NMTCs Endure Beyond The COVID-19 Pandemic
The COVID-19 pandemic has affected our communities creating a wave of unforeseen suffering and sacrifice. For low-income communities, these negative effects have had an even farther reach. As we return to normalcy, albeit however slowly, the market is ripe for new capital investment after standing still for most of 2020. Fortunately, the federal government has attempted to support the neediest areas with the Consolidated Appropriations Act of 2021 (the “Act”). As a result, a new round of New Market Tax Credit allocations is on the way.
The purpose of the NMTC program is to encourage capital investment in low-income areas that have historically had limited access to such investments. Through the NMTC program, investors receive a tax credit for making qualified equity investments in Community Development Entities (CDEs). As recipients of authority for NMTC allocations, CDEs utilize the capital they raise to make investments or loans for the benefit of businesses located in low-income communities and meet the other IRS requirements. This tax credit is 39% and generated over seven years for every $1 invested into CDEs.
The five-year extension further enables the use of NMTCs as an effective tool to rebuild those distressed communities that have especially suffered because of the COVID-19 pandemic. The extension furthers the overall economic development impact of the NMTC program. A significant amount of allocation available over the next five years makes NMTCs attractive as a mechanism to provide positive change for communities in dire need. Investment in projects that create jobs and provide essential services rebuilds communities and drives the communities’ future economic growth patterns.
Opportunity zones (OZs) were hit hard by the pandemic. The Internal Revenue Service recently issued guidance in Notice 2021-10 providing additional relief for qualified opportunity zone businesses (QOZBs), qualified opportunity funds (QOFs), and investors due to the COVID-19 pandemic.
A summary of the effects of IRS Notice 2021-10 are as follows:
- 30-month substantial improvement period for QOFs – Allows a QOF to disregard the period between April 1, 2020, and March 31, 2021, when calculating the 30-month period.
- 90% investment standard for QOFs – A QOF’s failure to satisfy the 90% investment standard is considered reasonable if the last day of its first six-month period of a taxable year or last day of a taxable year falls between April 1, 2020, and June 30, 2021, and the QOF meets other requirements.
- Working capital safe harbor for QOZBs – Any QOZB holding working capital assets intended for coverage under the working capital safe harbor before June 30, 2021, will receive up to an additional 24 months.
- 12-month reinvestment period for QOFs – If a QOF’s 12-month reinvestment period includes June 30, 2020, then the QOF will receive up to an additional 12 months to reinvest.
Let’s Work Together to Develop our Communities
Savage & Associates provides sophisticated legal and business advice to those who perceive themselves as positive agents of change in their communities. If you are a developer, investor, nonprofit, or entrepreneur, we can work in tandem with you to rebuild low-income communities. Our firm negotiates creative, cutting-edge transactions to help you obtain the capital necessary to build businesses, leverage investments, create jobs, and spark economic activity.
If you have any questions about New Market Tax Credits or any other development financing program, call 215.880.9441 in Philadelphia, or 202.817.3941 in Washington D.C. to arrange a consultation. You can also visit our website at Savage & Associates 24 hours a day, seven days a week for more information. Savage & Associates, we focus on innovative financing tools like New Market Tax Credits, Low-Income Housing Tax Credits, C-PACE, Historic Tax Credits, and other vital economic development tools.