Fillable Form 8874 - New Markets Credit (Page 2 of 2) in pdf

Form 8874 (Rev. 1-2007)

Page

The equity investment was made on or after the date the

Basis Reduction

CDFI Fund publishes a Notice of Allocation Availability (NOAA)

You must reduce your basis in your qualified equity

in the Federal Register, and the designation of the equity

investment by the amount of the new markets credits allowed

investment as a qualified equity investment is made for a credit

(even if part or all of the credit is not allowed for the current

allocation received under an allocation application submitted to

year and is carried forward). However, do not reduce your

the CDFI Fund under that NOAA. If the entity in which the

basis for purposes of figuring the exclusion of gain for:

equity investment is made does not receive an allocation under

Qualified small business stock under section 1202,

that NOAA, the equity investment will not be eligible to be

Certain DC zone assets under section 1400B, or

designated as a qualified equity investment. For details, see

Certain qualified community assets under section 1400F.

Regulations sections 1.45D-1(c)(3)(ii)(B) and 1.45D-1(c)(3)(iii).

The maximum amount of equity investments so designated

Additional Information

by the qualified CDE cannot exceed the amount of the

allocation it received from the CDFI Fund. The names and

For more details, see Pub. 954, Tax Incentives for Distressed

addresses of qualified CDEs that have received an allocation

Communities, section 45D, Regulations section 1.45D-1, or

for each allocation round and the amount of that allocation is

listed on the CDFI Fund website at

Specific Instructions

How To Figure the Credit

Line 1

A credit generally is allowed to the holder of the qualified

equity investment on each of 7 credit allowance dates. The

Enter the information requested for each qualified equity

credit allowance dates are the date you make the initial

investment held directly by you on a credit allowance date in

investment and each of the next 6 anniversary dates. The

the current tax year. In column (e), enter the credit rate. For

credit is equal to the qualified equity investment multiplied by

the first, second, or third year of the 7-year credit period, enter

5% (6% for the 4th through 7th years). However, the credit is

“5.” For any later year, enter “6.”

not allowed for a credit allowance date if the investment is not

If you need more space, attach a statement showing all the

a qualified equity investment on that date.

information requested for each qualified equity investment. On

the last row on line 1, write “See attached” in column (a) and

Recapture of the Credit

enter the total of the credit amounts from the attached

statement in column (f).

You may have to increase your tax by a credit recapture

amount if at any time within 7 years from the date of the

original issuance of the qualified equity investment:

Paperwork Reduction Act Notice. We ask for the information

The entity ceases to be a qualified CDE,

on this form to carry out the Internal Revenue laws of the

Substantially all of the proceeds of the investment cease to

United States. You are required to give us the information. We

be used to make qualified low-income community

need it to ensure that you are complying with these laws and

investments, or

to allow us to figure and collect the right amount of tax.

The investment is redeemed or otherwise cashed out by the

You are not required to provide the information requested

entity.

on a form that is subject to the Paperwork Reduction Act

unless the form displays a valid OMB control number. Books

Exception. If a CDE fails to use substantially all of the

or records relating to a form or its instructions must be

proceeds of a qualified equity investment to make qualified

retained as long as their contents may become material in the

low-income community investments, the CDE may avoid

administration of any Internal Revenue law. Generally, returns

recapture of the credit if it corrects the failure within 6 months

and return information are confidential, as required by section

after the date it becomes aware (or reasonably should have

6103.

become aware) of the failure. Only one correction is permitted

The time needed to complete and file this form will vary

for each qualified equity investment during the 7-year credit

depending on individual circumstances. The estimated burden

period.

for individual taxpayers filing this form is approved under OMB

See section 45D(g) and Regulations section 1.45D-1(e) for

control number 1545-0074 and is included in the estimates

details, including how to figure the credit recapture amount.

shown in the instructions for their individual income tax return.

Generally, include the credit recapture amount on the line for

The estimated burden for all other taxpayers who file this form

recapture taxes on your income tax return for the year in

is shown below.

which the recapture event occurs. For example, the credit

recapture amount on a 2006 Form 1040 is reported on line 63

Recordkeeping

6 hr., 13 min.

(total tax) and the amount on a 2006 Form 1120 is reported on

Learning about the

Schedule J, line 9 (Other taxes).

law or the form

1 hr., 12 min.

You are not subject to recapture of the credit solely

because you sell or otherwise dispose of your investment.

Preparing and sending

However, you cannot claim the credit for any credit allowance

the form to the IRS

1 hr., 20 min.

date after the disposition.

If you have comments concerning the accuracy of these

Qualified CDEs must provide taxpayers holding a

time estimates or suggestions for making this form simpler,

qualified equity investment with a completed Form

we would be happy to hear from you. See the instructions of

TIP

the tax return with which this form is filed.

8874-B when a recapture event occurs.

Form 8874 - New Markets Credit Page 2

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