The last few days, weeks, months, and perhaps years have all led to this point—New Markets Tax Credit (NMTC) closing day. All the documents are finalized, all the due diligence is complete, and now you wait for confirmation that the project has been funded. Anxiously, you go about your day waiting for some indication that all went well. By midafternoon you start to wonder if maybe you did something wrong. Is my email working? Is the phone disconnected? Was the account number correct? Do I still need to do something? Was another closing call scheduled at the last minute? Then, suddenly, an email:
“Congrats all, the wire room has confirmed that all steps of the flow of funds have been completed. Thank you for your efforts. This worthy project would not have been possible without the support from everyone involved.”
Well, great, so that’s it, it’s done … now what? Welcome to the NMTC compliance period phase.
For the next seven years, you—as the qualified active low-income community business (QALICB)—have the obligation to complete various NMTC compliance tasks that you may or may not have realized you are required to do. Though each transaction is different, the general themes of compliance are the same. Below we provide several broad categories of compliance items you should expect to have to complete and some tips and tricks for handling them over the next seven years. The requirements of each transaction vary, so, at a minimum, you should consult with the community development entity (CDE), NMTC investor, and loan servicer for guidance well before the first compliance item is due.
General Requirement | What Document? | How Often? | Helpful Tips |
|---|---|---|---|
Community Benefits Reporting | The Community Benefits Agreement (CBA) or sometimes the “Impact Report.” | Varies by CDE—at least annually but sometimes semi-annually or at least quarterly. | The information requested is usually the same as the CBA that was finalized as part of the transaction. Tracking those metrics from now on will make life easier when the information is due. |
QALICB Certification | In general, an exhibit in the “Loan Agreement.” | Varies by CDE—but at least annually. | The requested information is always the same—setting up a template form is an easy way to “automate this task.” |
Loan Interest Payments | Included in the “Loan Agreement” or qualified low-income community investment (QLICI) promissory notes. | Varies by transaction—at least annually but may be quarterly or monthly. | Check with the NMTC investor and lender to see if this process will be automated or if you need to initiate payments. A meeting with both parties will help establish the proper process going forward. |
Ongoing Fees | Included in the “Loan Agreement.” Typically noted as the “asset management” fee and “tax/audit” fees. | Each transaction will have fees that are paid annually. | In many cases, these fees are “baked into” the interest payments. Other times, they are reserved at closing. You should clarify to whom and how these payments will be made. |
Financial Statements | Included in the “Loan Agreement.” Both the QALICB and the project sponsor will need to provide audited and unaudited financial statements at proscribed intervals. | For audited financials, typically annually. For unaudited financials, typically after each quarter. | The QALICB financials may require some initial setup. Ensuring you give yourself enough time is key. The project sponsor financials are no different. |
Bank Accounts | Various documents may apply, but look for “Account Pledge and Control” documents. | So long as the transaction is in compliance, the QALICB will have at least one if not several bank accounts associated with the transaction. | Work with the NMTC investor and loan servicer to best understand how the accounts work together and who needs to initiate payments and transfers. |
Again, each NMTC transaction is different. There also may be temporary compliance or post-closing items to monitor. For example, many transactions involve in-process construction and, therefore, some sort of account that holds funds is necessary until they are incurred by the project itself. Prior to release, expenditures will need to be compiled, along with proofs of payment, and submitted to the appropriate reviewer for disbursement. In many cases, the Construction Monitoring and Disbursement Agreement will control.
To help navigate any questions with compliance, be sure to keep the Closing Group contact list at the ready along with the Closing Binder (the collection of all finalized documents). Together, these will provide guidance on how to successfully navigate compliance, or at least who to call.
For more information or help with your NMTC compliance requirements, please reach out to the NMTC team at FORVIS.