Blog

CDEs and Accountability

An organization seeking awards under the New Markets Tax Credits (“NMTC”) Program must be certified as a community development entity (“CDE”) by the Community Development Financial Institutions Fund (“CDFI Fund”). One of the requirements for an organization to qualify as a CDE is that the organization must maintain accountability to its targeted low-income communities (“LIC”).

The NMTC Program is jointly administered by the CDFI Fund and the Internal Revenue Service (IRS). Any program investments must comply with regulations contained in § 45D of the Internal Revenue Code. The contents of an Allocation Application are consistent with the Internal Revenue Code § 45D and the NMTC Program Income Tax Regulations. I.R.C. §45D(c)(1)(B) provides guidance on the accountability rules for a qualified CDE. If a CDE serves many geographic areas, the CDE must demonstrate accountability to each of these service areas.

Accountability to residents of LICs is maintained through the CDE’s representation on the governing board of the entity or on any advisory board of the entity. If a CDE uses an advisory board to meet the accountability requirement, the CDE must have the ability to demonstrate that the advisory board’s viewpoints receive sufficient consideration by any governing board. A minimum of 20 percent of the members of an advisory board must be representative of the LIC served by the CDE.

Only if the board member resides in a LIC within the entity’s designated service area or otherwise represents the interest of residents of the LIC will the member be considered representative of the LIC. The CDFI Fund encourages the appointment of low-income persons from the LIC to an advisory board.

CDEs with a national, multi-state, or statewide service area must show that at least 20 percent of the advisory board is representative of a cross-section of the LIC(s) within the area(s) that it serves. The CDFI Fund recommends that CDEs with a large geographic service area appoint at least one person to the advisory board accountable to LICs throughout this extensive service area.

To satisfy the goals and purposes of the NMTC Program and reasonably ensure that it meets all accountability test regulations, an entity should create formal written policies and procedures. It is also recommended that CDEs issue an annual compliance report which certifies accountability and make a statement that the CDE has maintained governing or advisory board status.

Also, at least once annually, a CDE should monitor and maintain the status of each board member by verifying that information submitted with the CDE’s Certification Application remains true and correct. Savage & Associates can help your CDE establish these necessary and crucial protocols to meet the accountability test requirements. Call us today!

Let’s Work Together to Develop our Communities

If you want to learn more about NMTCs, contact Savage & Associates at 215.880.9441 in Philadelphia, or 202.817.3941 in Washington D.C. to arrange a consultation. Dionne Savage can assist you to gain access to the benefits provided by the New Markets Tax Credits, Low-Income Housing Tax Credits, C-PACE, Historic Tax Credits, and other vital economic development tools that benefit local communities throughout the United States. Visit our website at Savage & Associates 24 hours a day, seven days a week for more information.