Q&A: Prior Allocatees and QEI Issuance Requirements
Question: What are the minimum qualified equity investment (QEI) issuance requirements with respect to new markets tax credit (NMTC) applicants that are prior round allocatees?
Answer: As described in Section III.A.2(a) of the 2012 Notice of Allocation Availability (NOAA), applicants that have received NMTC allocation awards in previous rounds are required to meet minimum QEI issuance thresholds with respect to their prior-year allocations. The minimum requirements can be met in two ways: on a year by year standalone basis or by a cumulative test. The cumulative test can only be used by applicants who received multiple prior round awards. These requirements must be met by the end of the day Oct. 31, 2012. The requirements for the year by year test have two tiers. The applicant can meet either Tier 1 or Tier 2.
|Tier 1||Tier 2|
|Allocation Year||Percent of QEIs Issued and Received in Hand from Investors||OR||Percent of QEIs Issued and Received in Hand from Investors||AND||Percent of NMTC Allocation Exchanged for Funds in Hand from Investors or Committed by Investors|
|CY 2006||95 percent|
|CY 2007||80 percent||OR||70percent||AND||100 percent|
|CY 2008||70 percent||OR||60 percent||AND||80 percent|
|CY 2009||60 percent||OR||50 percent||AND||80 percent|
|CY 2010||50 percent (30 percent for Rural CDEs)||OR||40 percent (no alternative for Rural CDEs)||AND||60 percent (no alternative for Rural CDEs)|
|CY 2011||30 percent (no requirement for Rural CDEs)||OR||20 percent (no requirement for Rural CDEs)||AND||50 percent (no requirement for Rural CDEs)|
Alternatively, applicants that have received multiple allocation awards between calendar year (CY) 2006 and CY 2011 can meet the minimum QEI issuance threshold test with respect to their prior-year allocations on a cumulative basis. As of Oct. 31, 2012, the issuance threshold is met if the applicant has issued and received funds in hand from its investors for at least 90 percent of its QEIs relating to its cumulative allocation amounts from the CY 2006 through 2011 prior rounds. Rural CDEs that received allocations in CY 2010 may exclude the CY 2010 allocation from the cumulative calculation if the applicant issued and received at least 20 percent of its CY 2010 allocation. Rural CDEs that received allocations in CY 2011 may exclude the CY 2011 allocation from the cumulative calculation.
The QEI issuance requirements also apply to affiliates of the applicants in the event that the affiliates are prior allocatees. Only QEIs finalized in the Community Development Financial Institutions (CDFI) Fund’s Allocation Tracking System (ATS) by Oct. 31, 2012 will be treated as “issued.” In order for QEIs to be treated as “committed” they must be evidenced by a written, signed document in which all of the following are met. The investor:
- Commits to make an investment in the allocatee in a specified amount and on specified terms;
- Has made an initial disbursement of the investment proceeds to the allocatee, and such initial disbursement has been recorded in ATS as a QEI;
- Commits to disburse the remaining investment proceeds to the allocatee based on specified amounts and payment dates; and
- Commits to make the final disbursement to the allocatee no later than Oct. 31, 2014.
Applicants will be required, upon notification from the CDFI Fund, to submit adequate documentation to substantiate the required issuances of and commitments for QEIs.
The following are examples of these minimum QEI issuance thresholds in practice:
- Applicant X has a CY 2008 NMTC allocation of $10 million. It has received in hand from its investors $8 million, thus it has received 80 percent of its QEIs. Applicant X passes the minimum QEI issuance threshold because it has issued and received greater than 70 percent of its QEIs from investors.
- Applicant Y has a CY 2009 NMTC allocation of $10 million. It has received in hand from its investors $5 million, thus it has received 50 percent of its QEIs. No other QEIs have been exchanged or committed by investors. Applicant Y does not meet the QEI issuance requirements of having either 60 percent of its NMTC allocation exchanged for funds in hand, or 50 percent of its NMTC allocation exchanged for funds in hand and 80 percent of its NMTC allocation committed by investors.
- Applicant Z has a CY 2010 NMTC allocation of $10 million and a CY 2011 NMTC allocation of $5 million. It has received $14 million of QEIs from investors. Applicant Z meets the cumulative QEI issuance threshold test in that it has received at least 90 percent of its QEIs relating to the cumulative allocation amounts from CY 2010 and 2011.