.01 Section 45D(a)(1) provides a new markets tax credit on certain
credit allowance dates described in § 45D(a)(3) with respect to
a qualified equity investment in a qualified community development entity
(CDE) described in § 45D(c).
.02 Section 45D(b)(1) provides that an equity investment in a CDE is
a “qualified equity investment” if, among other requirements:
(A) the investment is acquired by the taxpayer at its original issue (directly
or through an underwriter) solely in exchange for cash; (B) substantially
all of the cash is used by the CDE to make qualified low-income community
investments; and (C) the investment is designated for purposes of § 45D
by the CDE.
.03 Under § 45D(b)(2), the maximum amount of equity investments
issued by a CDE that may be designated by the CDE as qualified equity investments
shall not exceed the portion of the new markets tax credit limitation set
forth in § 45D(f)(1) that is allocated to the CDE by the Secretary
under § 45D(f)(2).
.04 Section 45D(c)(1) provides that an entity is a CDE only if, among
other requirements, the entity is certified by the Secretary as a CDE.
.05 Section 45D(d)(1) provides that the term “qualified low-income
community investment” (QLICI) means: (A) any capital or equity investment
in, or loan to, any qualified active low-income community business (QALICB)
(as defined in § 45D(d)(2)); (B) the purchase from another CDE of
any loan made by the entity that is a QLICI; (C) financial counseling and
other services specified in regulations prescribed by the Secretary to businesses
located in, and residents of, low-income communities; and (D) any equity investment
in, or loan to, any CDE.
.06 Under § 45D(d)(2), a QALICB is any corporation (including
a nonprofit corporation) or partnership if, among other requirements, (i)
at least 50 percent of the total gross income of the entity is derived from
the active conduct of a qualified business within any low-income community,
(ii) a substantial portion of the use of the tangible property of the entity
(whether owned or leased) is within any low-income community, and (iii) a
substantial portion of the services performed for the entity by its employees
are performed in any low-income community.
.07 Under § 45D(d)(3), with certain exceptions, a qualified
business is any trade or business. The rental to others of real property
is a qualified business only if, among other requirements, the real property
is located in a low-income community.
.08 Section 221 of the American Jobs Creation Act of 2004 (P.L. 108-357)
amended § 45D(e)(2) to provide that the Secretary shall prescribe
regulations under which one or more targeted populations (within the meaning
of § 103(20) of the Riegle Community Development and Regulatory
Improvement Act of 1994 (12 U.S.C. 4702(20))) may be treated as low-income
communities. The regulations shall include procedures for determining which
entities are QALICBs with respect to those populations.
.09 The term “targeted population,” as defined in 12 U.S.C.
4702(20) and 12 C.F.R. 1805.201, means individuals, or an identifiable group
of individuals, including an Indian tribe, who (A) are low-income persons;
or (B) otherwise lack adequate access to loans or equity investments. Under
12 U.S.C. 4702(17) as interpreted by 12 C.F.R. 1805.104, the term “low-income”
means having an income, adjusted for family size, of not more than (A) for
metropolitan areas, 80 percent of the area median family income; and (B) for
non-metropolitan areas, the greater of (i) 80 percent of the area median family
income; or (ii) 80 percent of the statewide nonmetropolitan area median family
income.
.10 Section 101(a) of the Gulf Opportunity Zone Act of 2005 (Pub. L.
109-135) (the Act) added new § 1400M(1), which provides that the
Gulf Opportunity Zone (GO Zone) is that portion of the Hurricane Katrina disaster
area determined by the President to warrant individual or individual and public
assistance from the Federal Government under the Robert T. Stafford Disaster
Relief and Emergency Assistance Act by reason of Hurricane Katrina.
.11 Section 1400M(2) provides that the Hurricane Katrina disaster area
is an area with respect to which a major disaster has been declared by the
President before September 14, 2005, under section 401 of the Act by reason
of Hurricane Katrina. After determination by the President that a disaster
area warrants assistance pursuant to the Robert T. Stafford Disaster Relief
and Emergency Assistance Act, the Federal Emergency Management Agency (FEMA)
makes damage assessments. The categories for damage assessment in the wake
of a hurricane are: flooded area, saturated area, limited damage, moderate
damage, extensive damage, and catastrophic damage.
.12 Under § 1400N(m)(1), a CDE shall be eligible for an allocation
under § 45D(f)(2) of the increase in the new markets tax credit
limitation described in § 1400N(m)(2) only if a significant mission
of the CDE is the recovery and redevelopment of the GO Zone. Section 1400N(m)(2)
provides that the new markets tax credit limitation otherwise determined under
§ 45D(f)(1) shall be increased by an amount equal to $300,000,000
for 2005 and 2006 and $400,000,000 for 2007, to be allocated among CDEs to
make QLICIs within the GO Zone. CDEs may make such QLICIs under the existing
rules of § 1.45D-1 or using the guidance contained in this notice.
.13 On May 24, 2005, the Community Development Financial Institutions
(CDFI) Fund published an advance notice of proposed rulemaking (ANPRM) (70
FR 29658) to seek comments from the public with respect to how targeted populations
may be treated as eligible low-income communities under § 45D(e)(2).
In response to the ANPRM, comments have been received making various suggestions
relating to the definition of the term “targeted populations”
and proposing amendments to the requirements to be a QALICB under § 1.45D-1.
.14 In conjunction with the publication of Income Tax Regulations specifying
how an entity meets the requirements to be a QALICB when its activities involve
certain targeted populations under § 45D(e)(2), the CDFI Fund shall
provide additional guidance with respect to: (A) the definition of such targeted
populations; and (B) administrative procedures relating to the certification
of CDEs wishing to serve such populations. Taxpayers may rely upon this notice
until such guidance is issued.
.01 Notice of Proposed Rulemaking. The Treasury
Department and Internal Revenue Service are developing regulations to provide
guidance on how an entity meets the requirements to be a QALICB when its activities
involve certain targeted populations under § 45D(e)(2). Taxpayers
may rely on this notice until the regulations are issued. Based upon the
statutory changes made by the American Jobs Creation Act of 2004 and in response
to comments received in response to the CDFI Fund ANPRM, the Treasury Department
and Internal Revenue Service expect to amend § 1.45D-1 to provide
guidance consistent with this notice.
.02 Low-Income Community. Section 1.45D-1 will
be amended to provide that, for purposes of § 45D(e)(2), targeted
populations that will be treated as a low-income community are individuals,
or an identifiable group of individuals, including an Indian tribe, who are
low-income persons as defined in section 3.03 of this notice or who are individuals
who otherwise lack adequate access to loans or equity investments as defined
in section 3.04 of this notice.
.03 Low-Income Persons.
(1) Definition. For purposes of § 45D(e)(2),
an individual shall be considered to be low-income if the individual’s
family income, adjusted for family size, is not more than (A) for metropolitan
areas, 80 percent of the area median family income; and (B) for non-metropolitan
areas, the greater of (i) 80 percent of the area median family income; or
(ii) 80 percent of the statewide nonmetropolitan area median family income.
(2) QALICB Requirements for Low-Income Targeted Populations.
(a) In general. Section 1.45D-1(d)(4)(A), (B),
and (C) will be amended to provide that a QALICB for low-income targeted populations,
with respect to any taxable year, is a corporation (including a nonprofit
corporation) or a partnership engaged in the active conduct of a qualified
business as defined in § 1.45D-1(d)(5) if:
(i) at least 50 percent of the entity’s total gross income for
any taxable year is derived from sales, rentals, services, or other transactions
with individuals who are low-income persons for purposes of § 45D(e)(2),
(ii) at least 40 percent of the entity’s employees are individuals
who are low-income persons for purposes of § 45D(e)(2), or
(iii) at least 50 percent of the entity is owned by individuals who
are low-income persons for purposes of § 45D(e)(2).
(b) Employee. The determination of whether an
employee is a low-income person must be made at the time the employee is hired.
If the employee is a low-income person at the time of hire, that employee
is considered a low-income person for purposes of § 45D(e)(2) throughout
the time of employment, without regard to any increase in the employee’s
income after the time of hire.
(c) Owner. The determination of whether an owner
is a low-income person must be made at the time the QLICI is made. If an
owner is a low-income person at the time the QLICI is made, that owner is
considered a low-income person for purposes of § 45D(e)(2) throughout
the time the ownership interest is held by that owner.
(3) 120-Percent-Income Restriction.
(a) In general.
(i) In no case will an entity be treated as a QALICB under section
3.03 of this notice if the entity is located in a population census tract
for which the median family income exceeds 120 percent of:
(A) in the case of a tract not located within a metropolitan area, the
statewide median family income, or
(B) in the case of a tract located within a metropolitan area, the greater
of statewide median family income or metropolitan area median family income
(120-percent-income restriction).
(ii) The 120-percent-income restriction shall not apply to an entity
located within a population census tract with a population of less than 2,000
if such tract is not located in a metropolitan area.
(iii) The 120-percent-income restriction shall not apply to an entity
located within a population census tract with a population of less than 2,000
if such tract is located in a metropolitan area and more than 75 percent of
the tract is zoned for commercial or industrial use.
(b) Population Census Tract Location.
(i) For purposes of the 120-percent-income restriction, an entity will
be considered to be located in a population census tract for which the median
family income exceeds 120 percent of the applicable median family income under
section 3.03(3)(a)(i)(A) or (B) of this notice (non-qualifying population
census tract) if:
(A) at least 50 percent of the total gross income of the entity is derived
from the active conduct of a qualified business (as defined in § 1.45D-1(d)(5))
within one or more non-qualifying population census tracts (non-qualifying
gross income amount);
(B) at least 40 percent of the use of the tangible property of the entity
(whether owned or leased) is within one or more non-qualifying population
census tracts (non-qualifying tangible property usage); and
(C) at least 40 percent of the services performed for the entity by
its employees are performed in one or more non-qualifying population census
tracts (non-qualifying services performance).
(ii) The entity is considered to have the non-qualifying gross income
amount if the entity has non-qualifying tangible property usage or non-qualifying
services performance of at least 50 percent instead of 40 percent.
(iii) If the entity has no employees, the entity is considered to have
the non-qualifying gross income amount as well as non-qualifying services
performance if at least 85 percent of the use of the tangible property of
the entity (whether owned or leased) is within one or more non-qualifying
population census tracts.
(4) Rental of Real Property for Low-Income Targeted Populations.
In addition, § 1.45D-1(d)(5)(ii) will be amended to provide that
the rental to others of real property for low-income targeted populations
that otherwise satisfies the requirements to be a qualified business will
be treated as located in a low-income community if at least 50 percent of
the entity’s total gross income is derived from rentals to individuals
who are low-income persons for purposes of section 45D(e)(2) and/or to a QALICB
that meets the requirements for low-income targeted populations under section
3.03(2)(a)(i) or (ii) and 3.03(2)(b) of this notice.
.04 Individuals who Otherwise Lack Adequate Access to Loans
or Equity Investments.
(1) In general. Section 3.04 of this notice may
be applied only with regard to QLICIs made under the increase in the new markets
tax credit limitation pursuant to § 1400N(m)(2). Therefore, only
CDEs with a significant mission of recovery and redevelopment of the GO Zone
that receive an allocation from the increase described in § 1400N(m)(2)
may make QLICIs from that allocation pursuant to the rules in section 3.04
of this notice.
(2) GO Zone Targeted Population. For purposes
of targeted populations under § 45D(e)(2), an individual is considered
to otherwise lack adequate access to loans or equity investments only if the
individual was displaced from his or her principal residence as a result of
Hurricane Katrina and/or the individual lost his or her principal source of
employment as a result of Hurricane Katrina (GO Zone Targeted Population).
In order to meet this definition, the individual’s principal residence
or principal source of employment, as applicable, must have been located in
a population census tract within the GO Zone that contains one or more areas
designated by FEMA as flooded, having sustained extensive damage, or having
sustained catastrophic damage as a result of Hurricane Katrina.
(3) QALICB Requirements for the GO Zone Targeted Population.
(a) In general. Section 1.45D-1(d)(4)(A), (B),
and (C) will be amended to provide that a QALICB for the GO Zone Targeted
Population, with respect to any taxable year, is a corporation (including
a nonprofit corporation) or a partnership engaged in the active conduct of
a qualified business as defined in § 1.45D-1(d)(5) if:
(i) at least 50 percent of the entity’s total gross income for
any taxable year is derived from sales, rentals, services, or other transactions
with the GO Zone Targeted Population, low-income persons as defined in section
3.03 of this notice, or some combination thereof;
(ii) at least 40 percent of the entity’s employees consist of
the GO Zone Targeted Population, low-income persons as defined in section
3.03 of this notice, or some combination thereof; or
(iii) at least 50 percent of the entity is owned by the GO Zone Targeted
Population, low-income persons as defined in section 3.03 of this notice,
or some combination thereof.
(b) Location.
(i) In general. In order to be a QALICB under
section 3.04(3) of this notice, the entity must be located in a population
census tract within the GO Zone that contains one or more areas designated
by FEMA as flooded, having sustained extensive damage, or having sustained
catastrophic damage as a result of Hurricane Katrina (qualifying population
census tract).
(ii) Determination.
(A) For purposes of the preceding paragraph, an entity will be considered
to be located in a qualifying population census tract if:
(1) at least 50 percent of the total gross income
of the entity is derived from the active conduct of a qualified business (as
defined in § 1.45D-1(d)(5)) within one or more qualifying population
census tracts (gross income requirement);
(2) at least 40 percent of the use of the tangible
property of the entity (whether owned or leased) is within one or more qualifying
population census tracts (use of tangible property requirement); and
(3) at least 40 percent of the services performed
for the entity by its employees are performed in one or more qualifying population
census tracts (services performed requirement).
(B) The entity is deemed to satisfy the gross income requirement if
the entity meets either the use of tangible property requirement or the services
performed requirement of at least 50 percent instead of 40 percent.
(C) If the entity has no employees, the entity is deemed to satisfy
the services performed requirement as well as the gross income requirement
if at least 85 percent of the use of the tangible property of the entity (whether
owned or leased) is within one or more qualifying population census tracts.
(4) 200-Percent-Income Restriction.
(a) In general.
(i) In no case will an entity be treated as a QALICB under section
3.04 of this notice if the entity is located in a population census tract
for which the median family income exceeds 200 percent of:
(A) in the case of a tract not located within a metropolitan area, the
statewide median family income, or
(B) in the case of a tract located within a metropolitan area, the greater
of statewide median family income or metropolitan area median family income
(200-percent-income restriction).
(ii) The 200-percent-income restriction shall not apply to an entity
located within a population census tract with a population of less than 2,000
if such tract is not located in a metropolitan area.
(iii) The 200-percent-income restriction shall not apply to an entity
located within a population census tract with a population of less than 2,000
if such tract is located in a metropolitan area and more than 75 percent of
the tract is zoned for commercial or industrial use.
(b) Population Census Tract Location.
(i) For purposes of the 200-percent-income restriction, an entity will
be considered to be located in a population census tract for which the median
family income exceeds 200 percent of the applicable median family income under
section 3.04(4)(a)(i)(A) or (B) of this notice (non-qualifying population
census tract) if:
(A) at least 50 percent of the total gross income of the entity is derived
from the active conduct of a qualified business (as defined in § 1.45D-1(d)(5))
within one or more non-qualifying population census tracts (non-qualifying
gross income amount);
(B) at least 40 percent of the use of the tangible property of the entity
(whether owned or leased) is within one or more non-qualifying population
census tracts (non-qualifying tangible property usage); and
(C) at least 40 percent of the services performed for the entity by
its employees are performed in one or more non-qualifying population census
tracts (non-qualifying services performance).
(ii) The entity is considered to have the non-qualifying gross income
amount if the entity has non-qualifying tangible property usage or non-qualifying
services performance of at least 50 percent instead of 40 percent.
(iii) If the entity has no employees, the entity is considered to have
the non-qualifying gross income amount as well as non-qualifying services
performance if at least 85 percent of the use of the tangible property of
the entity (whether owned or leased) is within one or more non-qualifying
population census tracts.
(5) Rental of Real Property for the GO Zone Targeted Population.
In addition, § 1.45D-1(d)(5)(ii) will be amended to provide that
the rental to others of real property for the GO Zone Targeted Population
that otherwise satisfies the requirements to be a qualified business will
be treated as located in a low-income community if at least 50 percent of
the entity’s total gross income is derived from rentals to the GO Zone
Targeted Population, low-income persons as defined in section 3.03 of this
notice, or some combination thereof and/or to a QALICB that meets the requirements
for the GO Zone Targeted Population under section 3.04(3)(a)(i) or (ii) of
this notice.
