THE NEW MARKETS TAX CREDIT – THE PATH FOR FINANCIAL INSTITUTION PARTICIPATION

Abstract

In the United States, utilizing economic incentives to spur business growth and relocation are almost as old as the Country itself. The frequency of incentives to spur capital investment and job creation in low to moderate income communities has increased over the last 20 years. Congress established the New Markets Tax Credit (NMTC) program as part of the Community Renewal Tax Relief Act of 20001 to encourage investors to make investments in impoverished, low-income communities (LICs) that traditionally lack access to capital.2 In December 2010, Congress renewed the NMTC program for an additional two years based on intense lobbying by investors, lenders and non-profits.3
Based on the historical awards of the NMTC, financial institutions (especially those that coordinate efforts with local non-profits that cater to the economic stability of LICs) continue to maintain an advantage in receiving awards (directly or indirectly). The renewed program continues to insure support of financial institution and non-profit coordination. The last several years of the program has seen a concentrated effort by program administrators to award program benefits to those Applicants that coordinate LIC efforts in an attempt to revitalize and stabilize each local economy.
With the extension of the NMTC program with additional compliance requirements, it appears financial institutions will continue to grab the lion’s share of NMTC allocations. Those financial institutions that partner with local or regional non-profits in pursuit of sustainable lending opportunities in LICs will be at a distinct advantage.

This article addresses program background, the application process to receive a NMTC award and favorable conditions for financial institutions’ to receive a NMTC award.