Seven Challenges and Opportunities Facing the New Markets Tax Credit

Published by Michael Novogradac on Friday, December 14, 2012 - 12:00am

Former Treasury Assistant Secretary for Tax Policy Eric Solomon, speaking this week at the NMTC Coalition’s annual conference, listed seven opportunities and challenges of the new markets tax credit (NMTC) program. They were:

  1. NMTC is an indirect subsidy – The research and development (R&D) credit, low-income housing tax credit (LIHTC) and many other tax credits are directly tied to an activity; the NMTC is directly tied to investing, and indirectly tied to the activity.
  2. Annual limits – Unlike the R&D credit or historic tax credit (HTC), the NMTC has an annual limit.
  3. How much upside and downside is needed – A question exists as to how much upside and downside an investor must have to be eligible for the credit. Think Historic Boardwalk Hall.
  4. Ambiguous terms – The NMTC regulations and guidance use numerous ambiguous terms, i.e., “substantially-all,” “derived from,” “redemption,” etc.
  5. Administration – The NMTC is administered by both the Internal Revenue Service (IRS) and the Community Development Financial Institutions (CDFI) Fund, necessitating developing approaches for the two parts of Treasury to work together.
  6. Temporary nature – The NMTC is currently a temporary tax credit.
  7. Demonstrating efficacy – The NMTC needs to be able to demonstrate its efficacy. The spillover benefits of NMTC investments can be hard to measure.