Tax Credit Community Should Take Advantage of Extended Comment Period

Published by Michael Novogradac on Wednesday, January 4, 2012 - 12:00am

On December 23, four federal agencies extended the comment period on a proposal to implement a provision that could have significant implications for the tax credit community.

The so-called Volcker Rule of the Dodd-Frank Wall Street Reform and Consumer Protection Act places certain prohibitions and restrictions on the ability of a banking entity and non-bank financial company to make certain kinds of equity investments. Originally, comments were due by January 13, 2012.The comment period was extended as part of a coordinated interagency effort to allow interested persons more time to analyze the issues and prepare their comments. Comments on the proposal will be accepted until February 13, 2012. The Dodd-Frank bill requires that the rule’s provisions be implemented by July 21, 2012.

The tax credit community should continue to seize this opportunity to comment on the Volcker Rule because its implementation could have significant ripple effects for the affordable housing, community development and renewable energy communities. The rule generally prohibits banks and their holding companies from investing in hedge funds and private equity funds. Because the bill’s definition of private equity funds applies to equity investments in a broad range of limited liability company (LLC) and limited partnership (LP) transactions, the tax credit community – including the New Markets Tax Credit Working GroupLow-Income Housing Tax Credit Working Group and Renewable Energy Tax Credit Working Group – are submitting comments about the Volcker Rule’s potential effect on the tax credit equity market.


Under the proposed rule, several investments would be “permissible activities”. Specifically, investments that meet the “public welfare” definition of Section 5136 of the Revised Statutes (12 U.S.C. 24) are identified as a permitted activity. Within this same exception, historic rehabilitation tax credit (HTC) investments are specifically exempted. However, no other tax credit programs received the same exclusion.

This has created concern among the affordable housing, community development and renewable energy communities that the Volcker Rule could be interpreted in a manner that would prevent banking entities from making investments in transactions that involve tax credits that were not statutorily exempted, such as renewable energy tax credits (RETCs) and, to a much lesser extent, the new markets tax credit (NMTC) and low-income housing tax credit (LIHTC).

That said, public welfare investments are further defined elsewhere in the Dodd-Frank bill as investments designed primarily to promote the public welfare, including the welfare of low- and moderate-income communities or families (such as by providing housing, services or jobs). A national banking association may make such investments directly or by purchasing interests in an entity primarily engaged in making such investments. The NMTC and LIHTC communities applauded the inclusion of this language because it recognizes the congressionally legislated intent of the NMTC and LIHTC. However, while the LIHTC and NMTC qualify as public welfare investments and HTCs were explicitly excepted from the Volcker Rule, implications for the RETC are far less certain. Some RETC investments may qualify as public welfare investments based on factors such as location or population served, while other RETC investments will not.

Read more about the proposed rule, and what it could mean for the tax credit community, in this month’s issue of the Novogradac Journal of Tax Credits.

The affordable housing, community development and renewable energy communities would be wise to participate in the comment submission process to ensure that the implementation of the Volcker Rule doesn’t limit the involvement of banking entities in the LIHTC, RETC or NMTC programs, or other similar tax credits so banking entities may continue to participate in these important, job-creating programs.