October 23, 2021

Volume XI, Number 296

Advertisement
Advertisement

October 22, 2021

Subscribe to Latest Legal News and Analysis

October 21, 2021

Subscribe to Latest Legal News and Analysis

October 20, 2021

Subscribe to Latest Legal News and Analysis

U.S. Treasury Announces $5 Billion Allocation of New Markets Tax Credit Awards

The United States Department of the Treasury’s Community Development Financial Institutions Fund (CDFI) on Sept. 1 announced $5 billion in New Markets Tax Credit (NMTC) awards with the goal of economically revitalizing low-income communities across the country. Particular outcomes that the CDFI hopes to achieve with this round of awards include job creation associated with investments in manufacturing, retail, and technology, as well as greater access to housing and public facilities such as health, education, and childcare for low-income communities. A total of 100 organizations nationwide received tax credit allocation authority under this round of the NMTC Program.

The NMTC can serve as a valuable means of reducing the debt or equity necessary to undertake a project. In a typical NMTC transaction, a project sponsor can expect to receive a net benefit of 15 to 25% of project costs. For example, a project with eligible costs of $10,000,000 can generate up to $2,500,000 of capital for the project, thereby reducing the need for capital from traditional debt and equity sources to only $7,500,000. This substantial benefit created by the NMTC Program allows it to function as a powerful mechanism for economic development.

The program has served an integral role in stimulating job creation and investment in low-income areas of cities and rural communities throughout the country. A federal economic development program now in its second decade of existence, the NMTC Program has proven to be an effective means of attracting private capital to complete the financing requirements of projects that may fail to progress forward otherwise. The program frequently receives praise for its versatility in terms of the types of projects for which the NMTC financing may be utilized. The NMTC has been employed in nearly every type of project conceivable, including real estate development, operating business expansion, and charitable organization activities.

NMTC requirements are codified in § 45D of the Internal Revenue Code and the Treasury Regulations promulgated thereunder. In order to qualify for the NMTC, an eligible project, at a minimum, must be located in a qualified census tract which meets certain criteria related to median income, poverty, and unemployment levels. There are also certain types of businesses that are not eligible for NMTC financing, including housing, large-scale agriculture, and certain “sin businesses” such as a massage parlor or liquor store.

The NMTC is distinguished from many other tax credits by the manner in which it is made available. A project, rather than automatically qualifying for the tax credit so long as it meets the relevant qualification criteria, must first be selected by one of the organizations to which the CDFI has awarded tax credit allocation authority. The organizations, known as Community Development Entities (CDEs), will allocate tax credits to projects that produce the specific positive community impacts they are seeking.

As previously mentioned, 100 CDEs were awarded allocation authority in this round, and a project’s potential positive community impact is perceived differently by each one. However, one factor deemed significant by nearly every CDE is the location of a project in a “targeted state.” The CDFI has identified 10 states that historically have underutilized the NMTC, and the CDFI has emphasized to CDEs the importance of the program’s use in targeted states. The targeted states for the current allocation are as follows:

  • Texas

  • Florida

  • Georgia

  • Kansas

  • Nevada

  • West Virginia

  • Tennessee

  • New Mexico

  • Virginia

  • Wyoming

While this round of awards should result in greatly needed levels of community investment and economic development related to the NMTC Program, the majority of the tax credits will be allocated to projects in a short time span. Developers, companies, and charities that do not move quickly to capitalize on this round of financing may find themselves on the sideline, regardless of how favorably their project is perceived by a CDE.

©2021 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume XI, Number 245
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement

About this Author

James Lang, Greenberg Traurig Law Firm, Tax and Energy Law Attorney
Shareholder

James O. Lang focuses his tax and corporate project finance practice on tax credit incentive programs and related state and federal incentive programs.  Jim represents investors, lenders, community development entities, and for-profit and not-for-profit projects in complex transactions where capital stacks require enhancement through incentive financing, including state and federal new markets tax credits, affordable housing and low-income housing tax credits, historic rehabilitation tax credits, renewable energy tax credits, and film and entertainment tax credits. 

813-318-5731
Laura A. Hendee Attorney Tax Law Greenberg Traurig Tampa
Associate

Laura A. Hendee is a member of the Tax Practice in Greenberg Traurig’s Tampa office. Laura’s experience includes the preparation of entity formation documents relating to complex financial investments in Qualified Opportunity Zones, Qualified Opportunity Zone Businesses, tax credits, and related state and federal incentive programs.

813-318-5747
Brian Gaudet Tax Attorney Greenberg Traurig Boston, MA
Of Counsel

Brian Gaudet works with private and public companies to help design tax-optimal legal entity structures and day-to-day transaction flows. Brian has wide-ranging experience handling domestic and international transactional tax work for buyers, sellers, and investors as well as experience in state & local tax and tax incentive work, including Qualified Opportunity Zone transactions.

Brian also has Tax & Business practice experience that includes estate planning and trust & estate administration. Brian’s Corporate practice experience includes corporate governance &...

813-318-5705
Andrew K. Rubin Associate GT Denver Tax Financing Structures State and Local Incentives Infrastructure Housing
Associate

Andrew P. Rubin works on the tax and finance deals that build and improve local communities. His practice is focused on leveraging unique financing structures and tools to infuse development and redevelopment projects with the capital needed to bring critical services to these communities. Andrew’s toolbox includes a variety of financing programs such as tax-exempt bonds, new markets tax credits, renewable energy tax credits, state and local tax incentives, and government loan guarantees that can be used to fund infrastructure, transportation, multifamily housing, affordable housing,...

3035726552
Advertisement
Advertisement
Advertisement