Pub. 7 2010-2013 Issue 3

September/October 2012 21 Extraordinary Service for Extraordinary Members. A “qualified active-low income community business” (QALICB) is any corporation (including a non-profit cor- poration) or partnership if: (1) at least 50 percent of the total gross income of such entity is derived from the active conduct of a trade or business within a low-income commu- nity; (2) at least 40 percent of the entity’s tangible property is used in a low-income community; (3) at least 40 percent of the services performed for such entity are performed in a low-income community; and (4) the entity does not own an excessive amount (more than 5 percent of total unadjusted asset basis) of collectibles or certain financial property. The determination of whether a particular area constitutes a “low- income community” is based on census tract information that is confirmed by the CDFI Fund. Finally, a “qualified low-income community investment” (QLICI) is a debt or equity investment by a CDE in a QALICB. The credits are subject to recapture over a seven-year “compliance period” and the QALICB and other entities involved in the transaction must maintain compliance with the act for that period. In general, the credits are subject to recapture if the CDE redeems the QEI or the CDE fails to maintain 85 percent of the purchase price of the QEI invested in QALICBs for the duration of the compliance period. How Nebraska Banks Can Benefit Nebraska banks can serve a number of roles in new mar- kets tax credit transactions, including: (1) investor; (2) lender to the investor; or (3) direct lender to the QALICB. Each role is discussed further below. Investor: A Nebraska bank that has Nebraska tax liability would benefit from acting as an investor in a newmarkets tax credit transaction by earning a tax credit equal to 39 percent of the QEI. The credits would be available over the compliance period and subject to possible recapture, as discussed above. Lender to Investor: In a typical new markets tax credit transaction, a lender (either a third-party bank or an affiliate of the QALICB) will make a “leverage loan” to the tax credit investor to finance a portion of the QEI. The leverage loan is generally structured as an interest-only loan for the dura- tion of the compliance period, with either a full payment of all outstanding amounts at the end of the compliance period or amortizing payments commencing after the compliance period. The lender is typically required to forbear from ex- ercising most remedies during the course of the compliance period, including foreclosing on the QEI (which is typically the sole security for the leverage loan). The lender is also prohibited from securing the leverage loan with any assets of the QALICB. Lender to QALICB: Frequently the QLICI loans made by the CDE to the QALICB are not sufficient to fully fund a particular project. In such cases, it is common for banks to make loans directly to the QALICB. Although such loans are technically outside the scope of the new markets tax credit program (and not subject to new markets tax credit require- ments), inmany cases such direct loans would not be possible if a CDE lender did not make a loan to the QALICB. Typically the CDE and the direct lender will execute an intercreditor agreement pursuant to which the direct lender is granted a senior interest in any shared collateral. What This Means to Nebraska Banks The act provides Nebraska banks with the opportunity to offer unique financing products to their clients and participate in the redevelopment of low-income communities within Nebraska. In addition to directly benefiting banks that serve as investors or lenders in newmarket tax credit transactions, the act is designed to benefit the entire community by fund- ing projects that will create jobs and serve as catalysts for redevelopment within low-income communities.  For more information, contact David Lutz at Husch Blackwell LLP at (402) 964-5000 or david.lutz@huschblackwell.com. Lutz is a member of Husch Blackwell LLP’s Banking & Finance practice and has significant experience in new market tax credit transactions. REACHYOUR TARGETAUDIENCE AFFORDABLY Find out how targeted advertising can produce real, measurable results for your organization. Don F. Brown, Advertising Sales 801.746.4003 | don@spectruminkpublishing.com ADVERTISE AND GET RESULTS