Form 8874 - New Markets Credit Page 2

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2
Form 8874 (Rev. 12-2012)
Page
General Instructions
Exceptions. An equity investment in an entity that otherwise
qualifies as a qualified equity investment or a non-real estate
Section references are to the Internal Revenue Code unless
qualified equity investment is eligible to be designated as a
otherwise noted.
qualified equity investment if made prior to an allocation
agreement only if either of the following applies.
Future Developments
• The equity investment was made on or after April 20, 2001,
For the latest information about developments related to Form
and the designation of the equity investment as a qualified
8874 and its instructions, such as legislation enacted after they
equity investment is made for a credit allocation received under
were published, go to
an allocation application submitted to the CDFI Fund no later
than August 29, 2002. If the entity in which the equity
What’s New
investment is made does not receive an allocation under an
allocation application submitted no later than August 29, 2002,
The new markets tax credit allocation has been extended for
the equity investment will not be eligible to be designated as a
calendar years through 2013. To find out if the allocation is
qualified equity investment. For details, see Regulations
extended beyond 2013, go to
sections 1.45D-1(c)(3)(ii)(A) and 1.45D-1(c)(3)(iii).
Purpose of Form
• The equity investment was made on or after the date the CDFI
Use Form 8874 to claim the new markets credit for qualified
Fund publishes a Notice of Allocation Availability (NOAA) in the
equity investments made in qualified community development
Federal Register, and the designation of the equity investment
entities (CDEs). This credit is part of the general business credit.
as a qualified equity investment is made for a credit allocation
received under an allocation application submitted to the CDFI
Taxpayers that are not partnerships or S corporations, and
Fund under that NOAA. If the entity in which the equity
whose only source of this credit is from those pass-through
investment is made does not receive an allocation under that
entities, are not required to complete or file this form. Instead,
NOAA, the equity investment will not be eligible to be
they can report this credit directly on line 1i of Form 3800.
designated as a qualified equity investment. For details, see
Definitions
Regulations sections 1.45D-1(c)(3)(ii)(B) and 1.45D-1(c)(3)(iii).
The maximum amount of equity investments so designated by
Qualified CDE
the qualified CDE cannot exceed the amount of the allocation it
A qualified CDE is a domestic corporation or partnership that
received from the CDFI Fund. The names and addresses of
meets the following requirements.
qualified CDEs that have received an allocation for each
allocation round and the amount of that allocation is listed on
• Its primary mission is serving, or providing investment capital
the CDFI Fund website at
for, low-income communities or persons.
Non-Real Estate Qualified Equity Investment
• It maintains accountability to residents of low-income
communities through their representation on any governing
If a qualified equity investment is designated as a non-real
board or advisory board of the entity.
estate qualified equity investment, then the qualified equity
• It is certified as a qualified CDE by the Community
investment may only satisfy the substantially-all requirement if
Development Financial Institutions (CDFI) Fund of the
the CDE makes qualified low-income community investments
Department of the Treasury.
that are directly traceable (including investments made through
one or more CDEs) to non-real estate qualified active low-
Qualified CDEs also include specialized small business
income community businesses. The proceeds of a non-real
investment companies and community development financial
estate qualified equity investment cannot be used for
institutions. See section 45D(c)(2).
transactions involving a qualified active low-income community
Qualified Equity Investment
business that is not a non-real estate qualified active low-
income community business. See Regulations section
A qualified equity investment is an interest in a qualified CDE in
1.45D-1(d) for details about qualified low-income community
the form of stock (other than nonqualified preferred stock) in a
investments.
corporation or a capital interest in a partnership that meets all of
the following requirements.
How To Figure the Credit
• You acquired the investment solely for cash at its original
A credit generally is allowed to the holder of the qualified equity
issue (or from a taxpayer for whom the investment was a
investment on each of 7 credit allowance dates. The credit
qualified equity investment). The cash may be from borrowed
allowance dates are the date you make the initial investment
funds, including a nonrecourse loan.
and each of the next 6 anniversary dates. The credit is equal to
• Substantially all (at least 85%) of the cash is used to make
the qualified equity investment multiplied by 5% (6% for the 4th
qualified low-income community investments. The 85%
through 7th years). However, the credit is not allowed for a
requirement is reduced to 75% for the seventh year of the
credit allowance date if the investment is not a qualified equity
7-year credit period.
investment on that date.
• The investment was designated as a qualified equity
Recapture of the Credit
investment or a non-real estate qualified equity investment by
the CDE on its books and records for purposes of the new
You may have to increase your tax by a credit recapture
markets credit.
amount if at any time within 7 years from the date of the original
Generally, a qualified CDE can designate an equity
issuance of the qualified equity investment:
investment as a qualified equity investment or a non-real estate
• The entity ceases to be a qualified CDE,
qualified equity investment only if it applied for and received a
new markets credit allocation and entered into an allocation
• Substantially all of the proceeds of the investment cease to
agreement with the CDFI Fund before the equity investment
be used to make qualified low-income community investments,
or
was made.
• The investment is redeemed or otherwise cashed out by the
Qualified CDEs must provide taxpayers holding a
qualified equity investment with a completed Form
entity.
TIP
8874-A when a qualified equity investment is
acquired.

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