New Markets Tax Credit: It’s an investor’s world
Posted on: September 18, 2019 at 3:25 pm

By: Hunter Atherton and Aubrey Parke

Lee+ Associates College Interns

In 2000, the Community Renewal Tax Relief Act was enacted beginning the New Markets Tax Credit program. This allowed investors to “receive a credit against federal income taxes for making Qualified Equity Investments (QEIs) in qualified Community Development Entities (CDEs)” as defined by the IRS. In turn, those investments would be used to enhance the quality of life for those living and working in low-income communities by funding projects led by Qualified Active Low-Income Community Businesses (QALICB).

According to the Tax Policy Center, the most often funded project types by NMTCs are retail, manufacturing, mixed use, health care, office building, and school projects. In return for the QEI, investors collect 39% on the investment over seven years in tax credits as compensation. After its establishment, the Community Development Financial Institutions Fund (CDFI) has given out  more than $23 billion in tax credits funding  more than 4,800 projects in all 50 states. However, with the program’s growth, there is increasing complexity and decreasing transparency because of a lack of reporting and records through CDEs and investors. This leads to a lack of data available to the public about success and failure rates though records do exist of what is being funded by NMTCs, but the amounts are not freely accessible.

Oklahoma Senator Tom Coburn wrote a report entitled “Banking on the Poor” in which he critiques the uses of NMTCs for projects other than enhancing low-income community life. With very little guidance or regulation from the CDFI on the types of projects that can be invested in, there are a lot of uncharacteristic projects. He mentions reports of NMTCs funding aquariums and bakeries in prosperous areas as well as car museums and movie theaters. He holds this as one of the largest problems with NMTCs: almost any area of the United States can be considered low-income by the standards of the program which could allow funding anywhere.

Coburn also takes issue with how investors are utilizing it for their own gains. The primary investors of the NMTC program are big banks who find ways to work the financial system to receive greater benefits such as larger tax breaks through a process called “twinning” which combine all possible avenues of tax credit from one project for the investor. Coburn writes “it is still difficult to measure if these tax exemptions are truly helping those seeking a hand up or simply subsidizing banks, corporations, and others who are already succeeding.”

We  find it important to note that most of the articles done on this subject cover how good of an opportunity this is for investors, and the articles often come from the investors themselves. Very few discuss the benefits for the invested, though this could be due to an unreported high failure rate. And with projects such as an ice-skating rink and a private island,  we’re not sure that  we necessarily trust the low-income community focus of the NMTCs program. We recognize  this program is not promising “free money”  to these projects. Investors pitch  this program in the hope of receiving tax credits, which is fair. However, making contributions to receive tax breaks for yourself in a program that has no defined success record in actual low-income communities concerns  us, as there is little record of the investment going to QALICB.

In March 2019, legislation was introduced to the U.S. House of Representatives that would extend the New Markets Tax Credit program indefinitely. There is debate about the legislation and many support changes to be made to the existing program in order to have increased transparency and regulation after a report from the U.S. Government Accountability Office  brought attention to the lack of records. We would encourage anyone considering funding their projects through the NMTCs program to be careful in choosing  the institutions that stand behind them.

In summary, this program offers a unique opportunity for low-income areas to gain investors to enhance their communities while offering substantial compensation, but the program currently has several pitfalls for projects that are not well-set financially prior to and well-acquainted with New Markets Tax Credits and those that invest in them. Next month we will discuss the opportunities that New Markets Tax Credit programs offer. 



Coburn, Tom. Banking on the Poor. 2007,


 “New Markets Tax Credit 1 | Internal Revenue Service.” Internal Revenue Service, 2010,


McTigue, James R. “New Markets Tax Credit: Better Controls and Data Are Needed to Ensure

Effectiveness.” U.S. Government Accountability Office (U.S. GAO), U.S. Government

Accountability Office, 11 Aug. 2014, www.gao.gov/products/GAO-14-500.

Sewell, Teri. “New Markets Tax Credit Extension Act of 2019 (H.R. 1680).” GovTrack, Civic

Impulse, LLC, 12 Mar. 2019, www.govtrack.us/congress/bills/116/hr1680.

“What Is the New Markets Tax Credit, and How Does It Work?” Tax Policy Center, Urban

Institute & Brookings Center, 2016, www.taxpolicycenter.org/briefing-book/what-new-