New Markets Job Growth Investment Tax Credit General Information

(prior to passage of LB 682 for allocation with fiscal years ended 06/30/2013, 06/30/2014, 06/30/2015, and 06/30/2018)

Overview

The New Markets Job Growth Investment Act (Act) (Laws 2012, LB 1128 and Neb. Rev. Stat. §§ 77-1101 to 77-1119) allows individuals, corporations, estates and trusts, financial institutions, and insurance companies to claim nonrefundable, nontransferable tax credits for an investment in a qualified community development entity (CDE). The credits may be used against income tax, the premium tax imposed on insurance companies, or the franchise tax imposed on financial institutions.   

The Act requires a CDE to file an application with the Nebraska Department of Revenue (Department) to receive cash investments that qualify for the New Markets Job Growth Investment Tax Credit (NMTC). Upon approval of its application, the CDE may accept cash investments that qualify for the NMTC, and the investors will receive NMTCs as provided by the Act. 

Qualified Community Development Entities (CDEs)

A CDE must file a  Nebraska Application for Certification of Qualified Equity Investments Eligible for the New Markets Job Growth Investment Tax Credit (application) with the Department to receive cash investments that qualify for the NMTC.  The application must include the following:

• Evidence of the entity’s certification as a CDE
  • Certification is provided by the United States Department of the Treasury, Community Development Financial Institutions Fund (CDFI Fund);
     
• Evidence that the service area of the CDE includes Nebraska; 
• A copy of an allocation agreement between the CDE or its controlling entity and the CDFI Fund;
• A certificate completed by an executive officer of the CDE stating that the federal allocation agreement has not been revoked or cancelled
  • The certificate will be part of the application required by the Department;
• A description of the proposed amount, structure, and purchaser of the equity investment or long-term debt security;
• Information identifying all taxpayers eligible to utilize the NMTC;
• Identification of the proposed use of the proceeds from the qualified equity investment; and
• A $5,000 nonrefundable application fee.
   

The Department has certified qualified equity investments equal to the $15 million credit limitation imposed by Neb. Rev. Stat. § 77-1115. No new applications can be accepted until the FYE 06/30/2019 (fall of 2018).

CDEs with approved applications are also required to:

• Issue all of the certified qualified equity investments and receive cash within 30 days after receiving notice that the Department approved its application
  • Failure to meet this requirement will void the entire certification, and the CDE would need to reapply with the Department
     
• Provide the Department with evidence that it received a cash investment
  • The evidence must be provided within 10 business days after receiving the investment by submitting a Notice of Qualified Equity Investment for the New Markets Job Growth Investment Tax Credit, Form 8874N-A;
• Notify both the Department and investors when a recapture event has occurred. The CDE must inform the Department of any potential recapture event; and
• Use at least 85% of the proceeds from qualified equity investments to make qualified low-income community investments in a qualified active low-income community business in Nebraska.​
  • Note: Nebraska’s definition of a “qualified low-income community investment” is more restrictive than the definition of a “qualified low-income investment” under the Internal Revenue Code (IRC § 45D(d)).  Both the Nebraska and federal definitions include "any capital investment in, or loan to, any qualified active low-income community business." Only the federal definition includes:
     
• The purchase from another CDE of any loan made by an entity that is a qualified low-income community investment;
• Financial counseling and other services specified in regulation prescribed by the Secretary to businesses located in, and residents of, low-income communities; and
• Any equity investment in, or loan to, any qualified CDE.
   

Investors

Any person or entity wishing to receive NMTCs must make a qualified equity investment. A qualified equity investment is an equity investment in a CDE or a long-term debt security issued by a CDE that:

• Is acquired after January 1, 2012 at its original issuance solely in exchange for cash;
• Has at least 85% of its cash purchase price used by the CDE to make qualified low-income community investments in qualified active low-income community businesses located in Nebraska by the first anniversary of the initial credit allowance date;
• Is designated by the CDE as a qualified equity investment; and
• Is certified by the Tax Commissioner as not exceeding the total fiscal year credit limitation imposed by Neb. Rev. Stat. § 77-1115. 
   

A list of current CDEs may be found on the CDFI Fund’s website.

Amount of New Markets Job Growth Investment Tax Credit (NMTC)

The NMTC is computed by multiplying the cash purchase price of the investment by the allocable percentage at each credit allowance date.  The credit allowance dates and percentages are:
 

The credit may be taken for the taxable year that includes the applicable credit allowance date.  For example, a corporation that files its tax return on a calendar year basis makes an initial $100,000 cash investment on December 15, 2017 that qualifies for the NMTC. The corporation may take nonrefundable tax credits as follows:
 

The NMTC is nonrefundable; however, any NMTC that is not used in the credit allowance year may be carried forward for up to five taxable years from the year it is first allowed. Investors must use the credits in the order of the credit allowance dates.  The investor in the above example must use the entire $7,000 of credit from the third credit allowance date (2019, 2 years after investment) before it can use credits from any other credit allowance date. Applying the credits in this manner will maximize the use of the credits.

Flow-through entities (partnerships, limited liability companies, or S corporations) that make a qualified investment may allocate the NMTC to their partners, members, or shareholders in accordance with any agreement made between the partners, members, or shareholders.

Recapture of the NMTC

Credits used will be recaptured from the taxpayer that claimed the NMTC if:

• Any amount of the federal qualified equity investment credit is recaptured;
  • The amount recaptured will be proportionate to the federal recapture.
     
• The CDE redeems or repays some or all the principal of the qualified equity investment prior to the last credit allowance date; or
  • The amount recaptured will be proportionate to the amount of redemption or repayment of the qualified equity investment.
     
• The CDE fails to invest and satisfy the requirements of Neb. Rev. Stat. § 77-1110(1)(b) and maintain its investment in a qualified low-income community investment in Nebraska until the last credit allowance date.
  • In this case, the entire amount of the NMTC will be recaptured.
     

The CDE must inform the Department and investors that a recapture event has occurred.   

Responsibilities of the Department

The Department will review applications filed by the CDEs and certify or deny the equity investments based on the provisions of the Act. The Department’s responsibilities include:

• Grant or deny applications within 30 days of receipt;
• Allow the applicant (CDE) 15 days after a denial notice to provide any required information that was not included in the original application;
  • If the required information is provided within the 15-day period, the application will be considered complete on the date it was originally submitted; 
     
• Certify qualified equity investments in the order applications are received;
• Limit the certification of qualified equity investments to a cumulative amount equal to $15 million of credits available for use in any fiscal year;
  • Any application received after the Department has certified $15 million cannot be accepted;
     
• Ensure that NMTCs are used appropriately;
• Notify a CDE of any noncompliance with the Act that may result in the Department recapturing NMTCs from the investors; 
  • The Department will allow the CDE six months after the Department’s notification to cure its noncompliance;
     
• Recapture NMTCs as provided in the Act; and
• Issue letter rulings regarding the NMTC program.
   

Letter Rulings

The Department will respond to letter ruling requests within 60 days after receipt of the request. The response will be in the form of either the requested ruling or a refusal to issue a ruling.  Any refusal will contain the specific reasons for the refusal.  Instances where a refusal may be issued include, but are not limited to:

• When the request is to determine whether a statute is constitutional or a regulation is lawful;
• When the request involves a hypothetical situation or alternative plans;
• When the information in the request is too limited or unclear to be used as a basis for issuing a ruling; and
• When the issue in the request is currently being considered in another action, the results of which may resolve the issue.
   

The letter ruling will only apply to the applicant submitting the letter ruling request and will bind the Department until the taxpayer or its partners, members, or shareholders claim all the NMTCs related to the ruling on a tax return.

Nebraska New Markets Tax Credit Allocations

Fiscal Years Ended 06/30/2013, 06/30/2014, 06/30/2015, and 06/30/2018.

Questions regarding the New Markets Job Growth Investment Act may be directed to:

Tom Milburn
Revenue Tax Specialist, Policy Section
Nebraska Department of Revenue   
301 Centennial Mall South 
Lincoln, NE 68509-8944
Phone: 402-471-5814  Fax: 402-471-5946
tom.milburn@nebraska.gov