TAX ALERT |
Authored by RSM US LLP
On Dec. 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021 (H.R. 133), a COVID-19 stimulus relief and spending bill which included, among other extenders, an extension of the New Markets Tax Credit (NMTC). The legislation provides a five-year extension of the NMTC program with $5 billion in allocation available annually from 2021 through 2025.
Enacted in 2000 to infuse investment dollars into low-income communities, the NMTC program can provide forgivable financing to projects where capital is generally more difficult to obtain. Each year, the Community Development Financial Institutions (CDFI) Fund uses a competitive process to award Community Development Entities (CDEs) allocation for supporting targeted projects. Through the use of third-party investors, CDEs make these funds available to help businesses and projects that are located within qualifying low-income communities.
The NMTC financing structure offers forgivable loans to projects in severely distressed census tracts across the United States. The NMTC loans are added to the capital stack, reducing the overall investment needs for projects in these distressed areas. After seven years, the NMTC loans are forgiven, resulting in significant back-end benefits to these projects. Funds can be used for real estate, construction, machinery and equipment, and even operating costs. NMTC financing is available to both for-profit and not-for-profit businesses.
The NMTC program can help close the funding gap in commercial, mixed-use or community facilities, and can assist existing businesses in acquiring, rehabilitating or expanding current facilities. CDEs look to finance projects that are ‘shovel ready’ or have just begun the initial phases of construction. Many CDEs prioritize projects with strong community benefits focused on health care services, senior services, education, healthy foods, non-profits, community centers and manufacturing.
CDEs submitted applications in November for the calendar year 2020 allocation with awards expected in summer 2021. Without the extension, the program was scheduled to expire after the 2020 allocation.
The extension of the program will provide $25 billion of total allocation over a five-year period. Projects located in designated eligible areas may be able to take advantage of the attractive benefits offered under the NMTC program. This incentive provides financing for a variety of project needs and is designed to encourage investments that create significant community benefits such as job creation, access to healthy foods or medical care. Entities considering investments that create community benefits should reach out to their RSM tax advisors to learn more about this program and whether it can be used to close financing gaps for these projects, especially during a distressed economy.
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This article was written by Rob Calafell, Mo Bell-Jacobs, Debbie Singer, Stefanie Flock and originally appeared on 2021-01-06.
2020 RSM US LLP. All rights reserved.
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