New Market Tax Credits - Office of the Comptroller of the Currency

New Market Tax Credits What are New Markets Tax Credits? communities that is equal to approximately 20% of the project financing. These projects, in turn, The New Markets Tax Credit (NMTC) Program provide jobs, economic activity, and needed provides a tax incentive for private sector products and services in low-income investment into economic development projects communities. and businesses located in low-income communities. The program is overseen by the What are the benefits to banks? United States Department of the Treasury and is directly administered by the Community • The NMTC provides a subsidy that helps Development Financial Institutions (CDFI) Fund. banks participate in projects in low- income communities that might not NMTCs are allocated by the CDFI Fund to otherwise

be eligible for financing. community development entities (CDEs) under a • Bank investors receive a credit against competitive application process. federal income taxes for making qualified equity investments in CDEs. The credit To qualify as a CDE, an entity must be a domestic totals 39 percent of the cost of the corporation or partnership that: investment and is claimed over a seven- • has a mission of serving, or providing year period. investment capital for, low-income • NMTC participants can also earn interest communities or low-income persons; income on their investments, depending • maintains accountability to residents of upon how they are structured. low-income communities through their • Banks may receive positive CRA representation on a governing board of, or consideration for NMTC investments, advisory board to, the CDE; and provided the investments benefit a bank’s • has been certified as a CDE by the CDFI assessment area. Fund. How can banks participate in the CDEs offer the NMTCs to investors in exchange NMTC Program? for qualified equity investments (QEIs). The CDEs then invest those funds into qualified active Banks can participate as tax credit investors in low-income businesses (QALICBs). two ways: NMTCs provide a subsidy to businesses and • economic development projects in low-income Bank-operated CDE Model A bank can form a subsidiary CDE and apply to the CDFI Fund for an allocation of NMTCs. March 2013 1 Office of the Comptroller of the Currency • The CDE can apply for • Federal savings associations may make certification with the CDFI Fund. similar public welfare investments under • CDFI Fund-certified CDEs are 12 CFR 560.36. eligible to apply for NMTC during • The leverage structure often requires non- the CDFI Fund’s annual funding traditional collateral, forbearance round. Please see the CDFI Fund’s agreements, and non-amortizing debt for website for further information on the seven year compliance period. the application process. For more information • Third-party Model A bank can also invest in an existing • OCC’s February 2007 Community NMTC allocatee. This can be an attractive Developments Insights report entitled option for banks that do not want to “New Markets Tax Credits: Unlocking undertake responsibility for the program’s Investment Potential” compliance and reporting requirements. • OCC’s Summer 2004 Community • A list of CDEs that have received NMTC Developments Investments entitled “ New allocations is available on the CDFI Markets Tax Credits – Bridging Financing Fund’s website. Gaps” Banks...

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