CDFI Fund Opens Next Round of NMTC Allocations


Today the CDFI Fund announced the opening of the next round (2014) of New Markets Tax Credit allocations.  Subject to Congressional authorization, the CDFI Fund intends to award $5 billion of New Markets Tax Credit allocation in the next round.  Pursuant to the announcement today by the CDFI Fund, CDE applications must be submitted by August 22, 2014, applications for New Markets Tax Credit allocation must be submitted by October 1, 2014, and prior allocates must satisfy their required issuance of qualified equity investments by January 30, 2015.
 
 
 
 

Pennsylvania Awards First Round of State Historic Tax Credits


The Pennsylvania Department of Community and Economic Development has awarded 15 projects in 10 counties in Pennsylvania the first $3,000,000 of Pennsylvania Historic Preservation Tax Credits. The projects receiving awards include buildings ranging from a church, schools, apartment complexes to a shore factory.  The largest award was $369,015 and the smallest $13,895.  The Pennsylvania Historic Preservation Tax Credit may be bifurcated from the Federal Historic Tax Credit and may be sold by an assignment of a certificate which enable developers to have separate investors for the state and the federal historic tax credits. 
 
 
 
 

Pennsylvania to Award State Historic Tax Credits


The Pennsylvania Department of Community and Economic Development is accepting applications for the Commonwealth's new historic preservation state tax credit.  The Commonwealth will issue no more than $3,000,000 of tax credits each year with no more than $500,000 to a qualified taxpayer in any year.  The state historic tax credit may not exceed 25% of the qualified rehabilitation expenditures incurred in connection with the qualified historic rehabiliation of a building.    The credit may be used to offset the tax liabilty of the Commonwealth of Pennsyvlania imposed on a taxpayer  including Personal Income Tax, Corporate Net Income Tax, Capital Stock-Franchise Tax, Bank and Trust Company Shares Tax, Title Insurance CompaniesShares Tax, Insurance Premiums Tax, Gross Receipts Tax or Mutual Thrift Institution Tax.  The tax credit provided may be carried over and applied to succeeding taxable years for not more than seven taxable years following the first taxable year for which the qualified taxpayer was entitled to claim the credit. A qualified taxpayer, upon application to and approval by DCED may sell or assign, in whole or in part, unused credits granted to another qualified taxpayer.
 
 
 
 

Treasury Announces NMTC Awards


The U.S. Department of the Treasury’s Community Development Financial Institutions Fund  today announced $3.5 billion in New Markets Tax Credit awards aimed at revitalizing low-income communities and increasing economic opportunity nationwide. A total of 87 organizations  across the country received tax credit allocation authority under the calendar year 2013 round of the New Markets Tax Credit Program.  This round awarded today represents the last round of New Markets Tax Credit authority currently authorized by Congress.

 
 
 
 

Art Momjian to Speak on Historic Tax Credits at Duane Morris CLE Program


On Tuesday April 8, 2014 Art Momjian Chair of the Duane Morris Affordable Housing, Community Development, and Syndication Practice Group will speak at a continuing legal education program titled "The Historic Tax Credit Program: Who is a Partner after the New IRS Safe Harbor Rules and the Historic Boardwalk Hall".  The Program is scheduled for 12:30 pm EST at the Philadelphia Office of Duane Morris LLP.  The program will also be video cast in most of the Duane Morris national offices.  For further information and to register please contact either Art Momjian at ajmomjian@duanemorris.com or Richard Weinstein at rmweinstein@duanemorris.com

 
 
 
 

New Markets Tax Credit Allocation Award Update from CDFI Fund


On July 29, 2013, the CDFI Fund published the Notice of Allocation Authority ("NOAA") for the calendar years 2013 and 2014 Allocation Round of the Federal New Markets Tax Credit ("NMTC") Program. The NOAA announced the availability of up to $8.5 billion of NMTC allocation authority for calendar years 2013 and 2014, $3.5 billion of which was authorized by the American Taxpayer Relief Act of 2012 and an additional $5 billion which was subject to Congressional authorization.  The CDFI Fund has not received Congressional allocation authority for calendar year 2014. As a result, the CDFI Fund has amended the NOAA to award the authorized allocation authority for only calendar year 2013 in the amount of $3.5 billion. The CDFI Fund announced that it anticipates making awards under the calendar year 2013 round in late spring of 2014.

 

 
 
 
 

New York Sets Amendment to Action Plan to Distribute $2.1 Billion of Additional Sandy Federal Recovery Funds


New York's Office Of Storm Recovery last week released plans for how to divide the second tranche of billions of dollars from the U.S. Department of Housing and Urban Development Sandy relief program. The almost $2.1 billion will be used for housing, community reconstruction and infrastructure improvements. All of the funds will be issued through the HUD Community Development Block Grant program (CDBG) which is administering $16 billion of the total $60 billion allocated by the Federal government to fund Sandy relief efforts. The initial allotment to New York State was approximately $1.7 billion, while New York City received $1.773 billion in a separate allocation.

This new allotment would be distributed as follows: $1.121 billion would be allotted for housing needs, $441 million for community reconstruction, $430 million for infrastructure and the balance for administration and planning. No funds would be distributed for economic development in this allotment.

The housing distributions will be made to the following programs: New York Rising Housing Program ($435 million), Interim Mortgage and Housing Assistance Program ($57 million), New York Rising Buyout Program ($521 million), New York Rising Rental Buildings  Recovery Program ($100 million) and Sandy Housing Assistance Relief Program ($7.5 million). The homebuyer buyout program given originally $156 million in the first allotment will see an increase by over 3 times to a total of $521 million in this second allotment. All of the new community reconstruction funds would go to The New York Rising Community Reconstruction Program.

The plan states that Sandy damaged or destroyed over 157,000 housing units including 35,000 in Nassau County and 10,000 in Suffolk County. According to the Governor’s office, these new funds will be used primarily to help make homeowners whole. Hearings will be held on Long Island in February and March. The plan can be found at stormrecovery.ny.gov.

 

 

 

 

 

 

 
 
 
 

Historic Tax Credit Safe Harbor - Part III: Investor's Capital Contributions


Revenue Procedure 2014-12 (the “Rev Proc”) which establishes a safe harbor for structure Federal Historic tax credit transactions provides guidance on the staging of capital contributions by the Historic Tax Credit investor. First, the Rev Proc requires that at least 20% of the tax credit investor’s aggregate capital contribution be contributed before the project is placed in service.  In this vein at least 75% of the tax credit investor’s aggregate capital contribution must be fixed at the time of placement in service of the project.  The effect of these two requirements of the Rev Proc is to limit the provision in the sponsor’s partnership agreement or master tenant agreement which would adjust the capital required to be contributed by the tax credit investor to 25% of the scheduled investor capital contribution of the tax credit investor.  Finally the Rev Proc provides an example to illustrate that the tax credit investor’s expected fixed capital commitment may be conditioned upon the achievement of mutually agreed upon milestones (e.g., receiving National Park Service approvals, leasing the Building to tenants).

 

 

 

 
 
 
 

Historic Tax Credit Safe Harbor - Part II: Guarantees


 

 Revenue Procedure 2014—12 (the "Rev Proc") issued by the Internal Revenue Service creates a safe harbor for investors in the Federal Historic Tax Credit. Traditionally the tax credit investor has obtained a guaranty with respect to the benefit of the Federal Historic tax credit from the sponsor of the transaction. However, the Rev Proc prohibits funded guarantees and certain "impermissible guarantees. "Impermissible" guarantees are defined as guarantees: (1) to insure the Investor’s ability to claim the historic tax credit, or the repayment of any portion of the Investor’s contribution due to inability to claim historic tax credit in the event the Internal Revenue Service (the "Service") Service challenges all or a portion of the transactional structure of the Partnership; (2) that the Investor will receive Partnership distributions or (3) to pay the Investor’s costs or indemnify the Investor for the Investor’s costs if the Service challenges the Investor’s claim of the historic tax credit. The Rev Proc defines permitted guarantees as guarantees: (1) for the performance of any acts necessary to claim the historic tax credit; (2) for the avoidance of any act (or omissions) that would cause the Partnership to fail to qualify for the historic tax credits or that would result in a recapture of historic tax credit; and, (3) that are not described as impermissible guarantees . The Rev Proc also provides the following as examples of unfunded guarantees permitted: completion guarantees, operating deficit guarantees, environmental indemnities, and financial covenants.

 
 
 
 

The Historic Tax Credit Safe Harbor - Part I


Revenue Procedure 2014—12 (the “Rev Proc”) issued by the Internal Revenue Service creates a safe harbor for investors in the Federal Historic Tax Credit.  It is anticipated that in the aftermath of the Rev Proc changes will be made in the underwriting and structuring of Federal Historic Tax Credit transactions.  The Rev Proc requires that a tax credit investor receive reasonably anticipated value, exclusive of tax benefits, as a result of its investment in developer partnership or master tenant.  The issue of value may be satisfied by the traditional preferential return although a preferential return cannot be guaranteed and must be dependent upon the success of the project.  With respect to the back end, the Rev. Proc prohibits an option to the developer to purchase the Investor’s interest but does permit the traditional “put” right of the tax credit investor to sell its interest to the sponsor as long as the sale is for not more than the fair market of the value of the investor’s interest and the tax credit investor does not abandon its interest.  Accordingly it appears that the traditional preferred return to the tax credit investor and the investor “put” right are preserved by the Rev. Proc provided that the preferred return is not guaranteed  and the economic interest of the tax credit investor is not reduced by “unreasonable” fees and expenses which would distort the economic benefit to the tax credit investor.

 

 

 

 
 
 
 

New Bill Would Increase and Make Permanent the New Markets Tax Credit Program


Last week the "Invest in the United States Act of 2014" was introduced into the House of Representatives as H.R. 3939.  If enacted, this Act would be permanently extend the Federal New Markets Tax Credit Program.  The Act would also establish an annual allocation of Federal New Markets Tax Credit authority of $5 billion, indexed for inflation.  The Invest in United States Act of 2014 has been referred to the House Commitee on Ways and Means, Transportation and Infrastructure, and Education and the Workforce.
 
 
 
 

Manufacturing Communities Investment Act would Extend and Increase NMTC Program


In response to the decline in manufacturing jobs in certain parts of the Country, the Manufacturing Communities Investment Act was introduced to the Senate.  This Bill which would extend the Federal new markets tax credit (NMTC) Program through 2016 with an increase in the annual NMTC allocation from $3.5 billion to $5 billion in calendar years 2014, 2015 and 2016.  In addition the Bill would authorize an additional $1 billion in NMTC allocation for 2014, 2015, and 2016 which would be allocated by the CDFI Fund to CDEs whose mission is investments in communities affected by major manufacturing job losses. The Bill has been referred to the Senate Finance Committee.

 

 

 

 
 
 
 

IRS Publishes Safe Harbor for Historic Tax Credit Investors


In an effort to stabilize the Federal Historic Tax Credit industry in the aftermath of the Third Circuit Decision in Historic Boardwalk Hall LLC , the Internal Revenue Service (the “IRS”) published Revenue Procedure 2014-12 (the “HTC Rev Proc”) which outlines a safe harbor for investors (an “Investor”) in Federal Historic Tax Credits  (the “Tax Credit”).  An Investor receives the Tax Credit through an ownership interest in a partnership which owns and develops a historic building or through the election of the partnership to pass the Tax Credit to a master tenant owned by the Investor.  In a nutshell the HTC Rev Proc requires: (1) the Investor to have at least a 5% interest in all interests in the partnership; (2) the Investor’s interest in the partnership must represent reasonably anticipated value exclusive of tax benefits; (3) the Investor cannot be protected from losses from partnership activity and must participate in profits in a manner not limited to a preferred return; (4) the ability of the master tenant owned by the Investor to lease the building back to the developer is severely limited; (5) the Investor must contribute at least 20% of the total anticipated capital on or prior to the building being placed in service and this capital contribution must be protected against loss; (6) at least 75% of the Investor’s total anticipated capital must be fixed before the building is placed in service; (7) guarantees to the Investor will be limited to a guaranty with respect to any act or omission which would prevent the partnership from qualifying for the Tax Credit; and (8) the developer may not have the right to acquire the Investor’s interest in the Partnership and the Investor may have a right to compel the developer to purchase the Investor’s interest at its fair market value.  The Rev Proc echoes the position of the IRS in a 2007 Revenue Procedure  which provided a safe harbor with respect to investors in the wind production tax credit as well as the Historic Board Hall case.
 
 
 
 

HUD Announces Additional $1.5 Billion in Sandy CDBG Funds


One year after Hurricane Sandy devastated coastal communities in the Northeast, the U.S. Department of Housing and Urban Development (HUD) announced an allocation of a combined $5.1 billion through a second round of recovery funds to five states and New York City.  Provided through HUD’s Communty Development Block Grant ("CDBG") Program, these CDBG recovery funds will assist impacted communities to meet remaining housing, economic development and infrastructure needs.   In this second Sandy allocation, grantees will be required to identify unmet needs for housing, economic development and infrastructure and may use this allocation to address those unmet needs.  Grantees will be required to incorporate a risk assessment in their planning efforts to ensure long term resilience. The Second HUD CDBG Sandy Allocation has been made to the following: New York City - $1,447,000,000; New Jersey - $1,463,000,000; New York State - $2,097,000; Connecticut - $66,000,000; Maryland - $20,000,000; and Rhode Island - $16,000,000.
 
 
 
 

Duane Morris Closes NMTC Transaction for Community First Fund


Duane Morris represented Lancaster Pennsylvania based CDFI Community First Fund in the deployment of its first award of Federal New Markets Tax Credit authority by the CDFI Fund.  Community First Fund deployed New Markets Tax Credit allocation for the expansion of a Charter School in York, Pennsylvania.  PNC Bank provided the debt and tax credit equity for the York Charter School expansion.
 
 
 
 
 

New Markets Tax Credit, Affordable Housing, and Super Storm Sandy

Sharing insights for developers, non-profits, and investors in the structure and implementation of projects which utilize federal tax credit programs, renewable energy, and subsidized and conventional financing programs

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.