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Reprieve offered on New Markets Tax Credit transactions delayed by coronavirus

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The Internal Revenue Service and the Treasury Department gave tax relief to businesses and investors who were engaged in New Markets Tax Credit transactions but couldn’t get them done in time due to the COVID-19 pandemic.

The taxpayers receiving relief from guidance issued by the IRS and the Treasury last Friday are community development entities (CDEs) and qualified active low-income community businesses (QALICBs) who are investing and conducting businesses in low-income communities.

Notice 2020-49 gives them relief from some of the specified time-sensitive acts that need to be done between April 1, 2020, and Dec. 31, 2020, in order to meet the requirements under the Tax Code and associated tax regulations. A CDE or QALICB now has until the end of the year for any of the actions.

The New Markets Tax Credit, or NMTC, was designed to increase the flow of capital to businesses and low-income communities by giving a modest tax incentive to private investors. The NMTC expires on Dec. 31, 2020, but it has been regularly extended by Congress over the 15 years it’s been in place. Last week, the IRS also provided tax relief and extra time due to the coronavirus pandemic to investors in opportunity zones and empowerment zones, two other tax provisions that aim to encourage more private investment in low-income communities (see story).

The extra time is provided for the following time-sensitive acts:

Making investments

If a CDE is supposed to invest cash received in a qualified low-income community investment (QLICI) on or after April 1, 2020, and before Dec. 31, 2020, that cash investment is treated as invested in a QLICI to the extent it is invested by Dec. 31, 2020.

Reinvestments

If a CDE is due to reinvest certain amounts of cash or payment in a QLICI on or after April 1, 2020, and before Dec. 31, 2020, the amounts are treated as continuously invested in a QLICI to the extent the amounts are so reinvested by Dec. 31, 2020.

Expending amounts for construction of real property

If a QALICB is due to spend the proceeds of a capital or equity investment or loan by a CDE for construction of real property on or after April 1, 2020, and before Dec. 31, 2020, the proceeds are treated as a reasonable amount of working capital of the QALICB if so expended by Dec. 31, 2020.

Notice 2020-49 postpones until Dec. 31, 2020, the due dates for making investments, making reinvestments, and expending amounts for construction of real property under section 45D of the Tax Code due to be performed or expended on or after April 1, 2020, and before Dec. 31, 2020.

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