OMB No. 1545-1804 New Markets Credit

Form 8874

Department of the Treasury

Internal Revenue Service  Attach to your tax return.

Name(s) shown on return

Cat. No. 31663N Form 8874 (2002)

Allowable Credit (See Who must file Form 3800 to find out if you complete Part II or Form 3800)

4 Regular tax before credits:

4

5

Attachment

Sequence No. 127

5 Alternative minimum tax:

6

Identifying number

Part I Current Year Credit

Part II

2002

(e)

Credit

rate

(d)

Amount of qualified

equity investment

(c)

Date of initial

investment

(b)

Employer identification

number of CDE

(a)

Name and address of the qualified

community development entity (CDE)

1

(f)

Credit ((d)  (e))

Current year credit. Add the amounts on line 1, column (f), and line 2. Partnerships and

S corporations, see instructions

3

● Individuals. Enter the amount from Form 1040, line 42

● Corporations. Enter the amount from Form 1120, Schedule J, line 3;

Form 1120-A, Part I, line 1; or the applicable line of your return

● Estates and trusts. Enter the sum of the amounts from Form 1041,

Schedule G, lines 1a and 1b

● Individuals. Enter the amount from Form 6251, line 35

5%

5%

5%

3

● Corporations. Enter the amount from Form 4626, line 15

● Estates and trusts. Enter the amount from Form 1041, Schedule I, line 56

6 Add lines 4 and 5





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b

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d

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f

g

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Foreign tax credit

Credit for child and dependent care expenses (Form 2441, line 11)

Credit for the elderly or the disabled (Schedule R (Form 1040), line 24)

Education credits (Form 8863, line 18)

Credit for qualified retirement savings contributions (Form 8880, line 14)

Child tax credit (Form 1040, line 50)

Mortgage interest credit (Form 8396, line 11)

Adoption credit (Form 8839, line 18)

District of Columbia first-time homebuyer credit (Form 8859, line 11)

Possessions tax credit (Form 5735, line 17 or 27)

Credit for fuel from a nonconventional source

Qualified electric vehicle credit (Form 8834, line 20)

Add lines 7a through 7l

Net income tax. Subtract line 7m from line 6. If zero, skip lines 9 through 12 and enter -0- on line 13

Net regular tax. Subtract line 7m from line 4. If zero or less, enter -0-

Enter 25% (.25) of the excess, if any, of line 9 over $25,000 (see instructions)

Tentative minimum tax (see instructions):

● Individuals. Enter the amount from Form 6251, line 33

● Corporations. Enter the amount from Form 4626, line 13

● Estates and trusts. Enter the amount from Form 1041,

Schedule I, line 54

Enter the greater of line 10 or line 11

Subtract line 12 from line 8. If zero or less, enter -0-

Credit allowed for the current year. Enter the smaller of line 3 or line 13 here and on Form 1040,

line 53; Form 1120, Schedule J, line 6d; Form 1120-A, Part I, line 2a; Form 1041, Schedule G, line

2c; or the applicable line of your return. If line 3 is greater than line 13, see instructions

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7h

7i

7j

7k

7l

7m

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For Paperwork Reduction Act Notice, see instructions.

2 New markets credits from pass-through entities (if from more than one entity, see instructions):

If you are a—

a Shareholder

b Partner

Schedule K-1 (Form 1120S), line 13

Schedule K-1 (Form 1065), line 13

Then enter the total of the current year credits from—

EIN of pass-through entity

2
Form 8874 (2002) Page 2

General Instructions

Use Form 8874 to claim the new markets credit

for qualified equity investments made in qualified

community development entities (CDEs). This

credit is part of the general business credit.

How To Figure the Credit

A credit generally is allowed to the holder of the

qualified equity investment on each of 7 credit

allowance dates. The credit allowance dates are

the date the qualified equity investment is initially

made in a qualified CDE, and that date for each

of the next 6 years. The credit is equal to the

qualified equity investment multiplied by 5% (6%

for the 4th through 7th years). However, the

credit is not allowed for a credit allowance date

if the investment is not a qualified equity

investment on that date.

A qualified equity investment is generally stock

(other than nonqualified preferred stock) in a

corporation or a capital interest in a partnership:

● Substantially all of the cost of which is used

by the qualified CDE to make qualified

low-income community investments.

● Designated by the qualified CDE as a qualified

equity investment,

Credit allowed prior to your 2002 tax year. If

you have a credit allowance date that occurs

prior to your tax year beginning in 2002, do not

file Form 8874. Instead, include the credit on line

2 of Form 3800 for the prior tax year. Enter

“NMC” and the amount of the credit on the

dotted line to the left of the entry space for line

2. Attach a statement showing the information

requested on line 1 or line 2 of this form (as

applicable), and file it with your original or

amended tax return for the tax year.

Recapture of the Credit

You may have to increase your tax by a credit

recapture amount if at any time within 7 years

from the date of the original issuance of the

qualified equity investment:

● The entity ceases to be a qualified CDE,

● Substantially all of the proceeds of the

investment cease to be used to make qualified

low-income community investments, or

● The investment is redeemed by the entity.

See section 45D(g) for details, including how

to figure the credit recapture amount. Generally,

include the credit recapture amount on the line

for recapture taxes (e.g., the “other taxes” or

“total tax” line) on your income tax return for the

year in which the recapture event occurs 

(e.g., line 61 of the 2002 Form 1040 or line 10 of

the 2002 Form 1120, Schedule J).

Basis Reduction

You must reduce your basis in your qualified

equity investment by the amount of the new

markets credits allowed (even if part or all of the

credit is not allowed for the current year and is

carried forward). However, do not reduce your

basis for purposes of figuring the exclusion of

gain (a) for qualified small business stock under

section 1202, (b) for certain DC zone assets

under section 1400B, and (c) for certain qualified

community assets under section 1400F.

Additional Information

For more details, see section 45D, Temporary

Regulations section 1.45D-1T, or

www.cdfifund.gov.

Specific Instructions

Part I—Current Year Credit

Figure the credit for qualified equity investments

in a qualified CDE you own on line 1. Complete

line 2 (instead of line 1) for a credit that was

allocated to you by an S corporation or a

partnership from a qualified equity investment it

made in a qualified CDE, either directly or

through another pass-through entity.

Line 1

Enter the information requested for each

qualified equity investment held directly by you

on a credit allowance date in the current tax

year. If you need more space, attach a

statement showing all the information requested

for each qualified equity investment. On the last

row on line 1, write “See attached” in column (a)

and enter the total of the credit amounts from

the attached statement in column (f).

Line 2

If you have a new markets credit from more than

one pass-through entity, attach a statement

showing the employer identification number (EIN)

and credit amount for each pass-through entity,

write “See attached” in the entry space for the

EIN, and enter the total of the credit amounts on

line 2.

Line 3

S corporations and partnerships complete lines 1

and 2 and allocate the credit on line 3 to their

shareholders or partners on Schedule K-1.

Electing large partnerships must include this

credit in “general credits.”

Part II—Allowable Credit

The credit allowed for the current year may be

limited based on your tax liability. Use Part II to

figure the allowable credit unless you must file

Form 3800, General Business Credit.

Who must file Form 3800. You must file Form

3800 if you have:

● Another credit included in the general

business credit (other than a credit from Form

8844 or 8884) or

● A carryback or carryforward of any of those

credits.

See the instructions for Form 3800 to find out

which credits are included in the general

business credit.

Line 10

See section 38(c)(4) for special rules that apply

to married couples filing separate returns and

controlled corporate groups.

Line 11

Although you may not owe the alternative

minimum tax (AMT), you generally must still

compute the tentative minimum tax (TMT) to

figure your allowable credit. For a small

corporation exempt from the AMT under section

55(e), enter zero. Otherwise, complete and

attach the applicable AMT form or schedule and

enter the TMT on line 11.

Line 14

If you cannot use all of your credit because of

the tax liability limit (line 13 is smaller than line

3), carry the unused credit back 1 year and then

forward up to 20 years. See the instructions for

Form 3800 for details.

● Acquired solely for cash at its original issue (or

from a taxpayer for whom the investment was a

qualified equity investment), and

Note: The new markets credit may not be carried

back to a tax year ending before 2001.

Section references are to the Internal Revenue

Code unless otherwise noted.

Purpose of Form

Paperwork Reduction Act Notice. We ask for

the information on this form to carry out the

Internal Revenue laws of the United States. You

are required to give us the information. We need

it to ensure that you are complying with these

laws and to allow us to figure and collect the

right amount of tax.

You are not required to provide the

information requested on a form that is subject

to the Paperwork Reduction Act unless the form

displays a valid OMB control number. Books or

records relating to a form or its instruction must

be retained as long as their contents may

become material in the administration of any

Internal Revenue law. Generally, returns and

return information are confidential, as required

by section 6103.

The time needed to complete and file this

form will vary depending on individual

circumstances. The estimated average time is:

Recordkeeping 8 hr., 7 min.

Learning about the

law or the form 53 min.

Preparing and sending

the form to the IRS 1 hr., 4 min.

If you have comments concerning the

accuracy of these time estimates or suggestions

for making this form simpler, we would be happy

to hear from you. See the instructions of the tax

return with which this form is filed.

A qualified CDE is a domestic corporation or

partnership:

● The primary mission of which is serving, or

providing investment capital for, low-income

communities or persons;

Generally, a qualified CDE can designate an

equity investment as a qualified equity

investment only if it applied for and received a

new markets credit allocation from the CDFI

Fund by the date the equity investment was

made. However, an equity investment made after

April 19, 2001, and before January 1, 2003, may

be designated as a qualified equity investment if,

before 2003, the CDE was certified as a qualified

CDE and it received notification of the credit

allocation from the CDFI Fund. The maximum

amount of equity investments so designated by

the qualified CDE cannot exceed the amount of

the allocation it received from the CDFI Fund. To

the extent permitted by law, the names and

addresses of qualified CDEs that have received

an allocation for each allocation round and the

amount of that allocation will be listed on the

CDFI Fund web site at www.cdfifund.gov.

● That maintains accountability to residents of

low-income communities through their

representation on any governing board or

advisory board of the entity; and

● That has been certified as a qualified CDE by

the Community Development Financial

Institutions (CDFI) Fund of the Department of the

Treasury.

Qualified CDEs also include specialized small

business investment companies and community

development financial institutions. See section

45D(c)(2).

You are not subject to recapture of the credit

solely because you sell or otherwise dispose of

your investment. However, you cannot claim the

credit for any credit allowance date after the

disposition.