The Community Development Financial Institutions (CDFI) Fund has released updated guidance for the 2010 New Markets Tax Credit (NMTC) program, including application questions-and-answers. Most notably, the application Q&A document includes updated guidance regarding the related party test, a major priority for NH&RA’s New Markets Tax Credit Steering Committee.

The updated Q&A notes that “A CDE that has committed to invest in Unrelated Entities will be in compliance with its Allocation Agreement only if persons unrelated to the CDE will hold a majority equity interest in the QALICB immediately after a QEI is made in the CDE but before the CDE uses the proceeds of that QEI for making its initial QLICI in the QALICB.”

This clarification change will have major implications on how NMTC transactions are structured. It should allow CDEs to structure their NMTC investments as equity. The previous interpretation of the related party test forced most allocatees to structure their investments as debt. Many low-income community businesses will benefit from increased equity capital than they would from increased debt, especially when NMTCs are used to supplement and enhance other government priorities including but not limited to the Historic Rehabilitation Tax Credit and Energy Tax Credits. Read More…

The Fund’s new guidance will be a major point of discussion at NH&RA’s 2010 Summer New Markets Tax Credit Symposium, July 21at the Ritz-Carlton Laguna Niguel in Dana Point, CA. To register, or for more information, click here