Treasury Department Issues Temporary Regulations on the New Markets Tax Credit

On December 26, 2001 the Internal Revenue Service issued temporary regulations on the New Markets Tax Credit program, allowing the program to move forward. These regulations are based on the proposed regulations issued in April 2001 and the comments received on them last summer. The IRS is accepting comments on the temporary regulations until February 25, 2002.

The temporary regulations clarify many of the open issues from the proposed regulations. For example, they define "substantially all" for both the cash (tracing) and aggregate gross assets tests and provide flexibility for meeting this requirement. The temporary regulations also define Qualified Active Low-income Community Businesses in more detail than was previously provided, establish a "reasonable expectation test" to ease compliance, and offer relief on the recapture provision.