings and has extensive experience in drafting legislative language for tax proposals. Her practice also includes tax planning for proposed transactions and advising clients on audits, appeals and litigation issues...

202-756-8368
Steven Hadjilogiou, McDermott Law Firm, Miami, Corporate and Tax Law Attorney
Partner

Steven Hadjilogiou focuses his practice on international inbound and outbound international tax planning for multinational companies and high net worth individuals. Steven has represented various Fortune 500 companies and major privately held businesses in their tax planning and supply chain projects, and also has substantial experience advising on transfer pricing, tax-related intellectual property matters, Subpart F and foreign investment in US real property. Steven also advises clients on pre-immigration planning and cross-border wealth succession. Steven has also worked on the taxation of partnerships and corporations, and international corporate reorganizations.

Steven is an adjunct professor of International Inbound Taxation at the University of Miami Graduate Tax Program. He is the co-chair of the annual Florida Bar/FICPA International Tax Conference. Steven has written numerous articles and presented on topics related to tax. He was a primary drafter of the amicus curiae brief submitted to the US Supreme Court on behalf of the Florida Bar Tax Section in Knight v. Commissioner in 2008.

305-347-6521
Justin Jesse International Tax Attorney McDermott Will Emery Law Firm
Associate

Justin Jesse is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Washington, DC office.  He focuses his practice on U.S. and International Tax.

202-756-8777