The IRS issued final regulations on how entities serving certain targeted populations can qualify as active low-income community businesses for purposes of the Sec. 45D new markets tax credit (T.D. 9560).
The new markets tax credit encourages capital investment in economically depressed areas by private investors in exchange for federal income tax credits. A qualified low-income community investment includes an investment in a “qualified active low-income community business” (defined in Sec. 45D(d)(2)).
The final regulations incorporate guidance first issued in Notice 2006-60 and then in proposed regulations (REG-142339-05) in 2008. Under the final regulations, certain targeted populations can qualify as low-income communities for purposes of the rules governing qualified active low-income community businesses. Targeted populations that will be treated as a low-income community are individuals, or an identifiable group of individuals, including an Indian tribe, who are low-income persons as defined in the regulations or who are individuals who otherwise lack adequate access to loans or equity investments as defined in the regulations.
Under the regulations, an individual will be considered low income if the individual’s family income, adjusted for family size, is not more than (1) for metropolitan areas, 80% of the area median family income; and (2) for nonmetropolitan areas, the greater of (a) 80% of the area median family income or (b) 80% of the statewide nonmetropolitan area median family income.
Caution: The new markets tax credit expired at the end of 2011 (Sec. 45D(f)). However, the carryover period for unallocated credits runs through 2016 (Sec. 45D(f)(3)). For more on the new markets tax credit, see Lovinger, “Revisiting the New Markets Tax Credit,” 42 The Tax Adviser 736 (November 2011).