Fill - Free fillable New Markets Credit 8874 PDF form

Form 8874

(Rev. November 2018)

Department of the Treasury

Internal Revenue Service

New Markets Credit

▶

Attach to your tax return.

▶

Go to www.irs.gov/Form8874 for the latest information.

OMB No. 1545-1804

Attachment

Sequence No.

127

Name(s) shown on return Identifying number

(a)

Name and address of the qualified

community development entity (CDE)

(b)

Employer identification

number of CDE

(c)

Date of initial

investment

(d)

Amount of qualified

equity investment

(e)

Credit

rate

(f)

Credit ((d) × (e))

2 New markets credit from partnerships and S corporations . . . . . . . . . . . . . . 2

Add lines 1 and 2. Partnerships and S corporations, report this amount on Schedule K. All others,

report this amount on Form 3800, Part III, line 1i . . . . . . . . . . . . . . . . .

For Paperwork Reduction Act Notice, see instructions.

Cat. No. 31663N

Form 8874 (Rev. 11-2018)

Page 2

General Instructions

Section references are to the Internal Revenue Code unless

otherwise noted.

Future Developments

For the latest information about developments related to Form

8874 and its instructions, such as legislation enacted after they

were published, go to www.irs.gov/Form8874.

Reminder

The new markets tax credit allocation has been extended for

calendar years through 2019. To find out if the allocation is

extended beyond 2019, go to www.irs.gov/Form8874.

Purpose of Form

Use Form 8874 to claim the new markets credit for qualified

equity investments made in qualified community development

entities (CDEs). This credit is part of the general business credit.

Taxpayers that are not partnerships or S corporations, and

whose only source of this credit is from those pass-through

entities, are not required to complete or file this form. Instead,

they can report this credit directly on Form 3800, Part III, line 1i.

Definitions

Qualified CDE

A qualified CDE is a domestic corporation or partnership that

meets the following requirements.

• Its primary mission is serving, or providing investment capital

for, low-income communities or persons.

• It maintains accountability to residents of low-income

communities through their representation on any governing

board or advisory board of the entity.

• It is certified as a qualified CDE by the Community

Development Financial Institutions (CDFI) Fund of the

Department of the Treasury.

Qualified CDEs also include specialized small business

investment companies and community development financial

institutions. See section 45D(c)(2).

Qualified Equity Investment

A qualified equity investment is an interest in a qualified CDE in

the form of stock (other than nonqualified preferred stock) in a

corporation or a capital interest in a partnership that meets all of

the following requirements.

• You acquired the investment solely for cash at its original

issue (or from a taxpayer for whom the investment was a

qualified equity investment). The cash may be from borrowed

funds, including a nonrecourse loan. For details, see Rev. Rul.

2003-20 and Rev. Rul. 2010-17.

• Substantially all (at least 85%) of the cash is used to make

qualified low-income community investments. The 85%

requirement is reduced to 75% for the seventh year of the

7-year credit period.

• The investment was designated as a qualified equity

investment or a non-real estate qualified equity investment by

the CDE on its books and records for purposes of the new

markets credit.

Generally, a qualified CDE can designate an equity investment

as a qualified equity investment or a non-real estate qualified

equity investment only if it applied for and received a new markets

credit allocation and entered into an allocation agreement with the

CDFI Fund before the equity investment was made.

TIP

Qualified CDEs must provide taxpayers holding a

qualified equity investment with a completed Form

8874-A when a qualified equity investment is

acquired.

Exceptions. An equity investment in an entity that otherwise

qualifies as a qualified equity investment or a non-real estate

qualified equity investment is eligible to be designated as a

qualified equity investment if made prior to an allocation

agreement only if the following applies.

• The equity investment was made on or after the date the CDFI

Fund publishes a Notice of Allocation Availability (NOAA) in the

Federal Register, and the designation of the equity investment

as a qualified equity investment is made for a credit allocation

received under an allocation application submitted to the CDFI

Fund under that NOAA. If the entity in which the equity

investment is made does not receive an allocation under that

NOAA, the equity investment will not be eligible to be

designated as a qualified equity investment. For details, see

Regulations sections 1.45D-1(c)(3)(ii)(B) and 1.45D-1(c)(3)(iii).

The maximum amount of equity investments so designated by

the qualified CDE cannot exceed the amount of the allocation it

received from the CDFI Fund. The names and addresses of

qualified CDEs that have received an allocation for each

allocation round and the amount of that allocation are listed on

the CDFI Fund website at www.cdfifund.gov.

Non-Real Estate Qualified Equity Investment

If a qualified equity investment is designated as a non-real

estate qualified equity investment, then the qualified equity

investment may only satisfy the substantially-all requirement if

the CDE makes qualified low-income community investments

that are directly traceable (including investments made through

one or more CDEs) to non-real estate qualified active low-

income community businesses. The proceeds of a non-real

estate qualified equity investment cannot be used for

transactions involving a qualified active low-income community

business that is not a non-real estate qualified active low-

income community business. See Regulations section

1.45D-1(d) for details about qualified low-income community

investments.

How To Figure the Credit

A credit generally is allowed to the holder of the qualified equity

investment on each of 7 credit allowance dates. The credit

allowance dates are the date you make the initial investment

and each of the next 6 anniversary dates. The credit is equal to

the qualified equity investment multiplied by 5% (6% for the 4th

through 7th years). However, the credit is not allowed for a

credit allowance date if the investment is not a qualified equity

investment on that date.

Recapture of the Credit

You may have to increase your tax by a credit recapture

amount if at any time within 7 years from the date of the original

issuance of the qualified equity investment:

• The entity ceases to be a qualified CDE,

• Substantially all of the proceeds of the investment cease to

be used to make qualified low-income community investments,

• The investment is redeemed or otherwise cashed out by the

entity.

Exception. If a CDE fails to use substantially all of the proceeds

of a qualified equity investment to make qualified low-income

community investments, the CDE may avoid recapture of the

credit if it corrects the failure within 6 months after the date it

becomes aware (or reasonably should have become aware) of

the failure. Only one correction is permitted for each qualified

equity investment during the 7-year credit period.

See section 45D(g) and Regulations section 1.45D-1(e) for

details, including how to figure the credit recapture amount.

Generally, include the credit recapture amount on the line for

recapture taxes on your income tax return for the year in which

the recapture event occurs. For example, the credit recapture

Form 8874 (Rev. 11-2018)

Page 3

amount on a 2018 Form 1040 is reported on Schedule 4 (Form

1040), line 62, box c, and the amount on a 2018 Form 1120 is

reported on Schedule J, line 9f (Other taxes).

You are not subject to recapture of the credit solely because

you sell or otherwise dispose of your investment. However, you

cannot claim the credit for any credit allowance date after the

disposition.

TIP

Qualified CDEs must provide taxpayers holding a

qualified equity investment with a completed Form

8874-B when a recapture event occurs.

Basis Reduction

You must reduce your basis in your qualified equity investment

by the amount of the new markets credits allowed (even if part

or all of the credit is not allowed for the current year and is

carried forward). However, do not reduce your basis for

purposes of figuring the exclusion of gain for:

• Qualified small business stock under section 1202,

• Certain DC zone assets under section 1400B, or

• Certain qualified community assets under section 1400F.

Additional Information

For more details, see section 45D, Regulations section 1.45D-1,

or www.cdfifund.gov.

Specific Instructions

Line 1

Enter the information requested for each qualified equity

investment held directly by you on a credit allowance date in

the current tax year. In column (e), enter the credit rate. For the

first, second, or third year of the 7-year credit period, enter “5.”

For any later year, enter “6.”

If you need more space, attach a statement showing all the

information requested for each qualified equity investment. On

the last row on line 1, write “See attached” in column (a) and

enter the total of the credit amounts from the attached

statement in column (f).

Paperwork Reduction Act Notice. We ask for the information

on this form to carry out the Internal Revenue laws of the

United States. You are required to give us the information. We

need it to ensure that you are complying with these laws and to

allow us to figure and collect the right amount of tax.

You are not required to provide the information requested on

a form that is subject to the Paperwork Reduction Act unless the

form displays a valid OMB control number. Books or records

relating to a form or its instructions must be retained as long as

their contents may become material in the administration of any

Internal Revenue law. Generally, returns and return information

are confidential, as required by section 6103.

The time needed to complete and file this form will vary

depending on individual circumstances. The estimated burden

for individual and business taxpayers filing this form is approved

under OMB control number 1545-0074 and 1545-0123 and is

included in the estimates shown in the instructions for their

individual and business income tax return. The estimated

burden for all other taxpayers who file this form is shown below.

Recordkeeping . . . . . . . . . . . 6 hr., 13 min.

Learning about the

law or the form . . . . . . . . . . . 1 hr., 12 min.

Preparing and sending

the form to the IRS . . . . . . . . . . 1 hr., 20 min.

If you have comments concerning the accuracy of these time

estimates or suggestions for making this form simpler, we would

be happy to hear from you. See the instructions of the tax return

with which this form is filed.

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