Encouraging New Markets Tax Credit Non-Real Estate Investments, 32880-32882 [2011-13981]
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32880
Federal Register / Vol. 76, No. 109 / Tuesday, June 7, 2011 / Proposed Rules
of the airspace necessary to ensure the
safety of aircraft and the efficient use of
airspace. This regulation is within the
scope of that authority as it establishes
additional controlled airspace at Tillitt
Field Airport, Forsyth, MT.
COMMODITY FUTURES TRADING
COMMISSION
List of Subjects in 14 CFR Part 71
SECURITIES AND EXCHANGE
COMMISSION
Airspace, Incorporation by reference,
Navigation (air).
The Proposed Amendment
Accordingly, pursuant to the
authority delegated to me, the Federal
Aviation Administration proposes to
amend 14 CFR part 71 as follows:
PART 71—DESIGNATION OF CLASS A,
B, C, D AND E AIRSPACE AREAS; AIR
TRAFFIC SERVICE ROUTES; AND
REPORTING POINTS
1. The authority citation for 14 CFR
Part 71 continues to read as follows:
Authority: 49 U.S.C. 106(g), 40103, 40113,
40120; E.O. 10854, 24 FR 9565, 3 CFR, 1959–
1963 Comp., p. 389.
§ 71.1
[Amended]
2. The incorporation by reference in
14 CFR 71.1 of the Federal Aviation
Administration Order 7400.9U,
Airspace Designations and Reporting
Points, dated August 18, 2010, and
effective September 15, 2010 is
amended as follows:
Paragraph 6005 Class E airspace areas
extending upward from 700 feet or more
above the surface of the earth.
*
*
*
emcdonald on DSK2BSOYB1PROD with PROPOSALS
ANM MT E5
*
*
Forsyth, MT [Modified]
Tillitt Field Airport, MT
(Lat. 46°16′16 ″ N., long. 106°37′26 ″ W.)
That airspace extending upward from 700
feet above the surface within a 7-mile radius
of Tillitt Field Airport, and within 2.5 miles
north and 5.5 miles south of the 075° bearing
of the airport extending from the 7-mile
radius to 13 miles east of the airport; that
airspace extending upward from 1,200 feet
above the surface within an area bounded by
lat. 46°31′00″ N., long. 107°00′00″ W.; to lat.
46°22′00″ N., long. 106°03′00″ W.; to lat.
46°05′00″ N., long. 106°210′3″ W.; to lat.
46°00′00″ N., long. 107°15′00″ W.; to lat.
46°15′00″ N., long. 107°16′00″ W.; to lat.
46°20′00″ N., long. 107°00′00″ W., thence to
the point of beginning.
Issued in Seattle, Washington on May 27,
2011.
John Warner,
Manager, Operations Support Group, Western
Service Center.
[FR Doc. 2011–13944 Filed 6–6–11; 8:45 am]
BILLING CODE 4910–13–P
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17 CFR Part 1
RIN 3038–AD46
17 CFR Part 240
[Release No. 33–9204A; 34–64372A; File No.
S7–16–11]
RIN 3235–AK65
Further Definition of ‘‘Swap,’’ ‘‘SecurityBased Swap,’’ and ‘‘Security-Based
Swap Agreement’’; Mixed Swaps;
Security-Based Swap Agreement
Recordkeeping
Commodity Futures Trading
Commission; Securities and Exchange
Commission.
ACTION: Joint proposed rules; proposed
interpretations; correction.
AGENCY:
The Commodity Futures
Trading Commission and the Securities
and Exchange Commission published a
document in the Federal Register of
May 23, 2011 that referenced an
incorrect RIN and an incorrect cite in an
authority citation. This correction is
being published to correct both the RIN
and the authority citation.
FOR FURTHER INFORMATION CONTACT:
CFTC: Julian E. Hammar, Assistant
General Counsel, at 202–418–5118,
jhammar@cftc.gov, Mark Fajfar,
Assistant General Counsel, at 202–418–
6636, mfajfar@cftc.gov, or David E.
Aron, Counsel, at 202–418–6621,
daron@cftc.gov, Office of General
Counsel, Commodity Futures Trading
Commission, Three Lafayette Centre,
1155 21st Street, NW., Washington, DC
20581; SEC: Matthew A. Daigler, Senior
Special Counsel, at 202–551–5578,
Cristie L. March, Attorney-Adviser, at
202–551–5574, or Leah M. Drennan,
Attorney-Adviser, at 202–551–5507,
Division of Trading and Markets, or
Michael J. Reedich, Special Counsel, or
Tamara Brightwell, Senior Special
Counsel to the Director, at 202–551–
3500, Division of Corporation Finance,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–7010.
SUMMARY:
Correction
In the Federal Register of May 23,
2011, in FR Doc. 2011–11008, on page
29818, in the 10th line of the first
column, the Security and Exchange
Commission’s RIN is corrected to read
as noted above.
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Fmt 4702
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In the Federal Register of May 23,
2011, in FR Doc. 2011–11008, on page
29888, the authority citation in the
second column reads as follows:
Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c,
6d, 6e, 6f, 6g, 6h, 6i, 6j, 6k, 6l, 6m, 6n, 6o,
6p, 6r, 7, 7a, 7b, 8, 9, 10, 12, 12a, 12c, 13a,
13a–1, 16, 16a, 21, 23, and 24.
Commodity Futures Trading Commission.
David A. Stawick,
Secretary. Securities and Exchange
Commission.
Dated: June 1, 2011.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–13976 Filed 6–6–11; 8:45 am]
BILLING CODE 6351–01–P; 8011–01–P
DEPARTMENT OF TREASURY
Internal Revenue Service
26 CFR Part 1
[REG–114206–11]
RIN 1545–BK21
Encouraging New Markets Tax Credit
Non-Real Estate Investments
Internal Revenue Service (IRS),
Treasury.
ACTION: Advance notice of proposed
rulemaking.
AGENCY:
This document invites
comments from the public on issues that
the Treasury Department and the IRS
may address in regulations relating to
the new markets tax credit. Specifically,
this document invites comments from
the public on how the new markets tax
credit program may be amended to
encourage non-real estate investments.
The regulations will affect taxpayers
claiming the new markets tax credit.
The Treasury Department and the IRS
have published separately in this issue
of the Federal Register, a notice of
proposed rulemaking REG–101826–11
modifying the new markets tax credit
program by providing specific rules
concerning a qualified community
development entity’s investment of
certain returns of capital from non-real
estate businesses.
DATES: Written and electronic comments
must be submitted by September 6,
2011.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–114206–11), room
5205, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be handdelivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–114206–11),
SUMMARY:
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Federal Register / Vol. 76, No. 109 / Tuesday, June 7, 2011 / Proposed Rules
Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue,
NW., Washington, DC, or sent
electronically, via the Federal
eRulemaking Portal at https://
www.regulations.gov (IRS REG–114206–
11).
FOR FURTHER INFORMATION CONTACT:
Concerning the proposals, Julie HanlonBolton, (202) 622–3040; concerning
submissions, Oluwafunmilayo Taylor,
(202) 622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
emcdonald on DSK2BSOYB1PROD with PROPOSALS
Background
Section 45D was added to the Internal
Revenue Code by section 121 of the
Community Renewal Tax Relief Act of
2000 (Pub. L. 106–554, 114 Stat. 2763
(2000)) and amended by section 221 of
the American Jobs Creation Act of 2004
(Pub. L. 108–357, 118 Stat. 1418 (2004));
section 101 of the Gulf Opportunity
Zone Act of 2005 (Pub. L. 109–135, 119
Stat. 25 (2005)); section 102, Division A,
of the Tax Relief and Health Care Act of
2006 (Pub. L. 109–432, 120 Stat. 2922
(2006)); section 302 of the Tax
Extenders and Alternative Minimum
Tax Relief Act of 2008 (Pub. L. 110–343,
122 Stat 3765 (2008)); section 1403(a) of
the American Recovery and
Reinvestment Tax Act of 2009 (Pub. L.
111–5, 123 Stat 115 (2009)); and section
733 of the Tax Relief, Unemployment
Insurance Reauthorization, and Job
Creation Act of 2010 (Pub. L. 111–312,
124 Stat 3296 (2010)).
Section 45D(a)(1) allows a new
markets tax credit on certain credit
allowance dates described in section
45D(a)(3) with respect to a qualified
equity investment in a qualified
community development entity (CDE)
described in section 45D(c).
Under section 45D(b)(1), an equity
investment in a CDE is a qualified
equity investment if, among other
requirements: (A) The investment is
acquired by the taxpayer at its original
issue (directly or through an
underwriter) solely in exchange for
cash; (B) substantially all of the cash is
used by the CDE to make qualified lowincome community investments; and (C)
the investment is designated for
purposes of section 45D by the CDE.
Section 45D(c)(1) provides that an
entity is a CDE if, among other
requirements, the entity is certified by
the Secretary as a CDE.
Section 45D(d)(1) defines the term
qualified low-income community
investment to mean: (A) Any capital or
equity investment in, or loan to, any
qualified active low-income community
business (as defined in section
45D(d)(2)); (B) the purchase from
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another CDE of any loan made by the
entity that is a qualified low-income
community investment; (C) financial
counseling and other services specified
in regulations prescribed by the
Secretary to businesses located in, and
residents of, low-income communities;
and (D) any equity investment in, or
loan to, any CDE.
Under section 45D(d)(2), a qualified
active low-income community business
is any corporation (including a
nonprofit corporation) or partnership if
for such year, among other
requirements, (i) at least 50 percent of
the total gross income of the entity is
derived from the active conduct of a
qualified business within any lowincome community, (ii) a substantial
portion of the use of the tangible
property of the entity (whether owned
or leased) is within any low-income
community, and (iii) a substantial
portion of the services performed for the
entity by its employees are performed in
any low-income community.
Under section 45D(d)(3), with certain
exceptions, a qualified business is any
trade or business. The rental to others of
real property is a qualified business
only if, among other requirements, the
real property is located in a low-income
community.
Groups and organizations
representing investors, qualified
community development entities,
businesses, and other entities involved
with the new markets tax credit program
have submitted comments requesting
additional guidance to encourage greater
investment in non-real estate
businesses. The commentators
suggested that revising the new markets
tax credit program to encourage
investment in non-real estate businesses
will bring increased amounts of capital
to underserved businesses in lowincome communities. The Treasury
Department believes that revisions to
the regulations under the new markets
tax credit program would have a
favorable effect on the ability of the
program to benefit non-real estate
businesses in low-income communities.
The new markets tax credit has been
a successful tool for encouraging private
sector investments in low-income
communities. According to the Treasury
Department’s Community Development
Financial Institutions Fund, through
2009, the new markets tax credit has
helped to spur $16 billion of
investments in approximately 3,000
businesses and real estate projects
located in low-income communities
throughout the country, including
investments in manufacturing
businesses, alternative energy
companies, charter schools, health care
PO 00000
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Fmt 4702
Sfmt 4702
32881
facilities, and job training centers.
Although new markets tax credit
investments may be made in non-real
estate businesses, the investments made
to date have been predominantly in real
estate projects. Through 2009, only 35
percent of new market tax credit dollars
invested in qualified active low-income
community businesses were invested in
non-real estate businesses, and much of
these investments supported real estate
related projects (for example,
purchasing or renovations of owneroccupied facilities).
The purpose of this document is to
seek comments on measures that could
facilitate greater investment in non-real
estate businesses without disrupting the
success of new markets tax credit real
estate investments overall. The Treasury
Department and the IRS have identified
certain issues with regard to non-real
estate businesses under the new markets
tax credit program that may be
considered for guidance or
administrative pronouncements. The
Treasury Department and the IRS invite
comments from the public on the
following issues and any other issues for
which the taxpayers believe guidance
would be necessary to promote greater
investment in non-real estate businesses
under the new markets tax credit
program while still maintaining the
structure of the credit that has been so
successful for other types of
investments.
A. Streamlined Substantiation
Requirements for Second Tier CDEs
Making Small Loans to Non-Real Estate
Businesses
Under § 1.45D–1(d)(1)(iv)(A)(1), the
term qualified low-income community
investment includes any equity
investment in, or loan to, any CDE (the
second CDE) by a CDE (the primary
CDE), but only to the extent that the
second CDE uses the proceeds of the
investment or loan in a manner
described in § 1.45D–1(d)(1)(i) or
(d)(1)(iii) and that would constitute a
qualified low-income community
investment if it were made directly by
the primary CDE. The net effect of this
provision is that, if the primary CDE
makes a qualified low-income
community investment into a second
CDE, the primary CDE must ensure that
the new markets tax credit proceeds are
ultimately invested in a qualified active
low-income community business and/or
are used to provide financial counseling
and other services. This added layer of
substantiation has placed constraints on
the ability of a primary CDE to invest
funds in a second CDE—particularly in
instances where the second CDE intends
to make smaller sized loans to non-real
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emcdonald on DSK2BSOYB1PROD with PROPOSALS
32882
Federal Register / Vol. 76, No. 109 / Tuesday, June 7, 2011 / Proposed Rules
estate businesses because transaction
and compliance monitoring costs are
higher relative to the size of smaller
loans than they are for larger, real estatesecured transactions.
The Treasury Department and the IRS
are soliciting comments on whether the
substantiation requirements governing
investments under § 1.45D–
1(d)(1)(iv)(A)(1) should be simplified in
cases where: (i) The second CDE uses
the new markets tax credit proceeds to
make smaller-sized loans (for example,
less than $250,000) to non-real estate
businesses; (ii) neither the second CDE
nor the non-real estate business
receiving the new markets tax credit
proceeds is affiliated with the primary
CDE or the qualified equity investment
investors; and (iii) the second CDE
demonstrates that, at the time of initial
investment in the non-real estate
business, the non-real estate business
receiving the new markets tax credit
proceeds met some basic qualifying
requirements (for example, the business
is in a low-income community).
In particular, the Treasury
Department and the IRS encourage
taxpayers to submit comments on the
following issues:
1. Would simplifying the
substantiation requirements in the
manner proposed facilitate greater new
markets tax credit investment in nonreal estate businesses? Are there other
areas where § 1.45D–1 could be
modified to achieve a similar outcome?
2. The Treasury Department and the
IRS believe that, if there is to be a
simplification of the substantiation
requirements for these transactions,
there may need to be a cap on the total
transaction size. Is $250,000 the
appropriate cap to put on the initial
loan size? Should special considerations
be made for follow-on investments and/
or lines of credit? For example, should
there be a cap on the total aggregate
investment in one business? If so, what
should that cap be?
3. What are the appropriate minimum
requirements that a non-real estate
business should satisfy in order for the
second CDE to be able to take advantage
of the simplified substantiation
requirements (for example, the business
must be located in a low-income
community, employ community
residents, etc. at the time of initial
investment)? How should this be
measured (for example, that
substantially all of the real property is
located in a low-income community)?
4. Should the Treasury Department
and the IRS consider additional
limitations (other than those specified)
on unaffiliated CDEs or businesses? For
example, should the regulations require
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that the second CDE be a non-profit
entity or the affiliate of a non-profit
entity?
B. Encouraging Equity Investments in
Non-Real Estate Businesses
1. What non-statutory requirements in
§ 1.45D–1 can be revised to encourage
CDEs to make equity investments in
non-real estate businesses?
2. If consideration is given to
potential changes to the reasonable
expectations test of § 1.45D–1(d)(6)(i),
what modifications would be most
effective in encouraging equity
investments in non-real estate
businesses, while still preserving the
purpose of the existing limitations on
the reasonable expectations test?
Request for Comments
Before the notice of proposed
rulemaking is issued, consideration will
be given to any written and electronic
comments that are submitted timely to
the IRS. All comments will be available
for public inspection and copying.
Drafting Information
The principal author of this advance
notice of proposed rulemaking is Julie
Hanlon-Bolton of the Office of Chief
Counsel (Passthroughs and Special
Industries). However, other personnel
from the IRS and the Treasury
Department participated in its
development.
Steven T. Miller,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. 2011–13981 Filed 6–3–11; 4:15 pm]
BILLING CODE 4830–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG–101826–11]
RIN 1545–BK04
New Markets Tax Credit Non-Real
Estate Investments
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
AGENCY:
This document contains
proposed regulations modifying the new
markets tax credit program to facilitate
and encourage investments in non-real
estate businesses in low-income
communities. The regulations will affect
taxpayers claiming the new markets tax
credit and businesses in low-income
SUMMARY:
PO 00000
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Fmt 4702
Sfmt 4702
communities relying on the program.
This document also provides a notice of
a public hearing on these proposed
regulations. The Treasury Department
and the IRS have published separately
in this issue of the Federal Register an
advance notice of proposed rulemaking
REG–114206–11 requesting comments
on additional modifications to the new
markets tax credit program to facilitate
and encourage investments in non-real
estate businesses in low-income
communities.
DATES: Written or electronic comments
must be received by September 8, 2011.
Outlines of topics to be discussed at the
public hearing scheduled for Thursday,
September 29, 2011, must be received
by September 8, 2011.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–101826–11), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be handdelivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–101826–11),
Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue,
NW., Washington, DC, or sent
electronically, via the Federal
eRulemaking Portal at https://
www.regulations.gov (IRS REG–101826–
11). The public hearing will be held in
the Auditorium of the Internal Revenue
Building, 1111 Constitution Avenue,
NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT:
Concerning the regulations, Julie
Hanlon-Bolton, (202) 622–3040;
concerning submission of comments,
the hearing, and/or to be placed on the
building access list to attend the
hearing, Richard Hurst, (202) 622–7180
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document amends 26 CFR part 1
to provide additional rules relating to
the new markets tax credit under
section 45D of the Internal Revenue
Code (Code). Section 45D was added to
the Code by section 121 of the
Community Renewal Tax Relief Act of
2000 (Pub. L. 106–554, 114 Stat. 2763
(2000)) and amended by section 221 of
the American Jobs Creation Act of 2004
(Pub. L. 108–357, 118 Stat. 1418 (2004)),
section 101 of the Gulf Opportunity
Zone Act of 2005 (Pub. L. 109–135, 119
Stat. 25 (2005)), Division A, section 102
of the Tax Relief and Health Care Act of
2006 (Pub. L. 109–432, 120 Stat. 2922
(2006)), section 302, Division C of the
Tax Extenders and Alternative
Minimum Tax Relief Act of 2008 (Pub.
L. 110–343, 122 Stat. 3765 (2008)),
E:\FR\FM\07JNP1.SGM
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]]>Agencies
[Federal Register Volume 76, Number 109 (Tuesday, June 7, 2011)]
[Proposed Rules]
[Pages 32880-32882]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-13981]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-114206-11]
RIN 1545-BK21
Encouraging New Markets Tax Credit Non-Real Estate Investments
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Advance notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: This document invites comments from the public on issues that
the Treasury Department and the IRS may address in regulations relating
to the new markets tax credit. Specifically, this document invites
comments from the public on how the new markets tax credit program may
be amended to encourage non-real estate investments. The regulations
will affect taxpayers claiming the new markets tax credit. The Treasury
Department and the IRS have published separately in this issue of the
Federal Register, a notice of proposed rulemaking REG-101826-11
modifying the new markets tax credit program by providing specific
rules concerning a qualified community development entity's investment
of certain returns of capital from non-real estate businesses.
DATES: Written and electronic comments must be submitted by September
6, 2011.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-114206-11), room
5205, Internal Revenue Service, PO Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
114206-11),
[[Page 32881]]
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue,
NW., Washington, DC, or sent electronically, via the Federal
eRulemaking Portal at https://www.regulations.gov (IRS REG-114206-11).
FOR FURTHER INFORMATION CONTACT: Concerning the proposals, Julie
Hanlon-Bolton, (202) 622-3040; concerning submissions, Oluwafunmilayo
Taylor, (202) 622-7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
Section 45D was added to the Internal Revenue Code by section 121
of the Community Renewal Tax Relief Act of 2000 (Pub. L. 106-554, 114
Stat. 2763 (2000)) and amended by section 221 of the American Jobs
Creation Act of 2004 (Pub. L. 108-357, 118 Stat. 1418 (2004)); section
101 of the Gulf Opportunity Zone Act of 2005 (Pub. L. 109-135, 119
Stat. 25 (2005)); section 102, Division A, of the Tax Relief and Health
Care Act of 2006 (Pub. L. 109-432, 120 Stat. 2922 (2006)); section 302
of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008
(Pub. L. 110-343, 122 Stat 3765 (2008)); section 1403(a) of the
American Recovery and Reinvestment Tax Act of 2009 (Pub. L. 111-5, 123
Stat 115 (2009)); and section 733 of the Tax Relief, Unemployment
Insurance Reauthorization, and Job Creation Act of 2010 (Pub. L. 111-
312, 124 Stat 3296 (2010)).
Section 45D(a)(1) allows a new markets tax credit on certain credit
allowance dates described in section 45D(a)(3) with respect to a
qualified equity investment in a qualified community development entity
(CDE) described in section 45D(c).
Under section 45D(b)(1), an equity investment in a CDE is a
qualified equity investment if, among other requirements: (A) The
investment is acquired by the taxpayer at its original issue (directly
or through an underwriter) solely in exchange for cash; (B)
substantially all of the cash is used by the CDE to make qualified low-
income community investments; and (C) the investment is designated for
purposes of section 45D by the CDE.
Section 45D(c)(1) provides that an entity is a CDE if, among other
requirements, the entity is certified by the Secretary as a CDE.
Section 45D(d)(1) defines the term qualified low-income community
investment to mean: (A) Any capital or equity investment in, or loan
to, any qualified active low-income community business (as defined in
section 45D(d)(2)); (B) the purchase from another CDE of any loan made
by the entity that is a qualified low-income community investment; (C)
financial counseling and other services specified in regulations
prescribed by the Secretary to businesses located in, and residents of,
low-income communities; and (D) any equity investment in, or loan to,
any CDE.
Under section 45D(d)(2), a qualified active low-income community
business is any corporation (including a nonprofit corporation) or
partnership if for such year, among other requirements, (i) at least 50
percent of the total gross income of the entity is derived from the
active conduct of a qualified business within any low-income community,
(ii) a substantial portion of the use of the tangible property of the
entity (whether owned or leased) is within any low-income community,
and (iii) a substantial portion of the services performed for the
entity by its employees are performed in any low-income community.
Under section 45D(d)(3), with certain exceptions, a qualified
business is any trade or business. The rental to others of real
property is a qualified business only if, among other requirements, the
real property is located in a low-income community.
Groups and organizations representing investors, qualified
community development entities, businesses, and other entities involved
with the new markets tax credit program have submitted comments
requesting additional guidance to encourage greater investment in non-
real estate businesses. The commentators suggested that revising the
new markets tax credit program to encourage investment in non-real
estate businesses will bring increased amounts of capital to
underserved businesses in low-income communities. The Treasury
Department believes that revisions to the regulations under the new
markets tax credit program would have a favorable effect on the ability
of the program to benefit non-real estate businesses in low-income
communities.
The new markets tax credit has been a successful tool for
encouraging private sector investments in low-income communities.
According to the Treasury Department's Community Development Financial
Institutions Fund, through 2009, the new markets tax credit has helped
to spur $16 billion of investments in approximately 3,000 businesses
and real estate projects located in low-income communities throughout
the country, including investments in manufacturing businesses,
alternative energy companies, charter schools, health care facilities,
and job training centers. Although new markets tax credit investments
may be made in non-real estate businesses, the investments made to date
have been predominantly in real estate projects. Through 2009, only 35
percent of new market tax credit dollars invested in qualified active
low-income community businesses were invested in non-real estate
businesses, and much of these investments supported real estate related
projects (for example, purchasing or renovations of owner-occupied
facilities).
The purpose of this document is to seek comments on measures that
could facilitate greater investment in non-real estate businesses
without disrupting the success of new markets tax credit real estate
investments overall. The Treasury Department and the IRS have
identified certain issues with regard to non-real estate businesses
under the new markets tax credit program that may be considered for
guidance or administrative pronouncements. The Treasury Department and
the IRS invite comments from the public on the following issues and any
other issues for which the taxpayers believe guidance would be
necessary to promote greater investment in non-real estate businesses
under the new markets tax credit program while still maintaining the
structure of the credit that has been so successful for other types of
investments.
A. Streamlined Substantiation Requirements for Second Tier CDEs Making
Small Loans to Non-Real Estate Businesses
Under Sec. 1.45D-1(d)(1)(iv)(A)(1), the term qualified low-income
community investment includes any equity investment in, or loan to, any
CDE (the second CDE) by a CDE (the primary CDE), but only to the extent
that the second CDE uses the proceeds of the investment or loan in a
manner described in Sec. 1.45D-1(d)(1)(i) or (d)(1)(iii) and that
would constitute a qualified low-income community investment if it were
made directly by the primary CDE. The net effect of this provision is
that, if the primary CDE makes a qualified low-income community
investment into a second CDE, the primary CDE must ensure that the new
markets tax credit proceeds are ultimately invested in a qualified
active low-income community business and/or are used to provide
financial counseling and other services. This added layer of
substantiation has placed constraints on the ability of a primary CDE
to invest funds in a second CDE--particularly in instances where the
second CDE intends to make smaller sized loans to non-real
[[Page 32882]]
estate businesses because transaction and compliance monitoring costs
are higher relative to the size of smaller loans than they are for
larger, real estate-secured transactions.
The Treasury Department and the IRS are soliciting comments on
whether the substantiation requirements governing investments under
Sec. 1.45D-1(d)(1)(iv)(A)(1) should be simplified in cases where: (i)
The second CDE uses the new markets tax credit proceeds to make
smaller-sized loans (for example, less than $250,000) to non-real
estate businesses; (ii) neither the second CDE nor the non-real estate
business receiving the new markets tax credit proceeds is affiliated
with the primary CDE or the qualified equity investment investors; and
(iii) the second CDE demonstrates that, at the time of initial
investment in the non-real estate business, the non-real estate
business receiving the new markets tax credit proceeds met some basic
qualifying requirements (for example, the business is in a low-income
community).
In particular, the Treasury Department and the IRS encourage
taxpayers to submit comments on the following issues:
1. Would simplifying the substantiation requirements in the manner
proposed facilitate greater new markets tax credit investment in non-
real estate businesses? Are there other areas where Sec. 1.45D-1 could
be modified to achieve a similar outcome?
2. The Treasury Department and the IRS believe that, if there is to
be a simplification of the substantiation requirements for these
transactions, there may need to be a cap on the total transaction size.
Is $250,000 the appropriate cap to put on the initial loan size? Should
special considerations be made for follow-on investments and/or lines
of credit? For example, should there be a cap on the total aggregate
investment in one business? If so, what should that cap be?
3. What are the appropriate minimum requirements that a non-real
estate business should satisfy in order for the second CDE to be able
to take advantage of the simplified substantiation requirements (for
example, the business must be located in a low-income community, employ
community residents, etc. at the time of initial investment)? How
should this be measured (for example, that substantially all of the
real property is located in a low-income community)?
4. Should the Treasury Department and the IRS consider additional
limitations (other than those specified) on unaffiliated CDEs or
businesses? For example, should the regulations require that the second
CDE be a non-profit entity or the affiliate of a non-profit entity?
B. Encouraging Equity Investments in Non-Real Estate Businesses
1. What non-statutory requirements in Sec. 1.45D-1 can be revised
to encourage CDEs to make equity investments in non-real estate
businesses?
2. If consideration is given to potential changes to the reasonable
expectations test of Sec. 1.45D-1(d)(6)(i), what modifications would
be most effective in encouraging equity investments in non-real estate
businesses, while still preserving the purpose of the existing
limitations on the reasonable expectations test?
Request for Comments
Before the notice of proposed rulemaking is issued, consideration
will be given to any written and electronic comments that are submitted
timely to the IRS. All comments will be available for public inspection
and copying.
Drafting Information
The principal author of this advance notice of proposed rulemaking
is Julie Hanlon-Bolton of the Office of Chief Counsel (Passthroughs and
Special Industries). However, other personnel from the IRS and the
Treasury Department participated in its development.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2011-13981 Filed 6-3-11; 4:15 pm]
BILLING CODE 4830-01-P
