Washington, D.C.-As the second competitive round for New Markets Tax Credits (NMTCs) approaches, the Treasury Department is working out several issues that will affect tax credit recipients and their investors.

The first matter is an allocation agreement for winners from the initial 2002 round, which were announced in March 2003.

A final version of the agreement was expected to be released in early August, said Michael Novogradac, managing partner of the Novogradac & Co. accounting firm.

The Treasury's Community Development Financial Institutions (CDFI) Fund received hundreds of comments on the draft agreement and has been going through those communications, he said.

Representatives from many of the 66 organizations receiving a 2002 award have been seeking clarification on the process of suballocating the tax credits. The first-round winners were selected out of 345 applications.

Created by Congress in 2000, the NMTC program permits individual and corporate taxpayers to receive a credit against federal income taxes for making qualified equity investments in investment vehicles known as Community Development Entities (CDEs). Substantially all of the investment must in turn be used by CDEs to make qualified investments in low-income communities. The credit provided to the taxpayer totals 39% of the cost of the investment and is claimed over a seven-year credit allowance period.

As the new program gets underway, CDEs are also very concerned about reporting requirements. They are worried that they may be asked to provide detailed information about every investment that they make under the NMTC program. If they are making a series of small investments, the reporting requirements may be quite administratively burdensome, Novogradac said.

CDEs are hoping to have information on this issue by the end of the year.

2003 deadlines

The application deadline for the second competitive round for New Markets Tax Credits (NMTCs) is Sept. 30, 2003.

The deadline is one of the key details recently released by the Treasury Department as it announced the opening of the allocation round. Up to $3.5 billion of investment authority under the NMTC program will be available. The amount represents the combined allocations for 2003 and 2004.

The CDFI Fund expects to announce allocation decisions in March 2004.

Applicants who have not yet been certified as a CDE must submit a CDE certification application by Aug. 29, 2003.

Officials also released other important details for the upcoming round.

One of the most significant moves affects those who received a 2002 reservation, according to Novogradac. The CDFI Fund has said that prior winners must demonstrate that as of Feb. 17, 2004, they have received from their investors half of their existing allotments in order to be eligible for an award in 2003, he said.

Officials have also said that entities that are affiliates of an organization may collectively submit only one application in the next round.