On February 13, 2018, the Treasury Department announced $3.5 billion in tax credits under the latest round of the New Markets Tax Credit (NMTC) program. The amount includes awards to 73 organizations headquartered in 29 states, Guam and the District of Columbia.

The NMTC program, administered by Treasury's Community Development Financial Institutions (CDFI) Fund, was established in December 2000 by Congress. The program was designed to encourage investments into operating businesses and real estate projects located in low-income communities. It allows individual and corporate investors to receive a tax credit against their federal income tax for making qualified equity investments in investment vehicles called Community Development Entities (CDEs). An investor's credit totals 39% of the investment in a CDE and is claimed over seven years. Substantially all of the amount of investment must be used by a CDE to make qualified investments in low-income communities. In the previous 13 rounds, the CDFI Fund has allocated 1,032 awards totaling $50.5 billion in tax credit authority.

In the latest round, CDFI received a total of 230 applications, requesting a total of $16.2 billion. Of all the applicants, 73 CDEs (about 32% of the total applicant pool) received the $3.5 billion in allocations (about 21% of the total requested amount). The average allocation award in this round was approximately $47 million, with awards ranging from $15 million to $75 million. About 70% of the amounts awarded went to loans to, or equity investments in, business; 30% went to loans to, or equity investments in, real estate.

Implications

First, congratulations is due to the 73 successful CDEs. Second, now that the award has been announced, CDEs will be further evaluating the pipeline of potential projects. It is incumbent on taxpayers that have projects that may be able to benefit from a sub-allocation of NMTCs to reach out to CDEs that received awards. It is expected that CDEs will place a significant emphasis on projects that are in significantly distressed census tracts. We note that all 73 successful CDEs have committed to providing at least 75% of their investments (roughly $2.6 billion in allocation) in areas that have: 1) multiple indicia of distress; 2) significantly greater indicia of distress than required by NMTC Program rules; or 3) high unemployment rates.

Finally, while no timetable has been set, the next application round historically is opened 2-3 months following the release of awards. Existing CDEs and those that may want to set up a CDE should start considering their options and start planning for the 2018 application.

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