NMTC Compliance & Asset Management


NMTC Compliance & Asset Management

Community Development FinancialInstitutions FundNMTC Compliance & Asset ManagementNH&RA's10th Annual New Markets Tax Credit SymposiumThursday, April 4, 20131

Presentation Overview‣NMTC Reporting Systems‣ATS Changes‣CIIS Changes‣Compliance with Section 3.2 of agreement‣Notable Reporting Challenges‣Reporting at “unwind”‣Site Visits and Desk Reviews

NMTC Summary GraphicCDFI FundCDE must offercredits to investorswithin 5 yearsCommunityDevelopmentEntity(For-profit only)CDEs must make QLICIswithin 12 months of receipt ofInvestor QEIsInvesting inor Lendingto QALICBsPurchasingLoans fromCDEsFinancialCounselingPrivateInvestorsQEI muststay invested inCDE for 7 yearsInvesting inor Lendingto CDEs

Reporting SystemsQEIINVESTORSSUBSIDIARYCDECDEATSQEI receipt/allocationtransfersQLICIsCIISNMTC Transactions

Data CollectionWhy collect data:1. Performance and Results of CDFI programs2. Compliance with agreements3. Peer Analysis4. Capital Markets5. Logistics

Allocation Tracking System(ATS)Allocatees are required to notify the CDFI Fund of thereceipt of a “qualified equity investment” (QEI)within 60 days of originally receiving the QEI. ATSwill assist allocatees by:‣Collecting information about the QEIs issued bythe allocatee or any eligible subsidiary CDEs;‣Collecting information about the investors whoprovided the QEIs; and‣Allowing an allocatee to transfer any or all of itsallocation award to subsidiary CDEs listed inSection 3.2 of its allocation agreement.

Current QEI Data Structure‣ Tier 1 Investor information(usually the Leveraged Fund)• Who provided the QEI‣ Tier 2 Investor(if Tier 1 is a pass through entity)• Equity Investors in Leveraged Structure‣ NMTC Claimant(if Tier 2 is a pass through entity)• Who claims the credits

Modifications in ATS for CY2012AllocateesThe following updates are envisioned:‣ Ability to add additional tiers of investors beyondTier 1 and 2.‣ Capture individual partner/member contributions atall tiers.‣ Distinguish between equity and debt providers.‣ Identify amount of NMTC to be claimed by eachindividual partner/member.‣ Ability to report changes in partners/members thatimpact to whom the NMTC flows.

Community Investment ImpactSystemThe Community Investment Impact System (CIIS) is the webbaseddata collection system that the CDE uses to submitthe Institution Level Report (ILR) and the TransactionLevel Report (TLR).‣ ILR records organization level information (e.g. financialposition, loan purchases, financial counseling and otherservices and IRS compliance questions.)‣ TLR records all loans, investments, and advance purchasecommitments made by the Allocatee and any Sub-Allocatee(s) that were:• Funded by QEIs and outstanding at any time during thereporting period.

Notable CIIS Changes…1. Actual Jobs Updates• “Actual jobs” reporting fields used toupdate prior year “projected jobs” estimates2. Targeted Distress Communities additions• Food Desert• Target Population3. Multi-CDE Project Number Requirements• Organizations will able to report whichprojects were financed by multiple CDEs.

Multi-CDE Project Number‣ After 12/31/2011 a Multi-CDE Project should bereported for the new project when the initial investmentis closed.‣ Generally, a project originated prior to 1/1/2012 shouldNOT be reported as a Multi-CDE project even though itmay have been a Multi-CDE project.‣ Multi-CDE Project Numbers can be created any timeregardless of where an organization is in the reportingprocess (in progress or submitted).Contact CIIS Help Desk at (703) 373-1516 orciishelp@kearneyco.com for assistance.

Multi-CDE Project NumberLead Approach‣A Lead CDE that has been designated by allparticipating organizations as the initiatingorganization to create, enter and edit theapplicable Multi-CDE Project information.

Multi-CDE Project:Lead CDE• The Lead CDE coordinates the multi-CDE project datato report the total project costs, the project address, andthe total number of organizations participating and theirrespective TINs• All participating organizations should report the sameimpact data based upon the total impact of the project.Rationale: As a result, the CDFI Fund can count theimpacts once for each identified multi-CDE without riskof double counting.

Multi-CDE Project:Collaborative ApproachCollaborative Approach‣The organizations agree to report in the Multi-CDE project table the total project cost, theproject address, and the total number ofparticipating organizations and their respectiveTINs.

Multi-CDE Project:Collaborative Approach• Participating organizations should report their individualoutcome data based on their organization’s detailed datacollection on their specific contribution to the project.• If the participating organizations do not collect discretebreakouts of outcome data for each organization’scontribution to the project outcomes, then the organizationsshould use a pro-rata share of relevant outcomes asmeasured by each organization’s share of all QEIs in theproject.Rationale: some organizations desire to report discreteoutcomes related to their individual investments.

CIIS and ComplianceILR and TLR data are used for verification that the allocation is being used inaccordance with the Allocation Agreement (section 3.2) in terms of:• QEI Usage• IRS Compliance Questions• Eligible Activities• Service Area• Related Entities• Flexible Products• Required Transactions• Targeted Distressed Communities• Loan Purchase Reinvestment• Non-metropolitan Counties• Affordable Housing• Reporting

QEI Distribution Table and TLRTable 13 (QEI Distribution Table) in ILR shouldmirror TLR data.• snapshot of the organization’s actual QLICIs.• describes how the Allocatee and/or Sub-Allocatee(s) used each QEI.• Underlying TLR data should be representative ofsnapshot at reporting period’s end.

Targeted Distressed CommunitiesEnsure your project meets the criteria specified inyour Allocation Agreement. Not all of the“Targeted Distressed Communities” that appearin CIIS are applicable to all allocation rounds.Example: Allocatee shall have made at least 75% of the totaldollar amount of its QLICIs in areas that are (1)characterized by at least one of items (i) - (iii) on the listbelow for each QLICI, or (2) characterized by at leasttwo of items (iv) – (xviii) on the list below for eachQLICI….

Reporting Material EventsThe allocatee shall advise the CDFI Fund inwriting in reasonable detail of Material Events,within 20 calendar days of the occurrence ofsuch events.• The allocatee may do so by sending an email toccme@cdfi.treas.gov with the subject line:“NMTC: Material Events”• The Material Event form is available on the CDFIFund’s website.

Examples of Material Events‣ A material adverse change in the condition, financial or otherwise,or operations of the allocatee that would impair the allocatee’sability to carry out the authorized uses of the allocation‣ An event which materially changes the strategic direction, mission,or business of the organization such that the organization no longermeets a certification requirement‣ A merger, acquisition, or consolidation with another entity‣ A change in the organization’s legal status (e.g., dissolution orliquidation of the organization, bankruptcy, receivership, etc.)‣ Failure to observe, comply with or perform any term, covenant,agreement or other provision contained in IRC§45D, the NMTCProgram Income Tax Regulations, or the Allocation Agreement.

Unwinding and dissolution of thesubsidiary-CDECurrent proposal:‣ Interpret Section 9.13 (Termination) of agreement to hold only forthe allocatee CDE• Allow dissolution after the 7 year tax credit compliance period.• Any recourse for noncompliance will be directed to the CDEwith the allocation.• The allocatee agrees to provide any additional information onbehalf of the dissolved subsidiary CDE.‣ Issues to be addressed:• Format by which to report dissolution.• Limiting administrative burden to the CDFI Fund and Allocatee.• Ensuring historic QLICI information is properly recorded inCIIS.

Site Visits and Desk ReviewsBy conducting site visits or desk audits, the CDFI Fund will alsoassess the accuracy of the reports (ILR, TLR, and ATS entries)that each allocatee has submitted and determine if theallocation is being used in accordance with the AllocationAgreement.Why selected?‣ Data clarification‣ Noncompliance Issue‣ Location‣ Assess state of the industry‣ Interest in project or type of transaction

Documentation forSite Visits & Desk Reviews• Customer loan files (e.g., promissory note,financing statement, disbursement statement) thatsubstantiate CIIS data• Narrative description of projects• CIMS maps printed out and filed for eachtransaction verifying eligibility of tracts.• Documentation of Targeted Distress Community• Bank statements tracing flow of investor funds• Organizational Chart• Advisory Board/Governing Board members• Advisory Board/Governing Board Minutes

My Contact InformationName: Trefor HenryTitle: Associate Program Manager forNMTC ComplianceEmail: henryt@cdfi.treas.govTelephone: (202) 653-0339

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