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Industry Jargon - Seeing the Forest through the TreesThe New Markets Tax Credit and Renewable Energy industries use lots of “jargon”. To help the newcomer out, below is a list of some of the common terms and acronyms used and their definition. Please note, these are simplified definitions of sometimes highly technical terms, and should not be relied on for transaction structuring and compliance purposes.
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New Markets Tax Credit Definitions
“Allocation” refers to the amount of the award granted to the CDE by the CDFI Fund. The amount of NMTCs that the CDE can access are equal to 39% multiplied by the total allocation awarded.
“Allocatee” means a CDE that has successfully won allocation from the CDFI Fund.
“CDE” means a Community Development Entity, which is an entity certified by the CDFI as a development entity as having as its primary mission serving or providing investment capital for, low-income communities or low-income persons; and must maintain accountability to low income communities through advisory or governing board representation.
“CDFI Fund” means the Community Development Financial Institutions Fund, a wholly owned government corporation within the U.S. Department of the Treasury. The CDFI Fund has allocation authority for NMTCs.
“Investment Fund” refers to an entity formed (usually an LLC) to aggregate tax credit investor equity with debt in order to increase returns to the tax credit investor. Investment Funds use the aggregate funds to make QEIs (see definition below) that trigger the NMTC.
“LIC” or “Low-Income Community” means any census tract if the poverty rate for that tract is at least 20% OR, if the tract is located within a metropolitan area, the median family income for the tract is not more than 80% of the greater of statewide median family income or the metropolitan area median family income. If the census tract is not located within a metropolitan area, the median family income for the tract cannot exceed 80% of statewide median family income.
“NMTC” or “New Markets Tax Credit” refers to a 39% tax credit allowed under IRC section 45D for QEIs made in CDEs.
“QALICB” means a Qualified Active Low-Income Community Business as defined by the NMTC rules. Generally, this is a business with at least 50% of its gross income derived from the conduct of its business within a Low-Income Community. When trying to determine whether a business is a QALICB, there are additional detail criteria that must be considered.
“QCT” means a Qualified Census Tract, which is one that meets the definition of a Low-Income Community (LIC).
“QEI” or “Qualified Equity Investment” means an equity investment in a CDE.
“QLICI” or “Qualified Low Income Community Investment” means a debt or equity investment in a QALICB.
“Allocatee” means a CDE that has successfully won allocation from the CDFI Fund.
“CDE” means a Community Development Entity, which is an entity certified by the CDFI as a development entity as having as its primary mission serving or providing investment capital for, low-income communities or low-income persons; and must maintain accountability to low income communities through advisory or governing board representation.
“CDFI Fund” means the Community Development Financial Institutions Fund, a wholly owned government corporation within the U.S. Department of the Treasury. The CDFI Fund has allocation authority for NMTCs.
“Investment Fund” refers to an entity formed (usually an LLC) to aggregate tax credit investor equity with debt in order to increase returns to the tax credit investor. Investment Funds use the aggregate funds to make QEIs (see definition below) that trigger the NMTC.
“LIC” or “Low-Income Community” means any census tract if the poverty rate for that tract is at least 20% OR, if the tract is located within a metropolitan area, the median family income for the tract is not more than 80% of the greater of statewide median family income or the metropolitan area median family income. If the census tract is not located within a metropolitan area, the median family income for the tract cannot exceed 80% of statewide median family income.
“NMTC” or “New Markets Tax Credit” refers to a 39% tax credit allowed under IRC section 45D for QEIs made in CDEs.
“QALICB” means a Qualified Active Low-Income Community Business as defined by the NMTC rules. Generally, this is a business with at least 50% of its gross income derived from the conduct of its business within a Low-Income Community. When trying to determine whether a business is a QALICB, there are additional detail criteria that must be considered.
“QCT” means a Qualified Census Tract, which is one that meets the definition of a Low-Income Community (LIC).
“QEI” or “Qualified Equity Investment” means an equity investment in a CDE.
“QLICI” or “Qualified Low Income Community Investment” means a debt or equity investment in a QALICB.