2. Combining Historic Tax Credits and New Markets Tax Credits
National Historic Tax Credit Conference
10:15-11:15 am
Thursday, November 8, 2007

3. New Markets Tax Credit Fundamentals
NMTC Synopsis
A federal tax credit available to those that provide equity (QEIs) to certain certified community development entities (CDEs) that in turn lend or invest (QLICIs) in qualified businesses (QALICBs) located in low-income communities (LICs). 3

4. New Markets Tax Credits What is a Qualified Business?
Any corporation or partnership (including nonprofits) engaged in the active conduct of a qualified business; must meet requirements regarding gross income, tangible property, services performed, collectibles, and nonqualified financial property
No financing of residential rental property
Mixed use okay
Restrictions on certain types of business operations and tenants
E.g. massage parlor, hot tub facility, liquor store, gambling facility
Accountability Test: It has a board or advisory board that maintains accountability to residents of low-income communities
Primary Mission Test: Its primary mission is providing loans or investments or technical assistance to low income communities and that at least 60% of its activity is targeted at low-income communities
THIS IS MEANT TO BE EASY
Remind them to remember that sometimes CDEs are pass-through entities (define)

5. New Markets Tax Credits How They Work
Tax Credit Investor
CDE (Allocatee)
Tax Credits over 7 years ($39) and Cash Return
QEI ($100)
Suballocation of Tax Credit Authority
CDE (Subsidiary)
Loan/Equity QLICI (85%+ of QEI)
Property Owner (QALICB)

6. Typical HTC Structure (Single Entity)
Managing Member
(Developer Affiliate)
Tax Credit Investor LLC
Tax Credit Investor
.01% Credits, Profits & Losses, Fees and Cash Flow
Historic Tax Credit Equity
99.99% Credits, Profits & Losses and Cash Flow
Developer Equity
Tax Credit, LLC
(Property Owner)
Developer
Dev. Fee
Debt Service Payments
Loan Proceeds
Rental Payments
Construction/ Perm Lender
Tenants

7. Legal Considerations Pros $$$$
High percentage of historic buildings in Low-Income Communities
Similarity of basic structure
Related party – per CDFI Fund rules, test is done AFTER QLICI is made.

8. Legal Considerations Cons “Related Party” requirements limit equity
Operational limitations
Subtenant mix
Mixed-use
Additional guaranties
Different compliance periods
Lack of guidance on making equity QLICIs
CDFI Fund
IRS
Increased complexity

9. Master Tenant/NMTC Structure
Tax Credit Investor LLC
CDE
QEI
Managing Member
(Developer Affiliate)
Tax Credit Investor
Tax Credit Investor
QLICI
Developer Equity
99.99% Credits, Profits & Losses, Fees and Cash Flow
Non-Member Manager
.01% Credits, Profits & Losses, Fees and Cash Flow
Historic Tax Credit Equity
100% Credits, Profits & Losses, and Cash Flow
Landlord, LLC
(Property Owner/Lessor)
QALICB
Pass-through of Historic Tax Credits & Share of Residual
Single Member LLC
(Disregarded Entity)
Master Tenant, LLC
(Master Tenant)
QLICI
Lease Payment & Equity Investment
Debt Service Payments
Loan Proceeds
Rental Payments
Construction/ Perm Lender
Sub-Tenants/ End Users

10. Dia:Beacon Beacon, New York

11. Thank you Merrill Hoopengardner, Esq.
401 9th Street, NW Suite 900 Washington, DC 20004
(Fax)