Cherrytree Group LLC Blog

by Warren Kirshenbaum

The Community Development Financial Institutions Fund (“CDFI Fund”), a program of the U.S. Department of Treasury released its 2010 Performance and Accountability Report on January 18, 2011, providing key insight into economic revitalization in 2010. The CDFI Fund promotes economic revitalization and community development through investment in, and assistance to community development financial institutions.

The Performance and Accountability Report demonstrated a continued level of interest in investment into low-income communities and showed a substantial increase in rewarded tax credits over 2009. In 2010, the CDFI Fund, which administers the New Markets Tax Credit Program (“NMTC”) distributed all $26 billion in its authority in 495 separate awards.

The NMTC was created as part of the Community Renewal Tax Relief Act of 2000 to provide a tax credit to taxpayers who provide investments to businesses in low-income communities.

Specifically, the NMTC stimulates capital investment in low-income communities by providing tax credits against federal income taxes to taxpayers who make equity investments (referred to as “QEI’s” or “qualified equity investments”) into a designated community development entity (“CDE”). Substantially all of the investments made by the taxpayer must be used to benefit low income communities in order to receive the tax credit, and that determination is made by reference to census tracts. The Performance and Accountability Report of 2010 announced that the demand for the NMTC is increasing. In 2010 over two thousand applications were submitted, containing requests totaling $202.6 billion in tax credit allocation. Accordingly, only 27% of applicants were selected to receive the awards with the average tax credit allocation award being $52.5 million. The tax credit allocations are limited, so they are approved by a competitive application process. This process of approving tax credit allocation is set up so that the most qualified organizations receive first consideration.

This past year also saw another record for investments raised – in the first three quarters of 2010, $3.1 billion in qualified equity investments were raised, surpassing the $2.8 billion raised for all of 2009. Furthermore, tax credit recipients reported making $3.5 billion of loans and investments in Qualified Active Low Income Community Businesseses – 64% of which went into real estate businesses. Lastly, in 2010, recipients also reported making over $168 million in direct investments into other CDE’s, and providing $12 million in financial counseling and other services to 7,139 businesses in low-income communities.

The 2010 report announced by the CDFI Fund shows the growing demand for investment capital in low-income communities. In sum, since the program’s inception, there has been a total of $15.8 billion of cumulative investments made via the New Market Tax Credit Program. If you are interested in how to qualify for these or any other potential tax credits, please call Warren today or fill out a Contact Us form.

... By Warren Kirshenbaum

In order to jump-start the economy and defuse some of the economic hardship caused by the recession, the American Recovery and Reinvestment Act of 2009 (the “Act”) attempted to infuse financial benefits and incentives into the economy. One of the sections of the Act benefits supporters and investors of renewable energy. The US is determined to be in the fore front of the renewable energy industry, and the government hopes that the industry continues to prosper despite the volatile economic times. Specifically, Section 1603 of the Act (the “grant” or “grants”) provides grants from the federal government to eligible “persons” (a legal construct including entities) who develop renewable energy systems during the recessionary period. The Federal government already provides tax credits that benefit the renewable energy industry that is credit that reduces dollar for dollar an eligible tax payer’s tax liability, if the taxpayer engaged in a qualifying renewable energy program. However, fearing that investors in renewable energy will not be able to successfully monetize tax credits, Section 1603 provides grants in lieu of the tax credits to interested investors. The purpose of Section 1603 is to temporarily fill the gap that was created by a lack of demand for tax credits from investors and simultaneously decrease American’s dependency on non-renewable energy sources while creating or retaining jobs.

The grant is for qualifying persons who install specified energy system on property during 2009 or 2010. The Treasury will provide grants up to 10% or 30% (depending on the energy system) of qualifying expenses. Persons eligible for the grant include government agencies, 501(c) organizations (non-profits), entities as qualified under IRC sec 54(j) paragraph 4, and partnerships or other pass-thru entities, or any direct or indirect partner of such entities.

Specified energy systems include large wind, closed-loop and open-loop biomass facilities, geothermal, landfill gas facility, trash facility, qualified hydropower facility, marine & hydrokinetic, solar, fuel cells, microturbines, combined heat & power, small wind, and geothermal heat pumps. Qualifying persons will continue to be eligible for the grant even when the renewable energy project is completed after 2010, for so long as the qualifying project began in 2009 or 2010. Beginning a qualifying project is defined as conducting physical work of significant nature either on or off site, costing at least 5% of the total cost of the project. Furthermore, the original use of the energy system must begin with an applicant. Accordingly, a person will not be eligible for the grant by simply purchasing an already installed renewable energy system. The applicant, however, may use pre-owned parts in the facility, but their costs may not exceed 20% of the total cost of the facility.

If less than 5% of the total cost is incurred during the 2009 or 2010 period or only preliminary work was completed during that time, the persons seeking the grant will be disqualified. Preliminary work includes planning or designing, securing financing, exploring, researching, clearing a site, test drilling, or excavation to change the contour of the land. On the other hand, excavation for the foundation or the pouring of the concrete pads of the foundation will be considered as the start of construction. The start of construction also includes the start of manufacturing components, even though the manufacturing is completed off-site.

The Act includes a powerful tool for businesses and individuals who support and are involved in the development of the renewable energy industry. The grant, although currently offered for a temporary period of time, offers an incentive to continue to build renewable energy systems in one’s community. For those who began constructing a renewable energy facility in 2009-2010 period, applying for the Section 1603 grant should be a priority. Although the application for the grant is complicated and often confusing, obtaining up to 30% of the eligible expenses offers a significant resource to assist in making your project a success. Cherrytree Group LLC and Kirshenbaum Law Offices can provide to you the expertise needed to decipher whether you qualify for the renewable energy grant and assist you in applying for and obtaining the grant as well as assist you in monetizing your tax credits.