IRS extends deadlines for New Markets Tax Credit

Tax Hot Topics newsletter The IRS has issued guidance (Notice 2020-49) providing that deadlines for certain time-sensitive actions related to the New Markets Tax Credit (NMTC) falling on or after April 1 and before Dec. 31, 2020, will be extended to Dec. 31, 2020.

Under Section 45D, a taxpayer may claim the NMTC for a qualified equity investment (QEI) in a community development entity (CDE) on specified credit allowance dates. One of the requirements for determining whether there is a QEI in a CDE is if substantially all the cash is used by the CDE to make qualified low-income community investments (QLICIs). A QLICI includes any capital or equity investment in, or loan to, any qualified active low-income community business (QALICB).

The Section 45D regulations contain the following timing requirements for CDE investments in QILCIs:

  • A CDE’s investment in QLICIs must be made within 12 months of the CDE receiving the taxpayer’s cash investment.
  • Amounts received by a CDE in payment of, or for, capital, equity or principal with respect to a QLICI must be reinvested by the CDE in a QLICI no later than 12 months from the date of receipt to be treated as continuously invested in a QLICI.

The rules also provide that of a QALICB’s average aggregate unadjusted basis in property, less than 5% may be attributable to nonqualified financial property, not counting reasonable amounts of working capital. The proceeds of a capital or equity investment or loan by a CDE that will be expended for construction of real property within 12 months after the date the investment or loan is made are treated as a reasonable amount of working capital.

Notice 2020-49 provides that if the last day of any of the three 12-month periods described above falls on or after April 1 and before Dec. 31, 2020, the required action is treated as timely satisfied if performed by Dec. 31, 2020. All other rules and requirements related to the NMTC continue to apply as normal.

Dustin Stamper
Managing Director
Washington National Tax Office
T +1 202 861 4144
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