Notice 2020-49 tax relief, deadlines, new markets tax credit

Notice 2020-49
I. PURPOSE
On March 13, 2020, the President of the United States issued an emergency
declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act
(42 U.S.C. 5121 et seq.) in response to the ongoing Coronavirus Disease 2019
(COVID-19) pandemic (Emergency Declaration). The Emergency Declaration
instructed the Secretary of the Treasury “to provide relief from tax deadlines to
Americans who have been adversely affected by the COVID-19 emergency, as
appropriate, pursuant to 26 U.S.C. 7508A(a).” This notice postpones to December 31,
2020, the due dates for making investments, making reinvestments, and expending
amounts for construction of real property under § 45D of the Internal Revenue Code
(Code) due to be performed or expended on or after April 1, 2020, and before
December 31, 2020.
II. BACKGROUND
Section 38(b) of the Code provides a credit against income taxes for certain
business credits, including the new markets tax credit determined under § 45D(a). See
§ 38(b)(13).
Under § 45D(a)(1), a taxpayer may claim the new markets tax credit on certain
credit allowance dates described in § 45D(a)(3) over a 7-year credit period with respect
2
to a qualified equity investment (QEI) in a qualified community development entity
(CDE) described in § 45D(c).
Under § 45D(b), in general, a QEI means any equity investment in a CDE if:
(A) the investment is acquired by the taxpayer at its original issue (directly or through an
underwriter) solely in exchange for cash; (B) substantially all of such cash is used by the
CDE to make qualified low-income community investments (QLICIs); and (C) the
investment is designated for purposes of § 45D as a QEI by the CDE.
Section 45D(c)(1) provides that a domestic corporation or partnership is a CDE if:
(A) the primary mission of the entity is serving, or providing investment capital for, lowincome communities (as defined in § 45D(e)) or low-income persons; (B) the entity
maintains accountability to residents of low-income communities through their
representation on any governing board of the entity or on any advisory board to the
entity; and (C) the entity is certified by the Secretary of the Treasury or his delegate
(Secretary) as a qualified CDE.
Section 45D(d)(1) defines a QLICI as: (A) any capital or equity investment in, or
loan to, any qualified active low-income community business (as defined in
§ 45D(d)(2)); (B) the purchase from another qualified CDE of any loan made by such
entity that is a QLICI; (C) financial counseling and other services specified in regulations
prescribed by the Secretary to businesses located in, and residents of, low-income
communities; and (D) any equity investment in, or loan to, any qualified CDE.
Section 45D(d)(2)(A) defines a qualified active low-income community business
(QALICB), with respect to any taxable year, as any corporation (including a nonprofit
3
corporation) or partnership if for such year, among other requirements, (i) at least 50
percent of the total gross income of the entity is derived from the active conduct of a
qualified business within any low-income community, (ii) a substantial portion of the use
of the tangible property of the entity (whether owned or leased) is within any low-income
community, (iii) a substantial portion of the services performed for the entity by its
employees are performed in any low-income community, and (iv) less than 5 percent of
the average of the aggregate unadjusted bases of the property of the entity is
attributable to nonqualified financial property (as defined in § 1397C(e)).
Under § 45D(d)(3), with certain exceptions, a qualified business is any trade or
business within the meaning of § 1397C(d) of the Code. Together, these sections and
§ 1.45D-1(d)(5)(ii) of the Income Tax Regulations provide that the rental to others of real
property located in any low-income community is a qualified business (for purposes of
§ 45D) only if the property is not residential rental property (as defined in § 168(e)(2)(A)
of the Code) and there are substantial improvements located on the real property.
Section 1.45D-1(c)(5)(i) provides a safe harbor with respect to a CDE’s
investment in QLICIs. Generally, a CDE must invest at least 85 percent of its QEI in
QLICIs.
Section 1.45D-1(c)(5)(iv) provides the timing requirement of a CDE’s investment
in QLICIs. Specifically, it provides that a taxpayer’s cash investment received by a CDE
is treated as invested in a QLICI as defined in § 1.45D-1(d)(1) only to the extent that the
cash is so invested within the 12-month period beginning on the date the cash is paid by
the taxpayer (directly or through an underwriter) to the CDE. Thus, a CDE generally
4
has a 12-month period to invest cash it receives that is designated as a QEI in a QLICI
under § 1.45D-1(c)(5)(iv).
Section 1.45D-1(d)(2)(i) provides in general that amounts received by a CDE in
payment of, or for, capital, equity or principal with respect to a QLICI must be reinvested
by the CDE in a QLICI no later than 12 months from the date of receipt to be treated as
continuously invested in a QLICI.
Under § 1.45D-1(d)(4)(i)(E), in general, with respect to any taxable year, a
QALICB must have less than 5 percent of the average of the aggregate unadjusted
basis of its property that is attributable to nonqualified financial property. Nonqualified
financial property means debt, stock, partnership interests, options, futures contracts,
forward contracts, warrants, notional principal contracts, annuities, and other similar
property except reasonable amounts of working capital held in cash and other forms,
and certain debt instruments. See § 1.45D-1(d)(4)(i)(E)(1)(i); see also § 1397C(e).
Section 1.45D-1(d)(4)(i)(E)(2) provides that the proceeds of a capital or equity
investment or loan by a CDE that will be expended for construction of real property
within 12 months after the date the investment or loan is made are treated as a
reasonable amount of working capital under § 1.45D-1(d)(4)(i)(E)(1)(i).
III. TIME-SENSITIVE ACTIONS AFFECTED BY COVID-19 EMERGENCY
A time-sensitive action to which this notice applies is an action required to be
performed by a CDE or QALICB, which is due to be performed on or after April 1, 2020,
and before December 31, 2020, in order to meet the requirements under §§ 1.45D1(c)(5)(iv), 1.45D-1(d)(2)(i), or 1.45D-1(d)(4)(i)(E)(2).
5
IV. RELIEF FOR SPECIFIED TIME-SENSITIVE ACTIONS AFFECTED BY
COVID-19 EMERGENCY
A. TIME LIMIT FOR MAKING INVESTMENTS
For purposes of § 1.45D-1(c)(5)(iv), if the last day of the 12-month period during
which a CDE must invest the cash it receives in a QLICI would fall on or after April 1,
2020, and before December 31, 2020, the last day of the 12-month period is postponed
to December 31, 2020. Accordingly, the 12-month investment requirement is treated as
timely satisfied if the cash is so invested by December 31, 2020.
B. TIME LIMIT FOR MAKING REINVESTMENTS
For purposes of § 1.45D-1(d)(2)(i), if the last day of the 12-month period during
which a CDE must reinvest in a QLICI amounts it receives, in payment of, or for capital,
equity or principal with respect to a QLICI, would fall on or after April 1, 2020, and
before December 31, 2020, the last day of the 12-month period is postponed to
December 31, 2020. Accordingly, the 12-month reinvestment requirement is treated as
timely satisfied to the extent that the amounts are reinvested in a QLICI by December
31, 2020.
C. TIME LIMIT FOR EXPENDING AMOUNTS FOR CONSTRUCTION OF REAL
PROPERTY
For purposes of § 1.45D-1(d)(4)(i)(E)(1) and (2), if the last day of the 12-month
period for a QALICB to expend the proceeds of a capital or equity investment or loan by
a CDE for construction of real property would fall on or after April 1, 2020, and before
December 31, 2020, the last day of the 12-month period is postponed to December 31,

  1. Accordingly, the proceeds are treated as a reasonable amount of working capital
    6
    of the QALICB and the 12-month requirement is treated as timely satisfied if the
    proceeds are so expended by December 31, 2020.
    D. OTHER REQUIREMENTS
    Except as expressly provided in this notice, all other rules and requirements of
    § 45D and § 1.45D-1 continue to apply by their terms.
    V. DRAFTING INFORMATION
    The principal authors of this notice are Dillon Taylor and Michael J. Torruella
    Costa, Office of the Associate Chief Counsel (Passthroughs and Special Industries).
    For further information regarding this notice, contact Dillon Taylor or Michael J. Torruella
    Costa at (202) 317-4137 (not a toll-free number).

No Comments Yet.

Leave a comment

Visit Us On TwitterVisit Us On FacebookVisit Us On Linkedin