IRS written determination 201429018

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 201429018
Release Date: 7/18/2014
Index Number: 45D.00-00
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
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Telephone Number:
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Refer ReplyTo:
CC:PSI:B05
PLR-148104-13
Date:
April 08, 2014
LEGEND
Sub-CDE=-----------------------------------------------
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Allocatee=----------------------------------------------------------------
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Fund=------------------------
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X=---------------------------
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Y=---------------------------------------------------------
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D1=------------------
D2=----------------
D3=-----------------------
D4=--------------------------
D5=--------------------------
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D7=------------------
a=------------

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b=-------
c=-----
Dear -------------:
This letter responds to your letter dated November 22, 2013,and related
correspondence,submitted on behalf of Sub-CDE, requesting a letter ruling involving
the new markets tax credit (NMTC) under § 45D of the Internal Revenue Code. The
ruling concerns the application of the 6-month cure period under § 1.45D-1(e)(6) of the
Income Tax Regulations to the transaction described below.
FACTS
The information submitted states that Allocatee, a nonprofit corporation, and
Sub-CDE, a limited liability company (LLC), were formed to serveor provide investment
capital for low-income communities or low-income persons. Allocateebecame a
qualified community development entity (CDE) on D1. Sub-CDEbecame a CDE on D2.
X, a national banking association, wholly owns Y, an LLC. Y wholly owns Fund,
also an LLC. Both Y and Fundare treated as disregarded entities for federal tax
purposes.
Pursuant to an allocation agreement effective D3, the Department of Treasury
Community Development Financial Institutions Fund made a NMTC allocation to
Allocatee. Based on that allocation, Allocateesub-allocated $aof NMTC to Sub-CDE.
On D4, X, through Y, made a capital contribution in the amount of $ato Fund. Fund, in
turn, made a capital contribution of $ain cash to Sub-CDEin exchange for a b%
membership interest. Allocateeholds the remaining c% membership interest in Sub-
CDE. On or about D3, Sub-CDEdesignated Fund’s capital contribution in Sub-CDEas
a qualified equity investment (QEI).
Sub-CDE, X, and Fundhave worked diligently to find qualified low-income
community investments (QLICIs) to invest the cash by D5, in order to satisfy the
substantially-all requirement under § 45D(b)(1)(B) by the end of the 12-month period
specified in § 1.45D-1(c)(5)(iv). The parties have considered a number of projects. Due
to difficult circumstances, however, the parties have not been able to close on any of
the projects. On D6, Sub-CDEbecame aware (or reasonably should have become
aware) of its inability to invest in any of the QLICIs by D5.
RULING REQUESTED

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The 6-month cure period described in § 1.45D-1(e)(6) is available to correct Sub-
CDE’s failure to invest substantially all of the proceeds of the QEI in a QLICI within the
12-month period specified in § 1.45D-1(c)(5)(iv).
LAW AND ANALYSIS
Section 45D(a)(1) provides that, for purposes of § 38, in the case of a taxpayer
who holds a QEI on a credit allowance date of such investment which occurs during the
taxable year, the NMTC for such taxable year is an amount equal to the applicable
percentage of the amount paid to the CDE for such investment at its original issue.
Section 45D(a)(3) provides that the term “credit allowance” date means, with respect to
any QEI, (A) the date on which such investment is initially made, and (B) each of the 6
anniversary dates of such date thereafter.
Section 45D(b)(1) provides that the term QEI means any equity investment in a
CDE if (A) such investment is acquired by the taxpayer at its original issue (directly or
through an underwriter) solely in exchange for cash, (B) substantially all of such cash is
used by the CDE to make QLICIs, and (C) such investment is designated for purposes
of § 45D(b) by the CDE.
Section 45D(d)(1) provides that the term QLICI means (A) any capital or equity
investment in, or loan to, any qualified active low-income community business, (B) the
purchase from another CDE of any loan made by such entity which is a QLICI, (C)
financial counseling and other services to businesses located in, and residents of, low-
income communities, and (D) any equity investment in, or loan to, any CDE.
Section 1.45D-1(c)(5)(i) provides that, except for the seventh year of the 7-year
credit period, the term “substantially all” means at least 85 percent. The substantially all
requirement must be satisfied for each annual period in the 7-year credit period using
either the direct-tracing calculation or the safe-harbor calculation as provided in the
section. For the first annual period, the substantially-all requirement is treated as
satisfied if either the direct-tracing calculation or the safe-harbor calculation is
performed on a single testing date and the result of the calculation is at least 85
percent.
Section 1.45D-1(c)(5)(iv) provides that the taxpayer’s cash investment received
by a CDE is treated as invested in a QLICI only to the extent that the cash is so
invested within the 12-month period beginning on the date the cash is paid by the
taxpayer (directly or through an underwriter) to the CDE.
Section 1.45D-1(e)(6) provides that, if a QEI fails the substantially-all
requirement, the failure is not a recapture event if the CDE corrects the failure within 6
months after the date the CDE becomes aware (or reasonably should have become

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4
aware) of the failure. Only one correction is permitted for each QEI during the 7-year
credit period.
CONCLUSION
Under § 45D(a)(3)(A), the first NMTC is claimed on the date on which the QEI is
initially made. Section 45D(b)(1)(B) includes within the definition of a QEI any equity
investment in a CDE if substantially all of such cash is used by the CDE to make
QLICIs. Section 1.45D-1(c)(5)(iv) provides that the taxpayer’s cash investment received
by a CDE is treated as invested in a QLICI only to the extent that the cash is so
invested within the 12-month period beginning on the date the cash is paid by the
taxpayer (directly or through an underwriter) to the CDE. Failure to meet the
substantially-all requirement within the 12-month period means that the taxpayer’s cash
investment is not treated as a QEI on thedate the taxpayer’s initial investment is made.
However, § 1.45D-1(e)(6) provides a one-time 6-month cure period if a QEI fails the
substantially-all requirement.
Based on the information submitted and representations made, we conclude that
the 6-month cure period under § 1.45D-1(e)(6) is available to correct Sub-CDE’s failure
to invest substantially all of the proceeds the QEI in a QLICI by D5. However, the 6-
month cure period is not automatically tacked on to the 12-month period specified in
§ 1.45D-1(c)(5)(iv). As the rule states, the 6-month cure period begins on the date the
CDE becomes aware (or reasonably should have become aware) of the failure to invest
substantially all of the QEI proceeds in a QLICI within the 12 month period. On D6,
Sub-CDEbecame aware (or reasonably should have become aware) of its inability to
invest in any QLICIs by D5. Therefore, Sub-CDEmust correct its failure to invest
substantially all of the proceeds of the QEI in a QLICI no later than D7.
We express no opinion regarding the application of any other provisions of the
Code or regulations.

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This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.
In accordance with the Power of Attorney on file with this office, a copy of this
letter ruling will be sent to your authorized representative.
Sincerely,
Paul F. Handleman
Chief, Branch 5
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures (2)
Copy of this letter
Copy for §6110 purposes