NMTC Transactional Structures
While a multitude of transaction structure configurations are utilized for new markets tax credit investments, there are two primary transaction structures that serve as a basis from which the others originate: 1) non-leveraged; and 2) leveraged.
In the non-leveraged transaction structure, the tax credit investor becomes a Limited Partner or Investor Member of the Community Development Entity (CDE) and receives the tax credits as well as cash distributions. As a designated CDE utilizing the new markets tax credits, CCG Community Partners, LLC, an affiliate of CCG, offers investment capital in the form of medium and long-term primary mortgages, medium-term mezzanine financing, and traditional equity investments to owners of businesses and commercial properties located within qualified low-income communities.
In contrast, under the leveraged transaction structure in accordance with Internal Revenue Code Section 45(d) and Revenue Ruling 2003-20, a non-recourse loan from an unrelated party is combined with equity from the NMTC Investor to increase QEI generating tax credits and, thus, increasing the overall equity contribution from the NMTC Investor. Under the leveraged transaction structure, the tax credit investor receives 100% of the tax credits while the leverage lender provides debt financing to the Investment Fund.
The New Markets Tax Credits are often paired with the Historic Rehabilitation Tax Credits, or with funding from community development and redevelopment programs, Community Reinvestment Act lending or various state tax credit programs.