Law Firm Comments on New Markets Tax Credit Guidance
Law Firm Comments on New Markets Tax Credit Guidance
- AuthorsRichard, Loretta R.
- Institutional AuthorsRopes & Gray LLP
- Cross-Reference
- Code Sections
- Subject Area/Tax Topics
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2007-7715
- Tax Analysts Electronic Citation2007 TNT 61-21
From: Nash, Patrick M. [Patrick.Nash@ropesgray.com]
Sent: Monday, March 19, 2007 3:52 PM
To: Notice Comments
Cc: Solomon Eric -- OTP; paul.handleman@do.treas.gov; susan.reaman@do.treas.gov; Kay Sharon -- OTP; michael.novogradac@novoco.com; Shay, Stephen E.; Richard, Loretta R.; Nash, Patrick M.
Subject: Comment pursuant to Notice 2006-60
Attachments: Comments of L. Richard -- Notice 2006-60.pdf
Dear Ms. Ross:
Attached please find the comment letter of Loretta R. Richard of Ropes & Gray LLP regarding Targeted Populations Regulations under Section 45D(e)(2) and Notice 2006-60.
If you are unable to open the attachment please contact me.
Patrick M. Nash
Ropes & Gray LLP
One International Place
Boston, MA 02110-2624
tel (617) 951-7488
fax(617) 951-7050
patrick.nash@ropesgray.com
CC:PA:LPD:PR (Notice 2006-60)
Room 5203, Internal Revenue Service,
PO Box 7604, Ben Franklin Station
Washington, DC 20044
Attn: Lauren Taylor Ross
Re: Comments on Targeted Populations Regulations Under Section 45D(e)(2) and Notice 2006-60
Dear Ms. Ross:
I am writing in regard to the temporary and proposed regulations ("Temporary Regulations") that the Treasury Department intends to issue that will incorporate, among other things, the provisions of IRS Notice 2006-60, I.R.B. 2006-29 (July 17, 2006) (the "Notice"). The Notice was very helpful and the efforts of the Internal Revenue Service in issuing the Notice on such a timely basis was greatly appreciated. I am writing to point out how important it is that the Temporary Regulations incorporate the provisions of the Notice relating to the "reasonable expectations test" and the three year rule regarding active conduct of a trade or business.
Reasonable Expectations Test
Section 3.03(2)(a) of the Notice indicates that "Section 1.45D- 1(d)(4)(A),(B) and (C)1 will be amended to provide that a QALICB for low-income targeted populations, with respect to any taxable year, is a corporation (including a nonprofit corporation) or a partnership engaged in the active conduct of a qualified business as defined in § 1.45D-1(d)(5))" if one of three specified conditions is satisfied, together with the additional requirement that the QALICB be located in a census tract whose median income does not exceed the greater of 120% of the area median income or statewide median income.
The Notice indicates that its provisions are intended to be incorporated into the existing regulations. Section 1.45D-1(d)(6)(i) of the Treasury Regulations currently states that
"[A]n entity is treated as a qualified active low-income community business for the duration of the CDE's investment in the entity if the CDE reasonably expects, at the time the CDE makes the capital or equity investment in, or loan to, the entity, that the entity will satisfy the requirements to be a qualified active low-income community business under paragraph (d)(4)(i) of this section throughout the entire period of the investment or loan."
Accordingly, to maintain the appropriate cross reference to the reasonable expectations test, it is important that the regulatory changes that are made to incorporate the targeted populations tests set forth in Notice 2006-60 actually be contained in Section 1.45D- 1(d)(i)(4)(A), (B) and (C) as set forth in the Notice. Alternatively, if the targeted populations test is contained in a different section of the Temporary Regulations than as described in the Notice, Section 1.45D-1(d)(5)(i)(6) should be amended so that the reasonable expectations test also cross references the targeted populations test.
Three Year Active Conduct of a Trade or Business Test
We also note that Section 1.45D-1(d)(4)(iv) provides that "for purposes of paragraph (d)(4)(i)" of the regulations, a business has three years to satisfy the active conduct of a trade or business test. We believe that this three year rule applies to subparagraphs (A), (B) and (C) of paragraph (d)(4)(i), as the regulations are currently drafted. In incorporating the targeted populations rules into the existing regulations, we believe it is critical that Section 1.45D-1(d)(4)(iv) also apply to QALICBs with respect to targeted population. Many QALICBs with respect to targeted populations will be start-up businesses that may not have revenues or employees until after the investment is made. It is important that these businesses have a reasonable period of time to satisfy one of the three enumerated tests contained in the Notice.
We understand that the New Markets Tax Credit Coalition shares our concern and will be writing to you separately. We appreciate your consideration of this matter and would be pleased to discuss this with you at your convenience.
Loretta R. Richard
Ropes & Gray LLP
Boston, MA
Paul Handleman
Sharon Kay
Susan Reaman
Stephen E. Shay
Michael J. Novogradac
1 There is a typographical error in the reference. The regulation section referred to should be Section 1.45D- 1(d)(4)(i)(A),(B),(C).
END OF FOOTNOTE
- AuthorsRichard, Loretta R.
- Institutional AuthorsRopes & Gray LLP
- Cross-Reference
- Code Sections
- Subject Area/Tax Topics
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2007-7715
- Tax Analysts Electronic Citation2007 TNT 61-21