Adjusting to Recent Changes from the CDFI Fund...Compliance FAQs (released at Novogradac NMTC...
Transcript of Adjusting to Recent Changes from the CDFI Fund...Compliance FAQs (released at Novogradac NMTC...
Adjusting to Recent Changes from the CDFI Fund MODERATOR PANELISTS
Brad Elphick Novogradac & Company LLP
Dentons
Chris Perkowski Stinson Leonard Street
Donna Rodney Bryan Cave LLP
Scott Lindquist
Timeline
October 21, 2015
• CY 2015 NOAA and Updated Compliance FAQs (released at Novogradac NMTC Conference in Chicago)
October 31, 2015
• Compliance FAQs Revision #1
December 4, 2015
• Compliance FAQs Revision #2
February 6, 2017
• Compliance FAQs Revision #3
May 2, 2017
• CY 2017 NOAA and Compliance FAQs Revision #4
QLICI Use Restrictions Notice of Allocation Availability CY 2015 I. ALLOCATION AVAILABILITY DESCRIPTION A. Programmatic changes from CY 2014 allocation round:
1. As a condition of eligibility for this Allocation Round, the Applicant will not be permitted the use of the proceeds of Qualified Equity Investments (QEIs) to make Qualified Low-Income Community Investments (QLICIs) in Qualified Active Low-Income Community Businesses (QALICBs) where QLICI proceeds are used to repay or refinance any debt or equity provider or a party related to any debt or equity provider whose capital was used to fund the QEI except if:
QLICI Use Restrictions Notice of Allocation Availability CY 2015 I. ALLOCATION AVAILABILITY DESCRIPTION A. Programmatic changes from CY 2014 allocation round:
(i) the QLICI proceeds are used to repay documented reasonable expenditures that are directly attributable to the qualified business of the QALICB, and such past expenditures were incurred no more than 24 months prior to the QLICI closing date; or (ii) no more than five percent of the QLICI proceeds are used to repay or refinance prior investment in the QALICB. Refinance includes transferring cash or property directly to any debt or equity provider or indirectly to a party related to any debt or equity provider.
FAQs 42-44 (October 21, 2015) 42. What are the restrictions on the use of QLICI proceeds to directly or indirectly reimburse expenditures incurred by a QALICB or Project Sponsor (an entity that owns or Controls the QALICB) and to directly or indirectly fund a QEI? Beginning with the CY 2015 round, only documented reasonable expenditures that are directly attributable to the qualified business of the QALICB can be paid or reimbursed from QLICI proceeds to directly or indirectly fund a QEI, provided that these expenditures have either been (i) incurred no more than 24 months prior to the date on which the QLICI transaction closes, or (ii) represent no more than 5 percent of the total QLICIs made by the CDE into the QALICB.
FAQs 42-44 (October 21, 2015) 42. What are the restrictions on the use of QLICI proceeds to directly or indirectly reimburse expenditures incurred by a QALICB or Project Sponsor (an entity that owns or Controls the QALICB) and to directly or indirectly fund a QEI? Reasonable expenditures are expenditures for a legitimate business purpose that occur during the normal course of operation, and must be similar in amount and scope when compared to expenditures by a similar entity for a similar project under similar circumstances. Such expenditures may be made directly by the Project Sponsor on behalf of the QALICB or be funded through a loan or equity investment made by the Project Sponsor to the QALICB.
FAQs 42-44 (October 21, 2015) 42. What are the restrictions on the use of QLICI proceeds to directly or indirectly reimburse expenditures incurred by a QALICB or Project Sponsor (an entity that owns or Controls the QALICB) and to directly or indirectly fund a QEI? Of note, the IRS has not issued guidance on what costs are reimbursable under §45D. Until such guidance is made public, the CDFI Fund supports the use of the above parameters for transactions involving the reimbursement of incurred cost. The following examples are offered for additional clarity.
FAQs 42-44 (October 21, 2015) 43. How will the CDFI Fund monitor the restriction on the use of QLICI proceeds to directly or indirectly reimburse expenditures incurred by a QALICB or Project Sponsor required under the CY 2015 NMTC Application? CDEs must include such covenants in financing agreements with QALICBs as may be necessary to reflect this restriction. The agreements containing such covenants must be available for inspection by the CDFI Fund. Second, the CDE should collect information as may be necessary and maintain documentation to trace the use of QLICI proceeds to use by the QALICB at the time of the initial QLICI is made and at least annually thereafter. Where the QALICB will repay or refinance a debt or equity provider or a party related to a debt or equity provider under the 24-month or five percent exception rules, the CDE should maintain documentation supporting that the reimbursements can be directly traced to actual expenditures.
FAQs 42-44 (October 21, 2015) 43. How will the CDFI Fund monitor the restriction on the use of QLICI proceeds to directly or indirectly reimburse expenditures incurred by a QALICB or Project Sponsor required under the CY 2015 NMTC Application? This documentation must be available for inspection by the CDFI Fund. Documentation to support compliance with this restriction must be retained for the period of the QLICI in the QALICB plus three years or the seven-year compliance period plus three years, whichever is shorter.
FAQs 42-44 (October 21, 2015) 44. Can a QALICB use QLICI proceeds to pay a debt or equity provider to monetize an asset owned or controlled by the QALICB or an Affiliate of a QALICB, including but not limited to the accreted value of an asset? No. The purpose of the NMTC Program is to attract additional investment into eligible communities. The use of QLICI proceeds to monetize existing assets does not represent new investment. Rather, transactions of this type represent a change in the form of the existing asset of the QALICB.
REVISION #1
October 31, 2015
FAQs 42-44 (October 21, 2015) 44. Can a QALICB use QLICI proceeds to pay a debt or equity provider to monetize an asset owned or controlled by the QALICB or an Affiliate of a QALICB, including but not limited to the accreted value of an asset? No. The purpose of the NMTC Program is to attract additional investment into eligible communities. The use of QLICI proceeds to monetize existing assets does not represent new investment. Rather, transactions of this type represent a change in the form of the existing asset of the QALICB.
FAQs 42-44 (October 31, 2015) 44. Can a QALICB use QLICI proceeds to pay a debt or equity provider to monetize an asset owned or controlled by the QALICB or an Affiliate of a QALICB, including but not limited to the accreted value of an asset? No. The purpose of Under the NMTC ProgramCY 2015 round, a QALICB is not permitted to attract additional investment into eligible communities. The use of QLICI proceeds to pay a debt or equity provider to monetize existing assetsan asset owned or controlled by the QALICB or an Affiliate of a QALICB. This provision does not represent new investment. Rather, transactionsapply to allocation awards made prior to the CY2015 round. Question 44 supplements and is not in conflict with the CY 2015 NOAA or Question 42 of this type represent a change in the form of the existing asset of the QALICBdocument.
FAQs 42-44 (October 31, 2015) 44. Can a QALICB use QLICI proceeds to pay a debt or equity provider to monetize an asset owned or controlled by the QALICB or an Affiliate of a QALICB, including but not limited to the accreted value of an asset? Under the CY 2015 round, a QALICB is not permitted to use QLICI proceeds to pay a debt or equity provider to monetize an asset owned or controlled by the QALICB or an Affiliate of a QALICB. This provision does not apply to allocation awards made prior to the CY2015 round. Question 44 supplements and is not in conflict with the CY 2015 NOAA or Question 42 of this document.
REVISION #2
December 4, 2015
FAQs 42-44 (October 31, 2015) 44. Can a QALICB use QLICI proceeds to pay a debt or equity provider to monetize an asset owned or controlled by the QALICB or an Affiliate of a QALICB, including but not limited to the accreted value of an asset? Under the CY 2015 round, a QALICB is not permitted to use QLICI proceeds to pay a debt or equity provider to monetize an asset owned or controlled by the QALICB or an Affiliate of a QALICB. This provision does not apply to allocation awards made prior to the CY2015 round. Question 44 supplements and is not in conflict with the CY 2015 NOAA or Question 42 of this document.
FAQs 42-44 (December 4, 2015) 44. Can a QALICB use QLICI proceeds to pay a debt or equity provider to monetize an asset owned or controlled by the QALICB or an Affiliate of a QALICB, including but not limited to the accreted value of an asset? Under the CY 2015 round, a QALICB is not permitted to use QLICI proceeds to pay a debt or equity provider whose capital is used to monetize an asset owned or controlled by the QALICB or an Affiliate of a QALICB if that capital provider directly or indirectly funded a QEI. This provision does not apply to allocation awards made prior to the CY2015 round. Question 44 supplements and is not in conflict with the CY 2015 NOAA or Question 42 of this document.
FAQs 42-44 (December 4, 2015) 44. Can a QALICB use QLICI proceeds to pay a debt or equity provider to monetize an asset owned or controlled by the QALICB or an Affiliate of a QALICB, including but not limited to the accreted value of an asset? Under the CY 2015 round, a QALICB is not permitted to use QLICI proceeds to pay a debt or equity provider whose capital is used to monetize an asset owned or controlled by the QALICB or an Affiliate of a QALICB if that capital provider directly or indirectly funded a QEI. This provision does not apply to allocation awards made prior to the CY2015 round. Question 44 supplements and is not in conflict with the CY 2015 NOAA or Question 42 of this document.
• April 19, 2016 • General recommendations about use
of consistent terminology • Concern about inconsistencies
between NOAA and Compliance FAQs
NMTC Working Group Comments
REVISION #3
February 6, 2017
FAQs 42-44 (December 4, 2015) 42. What are the restrictions on the use of QLICI proceeds to directly or indirectly reimburse expenditures incurred by a QALICB or Project Sponsor (an entity that owns or Controls the QALICB) and to directly or indirectly fund a QEI? Beginning with the CY 2015 round, only documented reasonable expenditures that are directly attributable to the qualified business of the QALICB can be paid or reimbursed from QLICI proceeds to directly or indirectly fund a QEI, provided that these expenditures have either been (i) incurred no more than 24 months prior to the date on which the QLICI transaction closes, or (ii) represent no more than 5 percent of the total QLICIs made by the CDE into the QALICB.
FAQs 42-44 (December 4, 2015) 42. What are the restrictions on the use of QLICI proceeds to directly or indirectly reimburse expenditures incurred by a QALICB or Project Sponsor (an entity that owns or Controls the QALICB) and to directly or indirectly fund a QEI? Reasonable expenditures are expenditures for a legitimate business purpose that occur during the normal course of operation, and must be similar in amount and scope when compared to expenditures by a similar entity for a similar project under similar circumstances. Such expenditures may be made directly by the Project Sponsor on behalf of the QALICB or be funded through a loan or equity investment made by the Project Sponsor to the QALICB.
FAQs 42-44 (December 4, 2015) 42. What are the restrictions on the use of QLICI proceeds to directly or indirectly reimburse expenditures incurred by a QALICB or Project Sponsor (an entity that owns or Controls the QALICB) and to directly or indirectly fund a QEI? Of note, the IRS has not issued guidance on what costs are reimbursable under §45D. Until such guidance is made public, the CDFI Fund supports the use of the above parameters for transactions involving the reimbursement of incurred cost. The following examples are offered for additional clarity.
FAQs 43-45 (February 6, 2017) 4243. What are the restrictions on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital was used, directly or indirectly reimburse expenditures incurred by a QALICB or Project Sponsor (an entity that owns or Controls the QALICB) and, to directly or indirectly fund a QEI? Beginning with the CY 2015-2016 round, only documented reasonable expenditures that are directly attributable to the qualified business of the QALICB can be paidrepaid or reimbursed fromrefinanced with QLICI proceeds to directly or indirectly fund a QEI, provided that these. These expenditures havemust either (i) have been (i) incurred no more than 24 months prior to the date on which the QLICI transaction closes, or (ii) represent no more than 5 percent of the total QLICIs made by the CDE into the QALICBQLICI proceeds from the QEI.
FAQs 43-45 (February 6, 2017) 4243. What are the restrictions on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital was used, directly or indirectly reimburse expenditures incurred by a QALICB or Project Sponsor (an entity that owns or Controls the QALICB) and, to directly or indirectly fund a QEI? Only under these two restrictions can QLICI proceeds be used to repay or refinance any debt or equity provider, or Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI.
FAQs 43-45 (February 6, 2017) 4243. What are the restrictions on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital was used, directly or indirectly reimburse expenditures incurred by a QALICB or Project Sponsor (an entity that owns or Controls the QALICB) and, to directly or indirectly fund a QEI? Reasonable expenditures are expenditures for a legitimate business purpose that occur during the normal course of operation, and must be similar in amount and scope when compared to expenditures by a similar entity for a similar project under similar circumstances.
FAQs 43-45 (February 6, 2017) 4243. What are the restrictions on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital was used, directly or indirectly reimburse expenditures incurred by a QALICB or Project Sponsor (an entity that owns or Controls the QALICB) and, to directly or indirectly fund a QEI? Such expenditures may be made directly by the Project Sponsor on behalf of the QALICB or be funded through a loan or equity investment made by the Project Sponsor to the QALICBRefinance includes transferring cash or property directly or indirectly to the debt or equity provider or Affiliate of the debt or equity provider.
FAQs 43-45 (February 6, 2017) 4243. What are the restrictions on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital was used, directly or indirectly reimburse expenditures incurred by a QALICB or Project Sponsor (an entity that owns or Controls the QALICB) and, to directly or indirectly fund a QEI? Of note, the IRS has not issued guidance on what costs are reimbursablecan be repaid or refinanced with QLICI proceeds under §45D. Until such guidance is made public, the CDFI Fund supports the use of the above parameters for transactions involving the reimbursement of incurred cost. The following examples are offered for additional clarity. repayment or refinancing of incurred costs.
FAQs 43-45 (February 6, 2017) 4243. What are the restrictions on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital was used, directly or indirectly reimburse expenditures incurred by a QALICB or Project Sponsor (an entity that owns or Controls the QALICB) and, to directly or indirectly fund a QEI? The restriction is intended to support new or increased investments in NMTC-eligible low-income communities for which the acquisition, construction or rehabilitation of such assets do not coincide with the receipt of NMTC funding. Consequently, repayment or refinancing of incurred operating costs are prohibited under the restriction.
FAQs 43-45 (February 6, 2017) 43. What are the restrictions on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI? Of note, the IRS has not issued guidance on what costs can be repaid or refinanced with QLICI proceeds under §45D. Until such guidance is made public, the CDFI Fund supports the use of the above parameters for transactions involving the repayment or refinancing of incurred costs. The restriction is intended to support new or increased investments in NMTC-eligible low-income communities for which the acquisition, construction or rehabilitation of such assets do not coincide with the receipt of NMTC funding. Consequently, repayment or refinancing of incurred operating costs are prohibited under the restriction.
FAQs 42-44 (December 4, 2015) Example 1: Project Expenditures within 24 Months Within 24 months prior to the closing of the QLICI transaction, a Project Sponsor uses funds it has raised from various sources to obtain development permits, begin construction, acquire or install equipment, or acquire other property related to the project; all of which represent reasonable expenditures and for which the Project Sponsor has retained documentation (i.e. invoices, receipts, proof of payment, etc.) totaling $1,000,000 and are directly attributable to the qualified business of the QALICB.
FAQs 42-44 (December 4, 2015) Example 1: Project Expenditures within 24 Months Out of $10,000,000 in total QLICIs, up to $1,000,000 of the QLICI proceeds can be used to reimburse the Project Sponsor for these documented expenditures and to directly or indirectly fund a leverage loan. The remaining QLICI proceeds ($9,000,000) could be used for operating needs, working capital needs, equipment, additional construction expenditures, or other needs related to the project or business of the QALICB.
FAQs 42-44 (December 4, 2015) Example 2: Project Expenditures up to 5% of QLICI Proceeds Same facts as Example 1, except an additional $700,000 of documented, reasonable expenditures incurred by the Project Sponsor were incurred greater than 24 months prior to the closing of the QLICI transaction. The QALICB may use no more than 5% of QLICI proceeds to reimburse documented, reasonable expenditures that are directly attributable to the qualified business of the QALICB regardless of when those expenditures were incurred. In this scenario, if the total QLICIs to the QALICB was $10 million, the QALICB could use up to $500,000 to reimburse expenditures that were incurred prior to the QLICI closing.
FAQs 42-44 (December 4, 2015) Example 2: Project Expenditures up to 5% of QLICI Proceeds In summary, the QALICB may elect to either reimburse reasonable expenditures incurred within 24 months of the QLICI closing date as in the first example ($1,000,000) or reimburse reasonable expenditures that represent up to 5% of the QLICI proceeds incurred prior to the QLICI closing date ($500,000). It may not do both. If the QALICB is using QLICI proceeds to reimburse or repay the Project Sponsor for documented, reasonable expenditures directly attributable to the qualified business of the QALICB that were incurred within the previous 24 months ($1,000,000), it may not use QLICI proceeds to repay or reimburse the Project Sponsor for any expenditures that occurred outside of 24 months.
FAQs 43-45 (February 6, 2017) The following examples are offered for additional clarity. Example 1: Project Expenditures within 24 Months Within 24 months prior to the closing of the QLICI transaction, a Project Sponsoran entity uses funds it has raised from various sources to obtain development permits, begin construction, acquire or install equipment, or acquire other property related to the project; all of which represent reasonable expenditures and, for which the Project Sponsorentity has retained documentation (i.e. invoices, receipts, proof of payment, etc.) totaling $1,000,000, and that are directly attributable to the qualified business of the QALICB.
FAQs 43-45 (February 6, 2017) The following examples are offered for additional clarity. Example 1: Project Expenditures within 24 Months Out of $10,000,000 in total QLICIs, up to $1,000,000 of the QLICI proceeds can be used to reimburserepay the Project Sponsorentity for these documented expenditures and to directly or indirectly fundrepay sources used to fund the QEI (e.g. a leverage loan.). The remaining QLICI proceeds ($9,000,000) could be used for additional expenditures such as operating needs, working capital needs, equipment, additional construction expenditures, or other needs related to the project or business of the QALICB.
FAQs 43-45 (February 6, 2017) The following examples are offered for additional clarity. Example 2: Project Expenditures up to 5% of QLICI Proceeds Same facts as Example 1, except an additional $700,000 of documented, reasonable expenditures incurred by the Project Sponsorentity were incurred greater than 24 months prior to the closing of the QLICI transaction. The QALICB may use no more than 5% of QLICI proceeds to reimburse documented, reasonable expenditures that are directly attributable to the qualified business of the QALICB regardless of when those expenditures were incurred. In this scenario, if the total QLICIs to the QALICB was $10 million, the QALICB could use up to $500,000 to reimburse expenditures that were incurred prior to the QLICI closing.
FAQs 43-45 (February 6, 2017) The following examples are offered for additional clarity. Example 2: Project Expenditures up to 5% of QLICI Proceeds In summary, the QALICB may elect to either reimburse the full amount of reasonable expenditures incurred within 24 months of the QLICI closing date as in the first example ($1,000,000) or reimburse reasonable expenditures that represent up to 5% of the QLICI proceeds incurred prior to the QLICI closing date ($500,000). It may not do both. If the QALICB is using QLICI proceeds to reimburse or repay the Project Sponsor for documented, reasonable expenditures directly attributable to the qualified business of the QALICB that were incurred within the previous 24 months ($1,000,000), it may not use QLICI proceeds to repay or reimburse the Project Sponsor for any expenditures that occurred outside of 24 monthsat any time prior to the QLICI closing date ($500,000). It may not do both.
FAQs 43-45 (February 6, 2017) The following examples are offered for additional clarity. Example 1: Project Expenditures within 24 Months Within 24 months prior to the closing of the QLICI transaction, an entity uses funds it has raised from various sources to obtain development permits, begin construction, acquire or install equipment, or acquire other property related to the project; all of which represent reasonable expenditures, for which the entity has retained documentation (i.e. invoices, receipts, proof of payment, etc.) totaling $1,000,000, and that are directly attributable to the qualified business of the QALICB.
FAQs 43-45 (February 6, 2017) The following examples are offered for additional clarity. Example 1: Project Expenditures within 24 Months Out of $10,000,000 in total QLICIs, up to $1,000,000 of the QLICI proceeds can be used to repay the entity for these documented expenditures and to directly or indirectly repay sources used to fund the QEI (e.g. a leverage loan). The remaining QLICI proceeds ($9,000,000) could be used for additional expenditures such as operating needs, working capital needs, equipment, additional construction expenditures, or other needs related to the project or business of the QALICB.
FAQs 43-45 (February 6, 2017) The following examples are offered for additional clarity. Example 2: Project Expenditures up to 5% of QLICI Proceeds Same facts as Example 1, except an additional $700,000 of documented, reasonable expenditures incurred by the entity were incurred greater than 24 months prior to the closing of the QLICI transaction. The QALICB may use no more than 5% of QLICI proceeds to reimburse documented, reasonable expenditures that are directly attributable to the qualified business of the QALICB regardless of when those expenditures were incurred. In this scenario, if the total QLICIs to the QALICB was $10 million, the QALICB could use up to $500,000 to reimburse expenditures that were incurred prior to the QLICI closing.
FAQs 43-45 (February 6, 2017) The following examples are offered for additional clarity. Example 2: Project Expenditures up to 5% of QLICI Proceeds In summary, the QALICB may elect to either reimburse the full amount of reasonable expenditures incurred within 24 months of the QLICI closing date as in the first example ($1,000,000) or reimburse reasonable expenditures that represent up to 5% of the QLICI proceeds incurred at any time prior to the QLICI closing date ($500,000). It may not do both.
FAQs 42-44 (December 4, 2015) 43. How will the CDFI Fund monitor the restriction on the use of QLICI proceeds to directly or indirectly reimburse expenditures incurred by a QALICB or Project Sponsor required under the CY 2015 NMTC Application? CDEs must include such covenants in financing agreements with QALICBs as may be necessary to reflect this restriction. The agreements containing such covenants must be available for inspection by the CDFI Fund. Second, the CDE should collect information as may be necessary and maintain documentation to trace the use of QLICI proceeds to use by the QALICB at the time of the initial QLICI is made and at least annually thereafter. Where the QALICB will repay or refinance a debt or equity provider or a party related to a debt or equity provider under the 24-month or five percent exception rules, the CDE should maintain documentation supporting that the reimbursements can be directly traced to actual expenditures.
FAQs 42-44 (December 4, 2015) 43. How will the CDFI Fund monitor the restriction on the use of QLICI proceeds to directly or indirectly reimburse expenditures incurred by a QALICB or Project Sponsor required under the CY 2015 NMTC Application? This documentation must be available for inspection by the CDFI Fund. Documentation to support compliance with this restriction must be retained for the period of the QLICI in the QALICB plus three years or the seven-year compliance period plus three years, whichever is shorter.
FAQs 43-45 (February 6, 2017) 4344. How will the CDFI Fund monitor the restriction on the use of QLICI proceeds to directly or indirectly reimburse expenditures incurred by a QALICBrepay or Project Sponsorrefinance any debt or equity provider, or Affiliate to any debt or equity provider, whose capital was used, directly or indirectly, to fund the QEI required under the CY 2015-2016 NMTC Application? CDEs must include such covenants in financing agreements with QALICBs as may be necessary to reflect this restriction. The agreements containing such covenants must be available for inspection by the CDFI Fund. Second, the CDE should collect information as may be necessary and maintain documentation to trace the use of QLICI proceeds to use by the QALICB at the time of the initial QLICI is made and at least annually thereafter.
FAQs 43-45 (February 6, 2017) 4344. How will the CDFI Fund monitor the restriction on the use of QLICI proceeds to directly or indirectly reimburse expenditures incurred by a QALICBrepay or Project Sponsorrefinance any debt or equity provider, or Affiliate to any debt or equity provider, whose capital was used, directly or indirectly, to fund the QEI required under the CY 2015-2016 NMTC Application? WhereIn situations where the QALICB will directly or indirectly repay or refinance aany debt or equity provider or a party related to aAffiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI under the 24-month or five5 percent exception rules, the CDE should maintain documentation supportingdemonstrating that the reimbursements can be directly traced to actual expenditures. This documentation must be available for inspection by the CDFI Fund.
FAQs 43-45 (February 6, 2017) 4344. How will the CDFI Fund monitor the restriction on the use of QLICI proceeds to directly or indirectly reimburse expenditures incurred by a QALICBrepay or Project Sponsorrefinance any debt or equity provider, or Affiliate to any debt or equity provider, whose capital was used, directly or indirectly, to fund the QEI required under the CY 2015-2016 NMTC Application? Documentation to support compliance with this restriction must be retained for the entire period of the QLICI in the QALICB plus three years or the seven-year compliance period plus three years, whichever is shorter.
FAQs 43-45 (February 6, 2017) 44. How will the CDFI Fund monitor the restriction on the use of QLICI proceeds to directly or indirectly repay or refinance any debt or equity provider, or Affiliate to any debt or equity provider, whose capital was used, directly or indirectly, to fund the QEI required under the CY 2015-2016 NMTC Application? CDEs must include such covenants in financing agreements with QALICBs as may be necessary to reflect this restriction. The agreements containing such covenants must be available for inspection by the CDFI Fund. Second, the CDE should collect information as may be necessary and maintain documentation to trace the use of QLICI proceeds by the QALICB at the time the initial QLICI is made and at least annually thereafter.
FAQs 43-45 (February 6, 2017) 44. How will the CDFI Fund monitor the restriction on the use of QLICI proceeds to directly or indirectly repay or refinance any debt or equity provider, or Affiliate to any debt or equity provider, whose capital was used, directly or indirectly, to fund the QEI required under the CY 2015-2016 NMTC Application? In situations where the QALICB will directly or indirectly repay or refinance any debt or equity provider or Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI under the 24-month or 5 percent exception rules, the CDE should maintain documentation demonstrating that the reimbursements can be directly traced to actual expenditures.
FAQs 43-45 (February 6, 2017) 44. How will the CDFI Fund monitor the restriction on the use of QLICI proceeds to directly or indirectly repay or refinance any debt or equity provider, or Affiliate to any debt or equity provider, whose capital was used, directly or indirectly, to fund the QEI required under the CY 2015-2016 NMTC Application? This documentation must be available for inspection by the CDFI Fund. Documentation to support compliance with this restriction must be retained for the entire period of the QLICI in the QALICB plus three years or the seven-year compliance period plus three years, whichever is shorter.
FAQs 42-44 (December 4, 2015) 44. Can a QALICB use QLICI proceeds to pay a debt or equity provider to monetize an asset owned or controlled by the QALICB or an Affiliate of a QALICB, including but not limited to the accreted value of an asset? Under the CY 2015 round, a QALICB is not permitted to use QLICI proceeds to pay a debt or equity provider whose capital is used to monetize an asset owned or controlled by the QALICB or an Affiliate of a QALICB if that capital provider directly or indirectly funded a QEI. This provision does not apply to allocation awards made prior to the CY2015 round. Question 44 supplements and is not in conflict with the CY 2015 NOAA or Question 42 of this document.
FAQs 43-45 (February 6, 2017) 4445. Can a QALICB use QLICI proceeds to pay arepay or refinance any debt or equity provider , or Affiliate of any debt or equity provider, and to monetize an asset owned or controlled by the , contributed, sold, or otherwise transferred to the QALICB (or an Affiliate of a QALICB,) including but not limited to the accreted value of an asset? UnderWith the exception of the provisions outlined in Question 43 of this document, under the CY 2015-2016 round, a QALICB is not permitted to use QLICI proceeds to payrepay or refinance a debt or equity provider (or Affiliate of a debt or equity provider) whose capital iswas used to monetize an asset owneddirectly or controlled byindirectly to fund the QEI.
FAQs 43-45 (February 6, 2017) 4445. Can a QALICB use QLICI proceeds to pay arepay or refinance any debt or equity provider , or Affiliate of any debt or equity provider, and to monetize an asset owned or controlled by the , contributed, sold, or otherwise transferred to the QALICB (or an Affiliate of a QALICB,) including but not limited to the accreted value of an asset? The QALICB or an Affiliate of a may use QLICI proceeds to reimburse the value of any asset contributed, sold, or otherwise transferred to the QALICB to the extent such asset represents a reasonable expenditure directly attributable to the qualified business of the QALICB and the monetization of the contributed, transferred or sold asset is limited to the asset’s original cost and not to any accreted value obtained by appraisal or other valuation methods.
FAQs 43-45 (February 6, 2017) 4445. Can a QALICB use QLICI proceeds to pay arepay or refinance any debt or equity provider , or Affiliate of any debt or equity provider, and to monetize an asset owned or controlled by the , contributed, sold, or otherwise transferred to the QALICB (or an Affiliate of a QALICB,) including but not limited to the accreted value of an asset? Such transactions remain subject to the 24 month rule or 5 percent rule indicated in Question 43 above. For example, if a QALICB acquired equipment or property (currently appraised at $1,000,000) for $400,000 less than 24 months ago, QLICIs proceeds could only be used to reimburse up to the original cost of $400,000. In the event that the acquisition occurred outside of 24 months, the QALICB may use no more than 5% of QLICI proceeds to reimburse for the original acquisition cost – up to $400,000.
FAQs 43-45 (February 6, 2017) 4445. Can a QALICB use QLICI proceeds to pay arepay or refinance any debt or equity provider , or Affiliate of any debt or equity provider, and to monetize an asset owned or controlled by the , contributed, sold, or otherwise transferred to the QALICB (or an Affiliate of a QALICB,) including but not limited to the accreted value of an asset? The prohibition on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital providerwas used, directly or indirectly funded, to fund a QEI. This provision does not apply to allocation awards made prior to the CY2015-2016 round. Question 44 supplements43 and is not in conflict with the CY 2015 NOAA or Question 42 44 of this document supplement Question 45.
FAQs 43-45 (February 6, 2017) 45. Can a QALICB use QLICI proceeds to repay or refinance any debt or equity provider, or Affiliate of any debt or equity provider, and to monetize an asset owned by, contributed, sold, or otherwise transferred to the QALICB (or an Affiliate of a QALICB) including but not limited to the accreted value of an asset? With the exception of the provisions outlined in Question 43 of this document, under the CY 2015-2016 round, a QALICB is not permitted to use QLICI proceeds to repay or refinance a debt or equity provider (or Affiliate of a debt or equity provider) whose capital was used directly or indirectly to fund the QEI.
FAQs 43-45 (February 6, 2017) 45. Can a QALICB use QLICI proceeds to repay or refinance any debt or equity provider, or Affiliate of any debt or equity provider, and to monetize an asset owned by, contributed, sold, or otherwise transferred to the QALICB (or an Affiliate of a QALICB) including but not limited to the accreted value of an asset? The QALICB may use QLICI proceeds to reimburse the value of any asset contributed, sold, or otherwise transferred to the QALICB to the extent such asset represents a reasonable expenditure directly attributable to the qualified business of the QALICB and the monetization of the contributed, transferred or sold asset is limited to the asset’s original cost and not to any accreted value obtained by appraisal or other valuation methods. Such transactions remain subject to the 24 month rule or 5 percent rule indicated in Question 43 above.
FAQs 43-45 (February 6, 2017) 45. Can a QALICB use QLICI proceeds to repay or refinance any debt or equity provider, or Affiliate of any debt or equity provider, and to monetize an asset owned by, contributed, sold, or otherwise transferred to the QALICB (or an Affiliate of a QALICB) including but not limited to the accreted value of an asset? For example, if a QALICB acquired equipment or property (currently appraised at $1,000,000) for $400,000 less than 24 months ago, QLICIs proceeds could only be used to reimburse up to the original cost of $400,000. In the event that the acquisition occurred outside of 24 months, the QALICB may use no more than 5% of QLICI proceeds to reimburse for the original acquisition cost – up to $400,000.
FAQs 43-45 (February 6, 2017) 45. Can a QALICB use QLICI proceeds to repay or refinance any debt or equity provider, or Affiliate of any debt or equity provider, and to monetize an asset owned by, contributed, sold, or otherwise transferred to the QALICB (or an Affiliate of a QALICB) including but not limited to the accreted value of an asset? The prohibition on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI does not apply to allocation awards made prior to the CY2015-2016 round. Question 43 and 44 of this document supplement Question 45.
NMTC Working Group Comments
• March 20, 2017 • Addressed the overwhelming
concern about new language added to FAQ 43 that appeared to add new restrictions, especially for reimbursement of operating expenses
REVISION #4
May 2, 2017
FAQs 43-45 (February 6, 2017) 43. What are the restrictions on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI? Beginning with the CY 2015-2016 round, only documented reasonable expenditures that are directly attributable to the qualified business of the QALICB can be repaid or refinanced with QLICI proceeds. These expenditures must either (i) have been incurred no more than 24 months prior to the date on which the QLICI transacation closes, or (ii) represent no more than 5 percent of the total QLICI proceeds from the QEI. Only under these two restrictions can QLICI proceeds be used to repay or refinance any debt or equity provider, or Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI.
FAQs 43-45 (February 6, 2017) 43. What are the restrictions on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI? Reasonable expenditures are expenditures for a legitimate business purpose that occur during the normal course of operation, and must be similar in amount and scope when compared to expenditures by a similar entity for a similar project under similar circumstances. Refinance includes transferring cash or property directly or indirectly to the debt or equity provider or Affiliate of the debt or equity provider.
FAQs 43-45 (February 6, 2017) 43. What are the restrictions on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI? Of note, the IRS has not issued guidance on what costs can be repaid or refinanced with QLICI proceeds under §45D. Until such guidance is made public, the CDFI Fund supports the use of the above parameters for transactions involving the repayment or refinancing of incurred costs. The restriction is intended to support new or increased investments in NMTC-eligible low-income communities for which the acquisition, construction or rehabilitation of such assets do not coincide with the receipt of NMTC funding. Consequently, repayment or refinancing of incurred operating costs are prohibited under the restriction.
FAQs 44-46 (May 2, 2017) 4344. What are the restrictions on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI? Beginning with the CY 2015-2016 round, only documentedany debt or equity provider, or Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI, may receive QLICI proceeds to repay or refinance reasonable expenditures that are incurred by the debt or equity provider (or Affiliate) and that are directly attributable to the qualified business of the QALICB can be repaid or refinanced with QLICI proceeds. Theseif the expenditures must either (i) have beenwere incurred no more than 24 months prior to the date on which the QLICI transaction closes, or (ii) represent no more than 5 percent of the total QLICI proceeds from the QEI.
FAQs 44-46 (May 2, 2017) 4344. What are the restrictions on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI? Only under these two restrictions can QLICI proceeds be used to repay or refinance any debt or equity provider, or Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI.
FAQs 44-46 (May 2, 2017) 4344. What are the restrictions on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI? Reasonable expenditures are expenditures for a legitimate business purpose that occur during the normal course of operation, and must be similar in amount and scope when compared to expenditures by a similar entity for a similar project under similar circumstances. Refinance includes transferring cash or property directly or indirectly to the debt or equity provider or Affiliate of the debt or equity provider.
FAQs 44-46 (May 2, 2017) 4344. What are the restrictions on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI? Of note, the IRS has not issued guidance on what costs can be repaid or refinanced with QLICI proceeds under IRC §45D. Until such guidance is made publicissued, the CDFI Fund supports the use of the above parameters for transactions involving the repayment or refinancing of incurred costs. The restriction is intended to support new or increased investments in NMTC-eligible low-income communities for which the acquisition, construction or rehabilitation of such assets do not coincide with the receipt of NMTC funding. Consequently, repayment or refinancing of incurred operating costs are prohibited under the restrictionexpenditures.
FAQs 44-46 (May 2, 2017) 44. What are the restrictions on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI? Beginning with the CY 2015-2016 round, any debt or equity provider, or Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI, may receive QLICI proceeds to repay or refinance reasonable expenditures that are incurred by the debt or equity provider (or Affiliate) and that are directly attributable to the qualified business of the QALICB if the expenditures (i) were incurred no more than 24 months prior to the date on which the QLICI transaction closes, or (ii) represent no more than 5 percent of the total QLICI proceeds from the QEI.
FAQs 44-46 (May 2, 2017) 44. What are the restrictions on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI? Reasonable expenditures are expenditures for a legitimate business purpose that occur during the normal course of operation, and must be similar in amount and scope when compared to expenditures by a similar entity for a similar project under similar circumstances. Refinance includes transferring cash or property directly or indirectly to the debt or equity provider or Affiliate of the debt or equity provider.
FAQs 44-46 (May 2, 2017) 44. What are the restrictions on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI? Of note, the IRS has not issued guidance on what costs can be repaid or refinanced with QLICI proceeds under IRC §45D. Until such guidance is issued, the CDFI Fund supports the use of the above parameters for transactions involving the repayment or refinancing of expenditures.
FAQs 43-45 (February 6, 2017) The following examples are offered for additional clarity. Example 1: Project Expenditures within 24 Months Within 24 months prior to the closing of the QLICI transaction, an entity uses funds it has raised from various sources to obtain development permits, begin construction, acquire or install equipment, or acquire other property related to the project; all of which represent reasonable expenditures, for which the entity has retained documentation (i.e. invoices, receipts, proof of payment, etc.) totaling $1,000,000, and that are directly attributable to the qualified business of the QALICB.
FAQs 43-45 (February 6, 2017) The following examples are offered for additional clarity. Example 1: Project Expenditures within 24 Months Out of $10,000,000 in total QLICIs, up to $1,000,000 of the QLICI proceeds can be used to repay the entity for these documented expenditures and to directly or indirectly repay sources used to fund the QEI (e.g. a leverage loan). The remaining QLICI proceeds ($9,000,000) could be used for additional expenditures such as operating needs, working capital needs, equipment, additional construction expenditures, or other needs related to the project or business of the QALICB.
FAQs 43-45 (February 6, 2017) The following examples are offered for additional clarity. Example 2: Project Expenditures up to 5% of QLICI Proceeds Same facts as Example 1, except an additional $700,000 of documented, reasonable expenditures incurred by the entity were incurred greater than 24 months prior to the closing of the QLICI transaction. The QALICB may use no more than 5% of QLICI proceeds to reimburse documented, reasonable expenditures that are directly attributable to the qualified business of the QALICB regardless of when those expenditures were incurred. In this scenario, if the total QLICIs to the QALICB was $10 million, the QALICB could use up to $500,000 to reimburse expenditures that were incurred prior to the QLICI closing.
FAQs 43-45 (February 6, 2017) The following examples are offered for additional clarity. Example 2: Project Expenditures up to 5% of QLICI Proceeds In summary, the QALICB may elect to either reimburse the full amount of reasonable expenditures incurred within 24 months of the QLICI closing date as in the first example ($1,000,000) or reimburse reasonable expenditures that represent up to 5% of the QLICI proceeds incurred at any time prior to the QLICI closing date ($500,000). It may not do both.
FAQs 44-46 (May 2, 2017) The following examples areexample is offered for additional clarity. Example 1: Project Expenditures within 24 Months: Entity A is a debt or equity provider, or Affiliate of a debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI the proceeds of which were used to make a QLICI. Within 24 months prior to the closing of the QLICI transaction, an entity uses funds it has raised from various sourcesEntity A expends $1,000,000 to obtain development permits, begin construction, acquire or install equipment, orand acquire other property related to the project; all of which represent reasonable expenditures, directly attributable to the qualified business of the QALICB, and for which the entityEntity A has retained documentation (i.e. invoices, receipts, proof of payment, etc.) totaling $1.).
FAQs 44-46 (May 2, 2017) The following examples areexample is offered for additional clarity. Example 1: Project Expenditures within 24 Months: More than 24 months prior to the closing of the QLICI, Entity A expends $700,000,000, and that are of documented, reasonable expenditures directly attributable to the qualified business of the QALICB. The QALICB receives $10,000,000 in total QLICIs from the QEI funded by Entity A. 24 month provision Out of $10,000,000 in total QLICIs, up to $1,000,000 of the QLICI proceeds can be used to repay the entity for these documented expenditures and to directly or indirectly repay sources used to fund the QEI (e.g. a leverage loan).
FAQs 44-46 (May 2, 2017) The following examples areexample is offered for additional clarity. Example 1: Project Expenditures within 24 Months: The remaining QLICI proceeds ($9,000,000) could be used for additional expenditures such as operating needs, working capital needs, equipment, additional construction expenditures, or other needs related to the project or business of the QALICB. Example 2: Project Expenditures up to 5% of QLICI Proceeds Same facts as Example 1, except an additional $700,000 of documented, reasonable expenditures incurred by the entity were incurred greater than 24 months prior to the closing of the QLICI transaction.
FAQs 44-46 (May 2, 2017) The following examples areexample is offered for additional clarity. 5 percent provision. The QALICB may use no more than 5% percent of QLICI proceeds to reimburse documented, reasonable expenditures that are directly attributable to the qualified business of the QALICB regardless of when those expenditures were incurred. In this scenario, if the total QLICIs to the QALICB waswere $10 million, the QALICB could use up to $500,000 to reimburse expenditures that were incurred prior to the QLICI closing.
FAQs 44-46 (May 2, 2017) The following examples areexample is offered for additional clarity. In summaryIn summary, of the $1,700,000 in documented, reasonable expenditures directly attributable to the qualified business of the QALICB incurred by Entity A, the QALICB may elect to either reimburse the full amount of reasonable expenditures incurred within 24 months of the QLICI closing date as in the first example ($1,000,000) or reimburse reasonable expenditures that represent up to 5% percent of the QLICI proceeds incurred at any time prior to the QLICI closing date ($500,000). It may not do both.
FAQs 44-46 (May 2, 2017) The example is offered for additional clarity. Example: Entity A is a debt or equity provider, or Affiliate of a debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI the proceeds of which were used to make a QLICI. Within 24 months prior to the closing of the QLICI transaction, Entity A expends $1,000,000 to obtain development permits, begin construction, acquire or install equipment, and acquire other property related to the project; all of which represent reasonable expenditures directly attributable to the qualified business of the QALICB, and for which Entity A has retained documentation (i.e. invoices, receipts, proof of payment, etc.).
FAQs 44-46 (May 2, 2017) The example is offered for additional clarity. Example: More than 24 months prior to the closing of the QLICI, Entity A expends $700,000 of documented, reasonable expenditures directly attributable to the qualified business of the QALICB. The QALICB receives $10,000,000 in total QLICIs from the QEI funded by Entity A. 24 month provision Out of $10,000,000 in total QLICIs, up to $1,000,000 of the QLICI proceeds can be used to repay the entity for these documented expenditures and to directly or indirectly repay sources used to fund the QEI (e.g. a leverage loan).
FAQs 44-46 (May 2, 2017) The example is offered for additional clarity. Example: The remaining QLICI proceeds ($9,000,000) could be used for additional expenditures such as operating needs, working capital needs, equipment, additional construction expenditures, or other needs related to the project or business of the QALICB. 5 percent provision. The QALICB may use no more than 5 percent of QLICI proceeds to reimburse documented, reasonable expenditures that are directly attributable to the qualified business of the QALICB regardless of when those expenditures were incurred.
FAQs 44-46 (May 2, 2017) The example is offered for additional clarity. Example: In this scenario, if the total QLICIs to the QALICB were $10 million, the QALICB could use up to $500,000 to reimburse expenditures that were incurred prior to the QLICI closing. In summary, of the $1,700,000 in documented, reasonable expenditures directly attributable to the qualified business of the QALICB incurred by Entity A, the QALICB may elect to either reimburse the full amount of reasonable expenditures incurred within 24 months of the QLICI closing date ($1,000,000) or reimburse reasonable expenditures that represent up to 5 percent of the QLICI proceeds incurred at any time prior to the QLICI closing date ($500,000). It may not do both.
FAQs 43-45 (February 6, 2017) 44. How will the CDFI Fund monitor the restriction on the use of QLICI proceeds to directly or indirectly repay or refinance any debt or equity provider, or Affiliate to any debt or equity provider, whose capital was used, directly or indirectly, to fund the QEI required under the CY 2015-2016 NMTC Application? CDEs must include such covenants in financing agreements with QALICBs as may be necessary to reflect this restriction. The agreements containing such covenants must be available for inspection by the CDFI Fund. Second, the CDE should collect information as may be necessary and maintain documentation to trace the use of QLICI proceeds by the QALICB at the time the initial QLICI is made and at least annually thereafter.
FAQs 43-45 (February 6, 2017) 44. How will the CDFI Fund monitor the restriction on the use of QLICI proceeds to directly or indirectly repay or refinance any debt or equity provider, or Affiliate to any debt or equity provider, whose capital was used, directly or indirectly, to fund the QEI required under the CY 2015-2016 NMTC Application? In situations where the QALICB will directly or indirectly repay or refinance any debt or equity provider or Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI under the 24-month or 5 percent exception rules, the CDE should maintain documentation demonstrating that the reimbursements can be directly traced to actual expenditures. This documentation must be available for inspection by the CDFI Fund. Documentation to support compliance with this restriction must be retained for the entire period of the QLICI in the QALICB plus three years or the seven-year compliance period plus three years, whichever is shorter.
FAQs 44-46 (May 2, 2017) 4445. How will the CDFI Fund monitor the restriction on the use of QLICI proceeds to directly or indirectly repay or refinance any debt or equity provider, or Affiliate to any debt or equity provider, whose capital was used, directly or indirectly, to fund the QEI required under the CY 2015-2016 NMTC Application? CDEs must include such covenants in financing agreements with QALICBs as may be necessary to reflect this restriction. The agreements containing such covenants must be available for inspection by the CDFI Fund. SecondIn addition, the CDE should collect information as may be necessary and maintain documentation to trace the use of QLICI proceeds by the QALICB at the time the initial QLICI is made and at least annually thereafter.
FAQs 44-46 (May 2, 2017) 4445. How will the CDFI Fund monitor the restriction on the use of QLICI proceeds to directly or indirectly repay or refinance any debt or equity provider, or Affiliate to any debt or equity provider, whose capital was used, directly or indirectly, to fund the QEI required under the CY 2015-2016 NMTC Application? In situations where the QALICB will directly or indirectly repay or refinance any debt or equity provider or Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI under the 24-month or 5 percent exception rules, the CDE should maintain documentation demonstrating that the reimbursements can be directly traced to actual expenditures. by the debt or equity provider (or their Affiliate) and are directly attributable to the qualified business of the QALICB. This documentation must be available for inspection by the CDFI Fund.
FAQs 44-46 (May 2, 2017) 4445. How will the CDFI Fund monitor the restriction on the use of QLICI proceeds to directly or indirectly repay or refinance any debt or equity provider, or Affiliate to any debt or equity provider, whose capital was used, directly or indirectly, to fund the QEI required under the CY 2015-2016 NMTC Application? Documentation to support compliance with this restriction must be retained for the entire period of the QLICI in the QALICB plus three years or the seven-year compliance period plus three years, whichever is shorter.
FAQs 44-46 (May 2, 2017) 45. How will the CDFI Fund monitor the restriction on the use of QLICI proceeds to directly or indirectly repay or refinance any debt or equity provider, or Affiliate to any debt or equity provider, whose capital was used, directly or indirectly, to fund the QEI required under the CY 2015-2016 NMTC Application? In situations where the QALICB will directly or indirectly repay or refinance any debt or equity provider or Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI under the 24-month or 5 percent exception rules, the CDE should maintain documentation demonstrating that the reimbursements can be directly traced to actual expenditures by the debt or equity provider (or their Affiliate) and are directly attributable to the qualified business of the QALICB. This documentation must be available for inspection by the CDFI Fund.
FAQs 44-46 (May 2, 2017) 45. How will the CDFI Fund monitor the restriction on the use of QLICI proceeds to directly or indirectly repay or refinance any debt or equity provider, or Affiliate to any debt or equity provider, whose capital was used, directly or indirectly, to fund the QEI required under the CY 2015-2016 NMTC Application? Documentation to support compliance with this restriction must be retained for the entire period of the QLICI in the QALICB plus three years or the seven-year compliance period plus three years, whichever is shorter.
FAQs 43-45 (February 6, 2017) 45. Can a QALICB use QLICI proceeds to repay or refinance any debt or equity provider, or Affiliate of any debt or equity provider, and to monetize an asset owned by, contributed, sold, or otherwise transferred to the QALICB (or an Affiliate of a QALICB) including but not limited to the accreted value of an asset? With the exception of the provisions outlined in Question 43 of this document, under the CY 2015-2016 round, a QALICB is not permitted to use QLICI proceeds to repay or refinance a debt or equity provider (or Affiliate of a debt or equity provider) whose capital was used directly or indirectly to fund the QEI.
FAQs 43-45 (February 6, 2017) 45. Can a QALICB use QLICI proceeds to repay or refinance any debt or equity provider, or Affiliate of any debt or equity provider, and to monetize an asset owned by, contributed, sold, or otherwise transferred to the QALICB (or an Affiliate of a QALICB) including but not limited to the accreted value of an asset? The QALICB may use QLICI proceeds to reimburse the value of any asset contributed, sold, or otherwise transferred to the QALICB to the extent such asset represents a reasonable expenditure directly attributable to the qualified business of the QALICB and the monetization of the contributed, transferred or sold asset is limited to the asset’s original cost and not to any accreted value obtained by appraisal or other valuation methods. Such transactions remain subject to the 24 month rule or 5 percent rule indicated in Question 43 above.
FAQs 43-45 (February 6, 2017) For example, if a QALICB acquired equipment or property (currently appraised at $1,000,000) for $400,000 less than 24 months ago, QLICIs proceeds could only be used to reimburse up to the original cost of $400,000. In the event that the acquisition occurred outside of 24 months, the QALICB may use no more than 5% of QLICI proceeds to reimburse for the original acquisition cost – up to $400,000. The prohibition on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI does not apply to allocation awards made prior to the CY2015-2016 round. Question 43 and 44 of this document supplement Question 45.
FAQs 44-46 (May 2, 2017) 4546. Can a QALICB use QLICI proceeds to repay or refinance any debt or equity provider, or Affiliate of any debt or equity provider, and to monetize an asset owned by, contributed, sold, or otherwise transferred to the QALICB (or an Affiliate of a QALICB) including but not limited to the accreted value of an asset? With the exception of the provisions outlined in Question 43 of this document, underUnder the CY 2015-2016 round, a QALICB is notonly permitted to use QLICI proceeds to repay or refinance a debt or equity provider (or Affiliate of a debt or equity provider) whose capital was used directly or indirectly to fund the QEI. subject to the provisions outlined in Question 44 of this document.
FAQs 44-46 (May 2, 2017) 4546. Can a QALICB use QLICI proceeds to repay or refinance any debt or equity provider, or Affiliate of any debt or equity provider, and to monetize an asset owned by, contributed, sold, or otherwise transferred to the QALICB (or an Affiliate of a QALICB) including but not limited to the accreted value of an asset? The QALICB may use QLICI proceeds to reimburse the valuerepay or refinance expenditures incurred by the debt or equity provider (or their Affiliate) for the acquisition of any asset contributed, sold, or otherwise transferred to the QALICB to the extent such asset represents a reasonable expenditure directly attributable to the qualified business of the QALICB and the monetization of the contributed, transferred or sold.
FAQs 44-46 (May 2, 2017) 4546. Can a QALICB use QLICI proceeds to repay or refinance any debt or equity provider, or Affiliate of any debt or equity provider, and to monetize an asset owned by, contributed, sold, or otherwise transferred to the QALICB (or an Affiliate of a QALICB) including but not limited to the accreted value of an asset? The amount that can be repaid or refinanced for such an asset is limited to the asset’s original cost and not to any accreted value obtained by appraisal or other valuation methods. Such transactions remain subject to the 24 month rule or 5 percent rule indicated in Question 4344 above.
FAQs 44-46 (May 2, 2017) For example, if Example: Limitation to actual costs of acquisition Entity B is a QALICBdebt or equity provider, or Affiliate of a debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI the proceeds of which were used to make a QLICI. Entity B acquired property for $700,000 less than 24 months prior to the QLICI closing that represents a reasonable expenditure directly attributable to the qualified business of the QALICB, the current appraised value of the property is $1,000,000. More than 24 months prior to the closing of the QLICI, Entity B acquired equipment or propertyfor $500,000 (currently appraised at $1,000,000) for $400,000 less than 24 months ago,600,000), which represents a reasonable expenditure directly attributable to the qualified business of the QALICB. The QALICB receives $10,000,000 in total QLICIs from the QEI funded by Entity B.
FAQs 44-46 (May 2, 2017) The QLICIs proceeds could only be used to reimburse up to the original cost of $400,000. In the event that the acquisition occurred outside(not the appraised value) of 24 months,both the property and equipment ($700,000 + $500,000 = $1,200,000) subject to the 24 month or 5 percent limitations. The QALICB may use no more than 5% of QLICI proceeds to elect to either reimburse for the original acquisition cost –the full amount of reasonable expenditures incurred within 24 months of the QLICI closing date ($700,000) or reimburse reasonable expenditures that represent up to $400,000.5 percent of the QLICI proceeds incurred at any time prior to the QLICI closing date ($500,000). It may not do both.
FAQs 44-46 (May 2, 2017) The prohibition on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI does not apply to allocation awards made prior to the CY2015-2016 round. Question 4344 and 4445 of this document supplement Question 45.46.
FAQs 44-46 (May 2, 2017) 46. Can a QALICB use QLICI proceeds to repay or refinance any debt or equity provider, or Affiliate of any debt or equity provider, and to monetize an asset owned by, contributed, sold, or otherwise transferred to the QALICB (or an Affiliate of a QALICB) including but not limited to the accreted value of an asset? Under the CY 2015-2016 round, a QALICB is only permitted to use QLICI proceeds to repay or refinance a debt or equity provider (or Affiliate of a debt or equity provider) whose capital was used directly or indirectly to fund the QEI subject to the provisions outlined in Question 44 of this document.
FAQs 44-46 (May 2, 2017) 46. Can a QALICB use QLICI proceeds to repay or refinance any debt or equity provider, or Affiliate of any debt or equity provider, and to monetize an asset owned by, contributed, sold, or otherwise transferred to the QALICB (or an Affiliate of a QALICB) including but not limited to the accreted value of an asset? The QALICB may use QLICI proceeds to repay or refinance expenditures incurred by the debt or equity provider (or their Affiliate) for the acquisition of any asset contributed, sold, or otherwise transferred to the QALICB to the extent such asset represents a reasonable expenditure directly attributable to the qualified business of the QALICB. The amount that can be repaid or refinanced for such an asset is limited to the asset’s original cost and not to any accreted value obtained by appraisal or other valuation methods. Such transactions remain subject to the 24 month rule or 5 percent rule indicated in Question 44 above.
FAQs 44-46 (May 2, 2017) Example: Limitation to actual costs of acquisition Entity B is a debt or equity provider, or Affiliate of a debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI the proceeds of which were used to make a QLICI. Entity B acquired property for $700,000 less than 24 months prior to the QLICI closing that represents a reasonable expenditure directly attributable to the qualified business of the QALICB, the current appraised value of the property is $1,000,000. More than 24 months prior to the closing of the QLICI, Entity B acquired equipment for $500,000 (currently appraised at $600,000), which represents a reasonable expenditure directly attributable to the qualified business of the QALICB. The QALICB receives $10,000,000 in total QLICIs from the QEI funded by Entity B.
FAQs 44-46 (May 2, 2017) The QLICIs proceeds could only be used to reimburse up to the original cost of acquisition (not the appraised value) of both the property and equipment ($700,000 + $500,000 = $1,200,000) subject to the 24 month or 5 percent limitations. The QALICB may elect to either reimburse the full amount of reasonable expenditures incurred within 24 months of the QLICI closing date ($700,000) or reimburse reasonable expenditures that represent up to 5 percent of the QLICI proceeds incurred at any time prior to the QLICI closing date ($500,000). It may not do both.
FAQs 44-46 (May 2, 2017) The prohibition on the use of QLICI proceeds to repay or refinance any debt or equity provider, or an Affiliate of any debt or equity provider, whose capital was used, directly or indirectly, to fund a QEI does not apply to allocation awards made prior to the CY2015-2016 round. Question 44 and 45 of this document supplement Question 46.
FAQs 42-44 (October 21, 2015) 44. Can a QALICB use QLICI proceeds to pay a debt or equity provider to monetize an asset owned or controlled by the QALICB or an Affiliate of a QALICB, including but not limited to the accreted value of an asset? No. The purpose of the NMTC Program is to attract additional investment into eligible communities. The use of QLICI proceeds to monetize existing assets does not represent new investment. Rather, transactions of this type represent a change in the form of the existing asset of the QALICB.
Why Does This Matter? • Currently affects transactions using allocation from the CY 2015-2016 Round • Uncertainty and the lack of clarity can cause an increase in the time and cost
to close transactions • Deals are closing!
Other Issues
Affordability Requirement
Affordability Requirement 20. How does the CDFI Fund view an Allocatee’s use of QLICIs to finance housing units if Section 3.2(k) of the Allocation Agreement is listed as “Not Applicable”?
All Allocatees may use their QLICIs to develop/rehabilitate housing units so long as the projects fall within one or more of the Qualified Low-Income Community Investments listed in section 3.2(a) of the Allocation Agreement and otherwise meet the terms of the Allocation Agreement.
Affordability Requirement 20. How does the CDFI Fund view an Allocatee’s use of QLICIs to finance housing units if Section 3.2(k) of the Allocation Agreement is listed as “Not Applicable”?
For the CY 2015-2016 Round and prior rounds, section 3.2(k) of the Allocation Agreement only applies to an Allocatee if it is marked as “Applicable” in that Allocatee’s Allocation Agreement. In cases where section 3.2(k) is marked “Not Applicable” in an Allocation Agreement, it is the CDFI Fund’s preference that if an Allocatee uses its QLICIs to finance the development or rehabilitation of housing units, the Allocatee should ensure that at least 20 percent of the aggregate housing units that the Allocatee financed are affordable housing units (e.g. affordable to persons with income less than 80 percent of area median family income).
Affordability Requirement 20. How does the CDFI Fund view an Allocatee’s use of QLICIs to finance housing units if Section 3.2(k) of the Allocation Agreement is listed as “Not Applicable”?
Beginning with the CY 2017 Round, if an Allocatee uses its QLICIs to finance the development or rehabilitation of housing units, the Allocatee must ensure that at least 20 percent of the aggregate housing units that the Allocatee financed are affordable housing units (e.g. affordable to persons with income less than 80 percent of area median family income), and such requirement will be a term of its Allocation Agreement.
Other Issues
Affordable Housing Definition
Affordable Housing Definition 21. How does the CDFI Fund define “affordable housing” for the purpose of meeting Section 3.2(k) of the Allocation Agreement? 1) An Allocatee that finances rental housing units shall meet the requirements of Section 3.2(k) if the following criteria are met:
a) 20 percent or more of total rental units financed with QLICIs are both rent restricted, as defined in IRC Section 42(g)(2) and occupied by individuals whose household income as illustrated by the U.S. Department of Housing and Urban Development (HUD) Handbook 4350.3 REV-1 (or subsequent versions), is less than or equal to 80 percent of the area median family income as determined and adjusted annually by HUD; and
Affordable Housing Definition 21. How does the CDFI Fund define “affordable housing” for the purpose of meeting Section 3.2(k) of the Allocation Agreement? 1) An Allocatee that finances rental housing units shall meet the requirements of Section 3.2(k) if the following criteria are met:
b) 20 percent or more of total rental units financed with QLICIs maintain their rent restrictions (where the maximum monthly rent should not exceed 30 percent of the adjusted income of a family whose annual income equals 80 percent of the median income for the area, as determined by HUD, with adjustments for the number of bedrooms in the unit) throughout the seven-year NMTC compliance period. Tenants should be certified as of the later of the date the QLICI is made or at move-in. Maintenance of the rent restrictions for the seven–year NMTC compliance period shall be documented by certifying the initial household income of a qualifying tenant.
Affordable Housing Definition 21. How does the CDFI Fund define “affordable housing” for the purpose of meeting Section 3.2(k) of the Allocation Agreement? 2) An Allocatee that finances for-sale housing units shall meet the requirements of Section 3.2(k) if 20 percent or more of the total for-sale housing units financed are purchased and occupied by Low Income Persons with a 38 percent or less Debt-To-Income Ratio and are owner-occupied by individuals whose household income is 80 percent or less of the area’s median family income as determined and adjusted annually by HUD at the time the units are sold to the initial homebuyer. For example, recurring debt payments should include, but not be limited to, mortgage payments made up of principal, interest, taxes and insurance, credit card, automobile, student and other consumer loan payments.
Affordable Housing Definition 21. How does the CDFI Fund define “affordable housing” for the purpose of meeting Section 3.2(k) of the Allocation Agreement?
Notwithstanding the above guidance, reasonable attempts must be made by the Allocatee to occupy the affordable units that have been set aside in order to be deemed compliant. Reasonable attempts would be based on the specific circumstances, and include factors such as the size and location of the project, lease-up strategy, tenant turnover rates, and market conditions. Units occupied by nonqualified student households (as determined under Low-Income Housing Tax Credit (LIHTC) guidelines) will not qualify as affordable units.
Other Issues?
Adjusting to Recent Changes from the CDFI Fund MODERATOR PANELISTS
Brad Elphick Novogradac & Company LLP
Dentons
Chris Perkowski Stinson Leonard Street
Donna Rodney Bryan Cave LLP
Scott Lindquist