Legal Requirements of New Markets Tax Credit Financing

There are many statutory and regulatory requirements as well as specific guidance provided by the IRS and the CDFI Fund (which administers the NMTC Program).

Generally, to the extent that a Borrower and/or project does not satisfy any of the legal requirements, the NMTC financing can be structured to address all of the legal issues without adversely affecting the economic benefits of the NMTC financing.  It is critical that these issues be addressed from the outset in order to avoid complications as the NMTC financing proceeds to closing.

In order to obtain the NMTC Program subsidy, there are several legal requirements including, but not limited to, following [click applicable link]:

• the  project or operations, as applicable, must be predominantly located in a “Low-Income Census Tract”  or otherwise benefit  “Targeted Populations;”
• there must be a gap in available financing (the so-called “But For Test”);
• the Borrower must be a “Qualified Active Low-Income Community Business;”
• the Borrower’s trade or business (or nonprofit’s purpose and operations) must be a Qualified Business;
• the NMTC financing proceeds must be used for Permitted Uses and not for Prohibited Uses; and
  
• there cannot be a  “Recapture Event” during the 7-year NMTC compliance period.

We have facilitated hundreds of millions of dollars of NMTC financings since the inception of the NMTC program in 2000.

Given our legal and accounting experience and expertise with the existing and proposed guidance, and legal and compliance requirements of the NMTC program, we are able to proactively underwrite and structure each NMTC financing to comply with all legal requirements while still ensuring that each client receives the most flexible, nontraditional and economically optimal NMTC financing terms and conditions.