$3.5bn In Tax Credits For US Low-Income Areas

by Leroy Baker, Tax-News.com, New York

18 July 2005

The US Treasury Department on Friday said it is offering $3.5 billion in tax credits under the fourth round of the New Markets Tax Credit program designed to help low-income areas.

The New Markets Tax Credit program allows people and companies to claim a credit against federal income tax for making equity investments in vehicles known as community development entities. The credit, which totals 39% of the cost of the investment, is claimed over seven years.

This is the fourth round of credits offered since Congress approved the New Markets Tax Credit program in late 2000. In the first three rounds, Treasury has made 170 awards totaling $8 billion. The fourth-round application deadline is Sept. 21, and information is available on the Internet at www.cdfifund.gov.

The NMTC program attracts private-sector capital investment into the nation’s urban and rural low-income areas to help finance community development projects, stimulate economic growth and create jobs.

"The New Markets Tax Credit program spurs development and creates jobs in communities most in need," said
Treasury Secretary John W. Snow. "By leveraging private sector involvement, we're putting these communities
on a path to continued development and prosperity."

The NMTC program, established by Congress in December of 2000, permits individual and corporate taxpayers to receive a credit against federal income taxes for making qualified equity investments in investment vehicles known as Community Development Entities (CDEs). The credit provided to the investor totals 39 percent of the cost of the investment and is claimed over a seven-year period. Substantially all of the taxpayer’s investment must in turn be used by the CDE to make qualified investments in low-income communities. Successful applicants are selected only after a competitive application and rigorous review process that is administered by Treasury’s Community Development Financial Institutions (CDFI) Fund.

"The pace with which capital is being raised and its deployment into local projects is impressive for such a new program”, said CDFI Fund Director Arthur Garcia. “To date, 87 of the allocatees from the first two rounds have already raised $2.2 billion in equity from investors, and this capital is already starting to be put to use funding deals in our nation’s low-income communities.” Through the first three rounds of the NMTC Program, the CDFI Fund has made 170 awards totaling $8 billion in tax credit allocation authority.
The Community Development Financial Institutions Fund (the Fund) was created for the purpose of promoting economic revitalization and community development through investment in and assistance to community development financial institutions (CDFIs). The Fund was established under the Reigle Community Development and Regulatory Improvement Act of 1994, as a bipartisan initiative.

The Fund achieves its purpose by promoting access to capital and local economic growth in the following ways: 1) through its CDFI Program by directly investing in, supporting and training CDFIs that provide loans, investments, financial services and technical assistance to underserved populations and communities; 2) through its New Markets Tax Credit (NMTC) Program by providing an allocation of tax credits to community development entities (CDEs) which enable them to attract investment from the private-sector and reinvest these amounts in low-income communities; 3) through its Bank Enterprise Award (BEA) Program by providing an incentive to banks to invest in their communities and in other CDFIs; and 4) through its Native Initiatives, by taking action to provide financial assistance, technical assistance, and training to Native CDFIs and other Native entities proposing to become or create Native CDFIs.

Recommended