[Federal Register Volume 70, Number 99 (Tuesday, May 24, 2005)]
[Proposed Rules]
[Pages 29658-29660]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-10223]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 70, No. 99 / Tuesday, May 24, 2005 / Proposed
Rules
[[Page 29658]]
DEPARTMENT OF THE TREASURY
Community Development Financial Institutions Fund
12 CFR Chapter XVIII
New Markets Tax Credit Program
AGENCY: Community Development Financial Institutions Fund, Treasury.
ACTION: Advance notice of proposed rulemaking.
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SUMMARY: This document provides advance notice of proposed rulemaking
for the issuance of regulations relating to the New Markets Tax Credit
(NMTC) Program as authorized by 26 U.S.C. 45D. This document invites
comments from the public on certain issues regarding the designation of
low-income communities for purposes of the NMTC Program. All materials
submitted will be available for public inspection and copying.
DATES: All comments and submissions must be received by July 8, 2005.
ADDRESSES: Comments should be sent by mail to: NMTC Program Manager,
Community Development Financial Institutions Fund, U.S. Department of
the Treasury, 601 13th Street, NW., Suite 200 South, Washington, DC
20005; by e-mail to [email protected]; or by facsimile at (202)
622-7754. This is not a toll free number.
FOR FURTHER INFORMATION CONTACT: Matthew Josephs, (202) 622-9254.
Information regarding the Community Development Financial Institutions
(CDFI) Fund and its programs may be downloaded from the CDFI Fund's Web
site at http://www.cdfifund.gov.
SUPPLEMENTARY INFORMATION: Section 121(a) of the Community Renewal Tax
Relief Act of 2000 (Pub. L. 106-554), enacted on December 21, 2000,
amended the Internal Revenue Code (IRC) by adding IRC section 45D, New
Markets Tax Credit. The New Markets Tax Credit (NMTC) is a credit
against Federal income taxes provided to taxpayers that make qualified
equity investments in qualified Community Development Entities (CDEs).
The credit provided to the taxpayer totals 39 percent of the cost of
the investment and is claimed over a seven-year credit period.
Substantially all of the cash from the taxpayer's qualified equity
investment must in turn be used by the CDE for making Qualified Low-
Income Community Investments (QLICIs). IRC section 45D(d)(1) defines a
QLICI as (A) any capital or equity investment in, or loan to, any
Qualified Active Low-Income Community Business (QALICB); (B) the
purchase from another CDE of any loan made by such entity which is a
QLICI; (C) financial counseling and other services to businesses
located in, and residents of, low-income communities; and (D) any
equity investment in, or loan to, a CDE.
Under IRC section 45D(c)(1), a CDE is any domestic corporation or
partnership if (A) the primary mission of the entity is serving, or
providing investment capital for, low-income communities or low-income
persons; (B) the entity maintains accountability to residents of low-
income communities through their representation on any governing board
of the entity or on any advisory board to the entity; and (C) the
entity is certified by the CDFI Fund for purposes of IRC section 45D as
being a CDE.
The term Low-Income Community, as defined under IRC section
45D(e)(1), means any population census tract in which (A) the poverty
rate is at least 20 percent; or (B)(i) in the case of a tract not
located within a metropolitan area, the median family income for such
tract does not exceed 80 percent of statewide (or possessionwide)
median family income, or (B)(ii) in the case of a tract located within
a metropolitan area, the median family income for such tract does not
exceed 80 percent of the greater of statewide (or possessionwide)
median family income or the metropolitan area median family income.
Section 221(a) of the American Jobs Creation Act of 2004 (Act)
(Pub. L. 108-357) amended IRC section 45D(e)(2) to provide that the
Secretary shall prescribe regulations under which one or more Targeted
Populations (within the meaning of section 103(20) of the Riegle
Community Development and Regulatory Improvement Act of 1994 (12 U.S.C.
4702(20)) may be treated as Low-Income Communities. Such regulations
are to include procedures for determining which entities are QALICBs
with respect to such Targeted Populations. Under section 221(c)(1) of
the Act, the amendment made by section 221(a) of the Act applies to
designations made by the Secretary after October 22, 2004. Prior to
amendment by the Act, IRC section 45D(e)(2) provided that the Secretary
could designate any area within any census tract as a Low-Income
Community if (A) the boundary of the area was continuous; (B) the area
would have satisfied the requirements of IRC section 45D(e)(1) if it
were a census tract; and (C) an inadequate access to investment capital
existed in such area.
Section 221(b) of the Act added IRC section 45D(e)(4) which
provides that a population census tract with a population of less than
2,000 shall be treated as a Low-Income Community for purposes of IRC
section 45D if such tract (A) is within an empowerment zone, the
designation of which is in effect under IRC section 1391; and (B) is
contiguous to one or more Low-Income Communities (determined without
regard to IRC section 45D(e)(4)). Under section 221(c)(2) of the Act,
the amendment made by section 221(b) of the Act applies to investments
made after October 22, 2004.
Section 223(a) of the Act added IRC section 45D(e)(5) which
provides that, in the case of a population census tract located within
a high migration rural county, the term Low-Income Community includes a
tract not located within a metropolitan area if the median family
income for such tract does not exceed 85 percent of the statewide
median family income. For this purpose, the term ``high migration rural
county'' means any county which, during the 20-year period ending with
the year in which the most recent census was conducted, has a net out-
migration of inhabitants from the county of at least 10 percent of the
population of the county at the beginning of such period. Section
223(b) of the Act provides that the amendment made by section 223 is in
effect as if included in the original authorizing legislation for the
NMTC (section 121(a) of the Community Renewal Tax Relief Act of 2000).
The CDFI Fund will likely provide additional guidance on its Web
site (at http://www.cdfifund.gov) indicating
[[Page 29659]]
where interested parties may access the data necessary to determine
whether certain census tracts qualify under IRC sections 45D(e)(4) and
(e)(5), but it is not anticipated that further regulations will be
published with respect to these two provisions.
The CDFI Fund is publishing this advance notice of proposed
rulemaking to seek comments from the public with respect to how
Targeted Populations under IRC section 45D(e)(2) may be treated as
eligible Low-Income Communities under the NMTC Program. The CDFI Fund
specifically invites comments from the public on the following issues
and any other issues related to IRC section 45D(e)(2) for which the
public believes guidance is particularly needed.
1. Definition of Targeted Population. The term ``Targeted
Population,'' as defined in 12 U.S.C. 4702(20), means individuals, or
an identifiable group of individuals, including an Indian tribe, who
(A) are low-income persons (Low-Income Targeted Population); or (B)
otherwise lack adequate access to loans or equity investments (Other
Targeted Populations). The term ``low-income,'' as defined in 12 U.S.C.
4702(17), means having an income, adjusted for family size, of not more
than (A) for metropolitan areas, 80 percent of the area median income;
and (B) for non-metropolitan areas, the greater of (i) 80 percent of
the area median income; or (ii) 80 percent of the statewide
nonmetropolitan area median income. Under the CDFI Program (see 12 CFR
1805.201(b)(3)(iii) and 69 FR 65250), the CDFI Fund has already
determined, for purposes of 12 U.S.C. 4702(20), that there exists
strong evidence that the following groups of individuals lack adequate
access to loans and equity investments on a national level and
automatically qualify as Other Targeted Populations: Blacks or African-
Americans; Native Americans or American Indians; and Hispanics or
Latinos. The CDFI Fund has also determined that there exists strong
evidence that Alaska Natives residing in Alaska and Native Hawaiians or
other Pacific Islanders, residing in Hawaii or other Pacific Islands,
lack adequate access to loans and equity investments and automatically
qualify as Other Targeted Populations.
(a) Should these same populations (i.e., Blacks or African
Americans; Native Americans or American Indians; Hispanics or Latinos;
Alaska Natives residing in Alaska; and Native Hawaiians or other
Pacific Islanders residing in Hawaii or other Pacific Islands)
automatically qualify as Other Targeted Populations for the purposes of
the NMTC Program? Should any of these identified populations be
removed, or additional populations be added? If so, what evidence
(i.e., research, studies) exists to support your position?
(b) Is it appropriate for the CDFI Fund to designate certain
populations to automatically qualify as Other Targeted Populations for
the purposes of the NMTC Program without applying a further test to
determine whether the person or persons specifically benefiting from a
given NMTC transaction in fact lack adequate access to loans and equity
investments?
(c) Assuming the CDFI Fund does designate certain populations to
automatically qualify as Other Targeted Populations, should the CDFI
Fund permit CDE applicants to request that the CDFI Fund designate
additional populations as Other Targeted Populations? If so, what
evidence should an applicant be required to provide to demonstrate the
population lacks adequate access to loans and equity investments?
2. CDE Certification. The CDFI Fund's Guidance for Certification of
Community Development Entities, New Markets Tax Credit Program (66 FR
65806), provides that an entity may be certified as a CDE under IRC
section 45D(c)(1) only if, among other things, the entity designates a
geographic service area and demonstrates that at least 20 percent of
the membership of its governing board or advisory board is
representative of the interests of the residents of Low-Income
Communities in that service area. In general, the CDFI Fund's CDE
certification guidance provides that the following persons are
representative of the interests of Low-Income Community residents:
residents of Low-Income Communities; certain small business owners
located in Low-Income Communities; representatives or employees of
community-based organizations operating in Low-Income Communities;
religious leaders whose congregations are based in Low-Income
Communities; and employees of governmental agencies or departments that
principally serve Low-Income Communities.
(a) Should CDEs wishing to serve Targeted Populations be required
to identify a geographic service area as part of their CDE
certification and NMTC Program allocation application materials?
(b) Should CDEs wishing to serve Targeted Populations be required
to demonstrate that members of the designated Targeted Population are
directly represented on their Governing Board or Advisory Board? If the
CDFI Fund should impose such a requirement, should the minimum
threshold be 20 percent of the total number of board members, which is
the percentage currently required in the CDFI Fund's CDE certification
guidance?
(c) Assuming that a CDE is interested in serving both a geographic
Low-Income Community and a Targeted Population, should it be sufficient
for that CDE to simply demonstrate that 20 percent of its board
membership is representative of either geographic Low-Income
Communities or Targeted Populations--or should a CDE be required to
separately demonstrate that at least 20 percent of its board is
representative of residents of geographic Low-Income Communities and at
least 20 percent of its board is representative of members of the
Targeted Population?
(d) If a CDE has already been certified by the CDFI Fund but now
wishes to serve Targeted Populations, how should the CDE be required to
demonstrate that it is accountable to those Targeted Populations?
Should the CDE be required to submit new certification materials to the
Fund?
3. QALICB Requirements. Under IRC section 45D(d)(2)(A), a QALICB
means, with respect to any taxable year, any corporation (including a
nonprofit corporation) or partnership if for such year (i) at least 50
percent of the total gross income of such 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 such
entity (whether owned or leased) is within any Low-Income Community;
(iii) a substantial portion of the services performed for such entity
by its employees are performed in any Low-Income Community; (iv) less
than five percent of the average of the aggregate unadjusted bases of
the property of such entity is attributable to collectibles (as defined
in IRC section 408(m)(2)) other than collectibles that are held
primarily for sale to customers in the ordinary course of such
business; and (v) less than five percent of the average of the
aggregate unadjusted bases of the property of such entity is
attributable to nonqualified financial property (as defined in IRC
section 1397C(e)). Under IRC 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.
(a) As indicated above, IRC section 45D(e)(2) requires that
regulations be issued to provide procedures for
[[Page 29660]]
determining which entities are QALICBs with respect to Targeted
Populations. Under what circumstances should an entity be determined to
be a QALICB with respect to a Targeted Population? For example, should
the determination be based on whether the owners, employees or
customers of the entity (or some combination thereof) are members of a
Targeted Population?
(b) How should the following requirements apply in determining
whether an entity is a QALICB with respect to a Targeted Population:
(1) The requirement of IRC section 45D(d)(2)(A)(i) under which at least
50 percent of the total gross income of a QALICB must be derived from
the active conduct of a qualified business within a Low-Income
Community; (2) the requirement of IRC section 45D(d)(2)(A)(ii) under
which a substantial portion of the use of the tangible property of a
QALICB (whether owned or leased) must be within a Low-Income Community;
(3) the requirement of IRC section 45D(d)(2)(A)(iii) under which a
substantial portion of the services performed for a QALICB by its
employees must be performed in a Low-Income Community; and (4) the
requirement of IRC section 45D(d)(3) under which the rental to others
of real property is a qualified business only if the real property is
located in a Low-Income Community?
Authority: American Jobs Creation Act of 2004, Pub. L. 108-357,
Consolidated Appropriations Act of 2001, Pub. L. 106-554.
Dated: May 17, 2005.
Arthur A. Garcia,
Director, Community Development Financial Institutions Fund.
[FR Doc. 05-10223 Filed 5-23-05; 8:45 am]
BILLING CODE 4810-70-P