COMMUNITY 

DEVELOPMENT

Limited Information 

on the Use and 

Effectiveness of Tax 

Expenditures Could 

Be Mitigated through 

Congressional 

Attention

Report to Congressional Requesters

February 2012

GAO-12-262

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-262, a report to 

congressional requesters

February 2012

COMMUNITY DEVELOPMENT 

Limited Information on the Use and Effectiveness of 

Tax Expenditures Could Be Mitigated through 

Congressional Attention

Why GAO Did This Study

Tax expenditures—exclusions, credits, 

deductions, deferrals, and preferential 

tax rates—are one tool the government 

uses to promote community 

development. Multiple tax expenditures 

contribute to community development.

GAO (1) identified community 

development tax expenditures and 

potential overlap and interactions 

among them; (2) assessed the data 

and performance measures available 

and used to assess their performance; 

and (3) determined what previous 

studies have found about selected tax 

expenditures’ performance.

GAO identified community 

development activities using criteria 

based on various federal sources and 

compared them with authorized uses 

of tax expenditures. GAO reviewed 

agency documents and interviewed 

officials from the Internal Revenue 

Service (IRS) and five other agencies. 

GAO also reviewed empirical studies 

for selected tax expenditures, including 

the New Markets Tax Credit and 

Empowerment Zone program which 

expired in 2011.

What GAO Recommends

Congress may wish to provide OMB 

guidance on whether community 

development should be among OMB’s 

long-term crosscutting priority goals, 

stress the need for evaluations, and 

focus attention on addressing 

community development tax

expenditure performance issues 

through its oversight activities. Two 

agencies questioned the matters for 

congressional consideration or 

findings. GAO believes its analysis and 

matters remain valid as discussed in 

the report.

What GAO Found

GAO identified 23 community development tax expenditures available in fiscal 

year 2010. For example, five ($1.5 billion) targeted economically distressed 

areas, and nine ($8.7 billion) supported specific activities such as rehabilitating 

structures for business use. The design of each community development tax 

expenditure appears to overlap with that of at least one other tax expenditure in 

terms of the areas or activities funded. Federal tax laws and regulations permit 

use of multiple tax expenditures or tax expenditures with other federal spending 

programs, but often with limits. For instance, employers cannot claim more than 

one employment tax credit for the same wages paid to an individual. Besides 

IRS, administering many community development tax expenditures involves 

other federal agencies as well as state and local governments. For example, the 

National Park Service oversees preservation standards for the 20 percent historic 

rehabilitation tax credit. Fragmented administration and program overlap can 

result in administrative burden, such as applications to multiple federal agencies 

to fund the needs of a distressed area or finance a specific project. 

Limited data and measures are available to assess community development tax 

expenditures’ performance. IRS only collects information needed to administer 

the tax code or otherwise required by law, and IRS data often do not identify the 

specific communities assisted. Other federal agencies helping administer 

community development tax expenditures also collect limited information on 

projects and associated outcomes. GAO has long recommended that the 

Executive Branch improve its ability to assess tax expenditures, but little 

progress has been made in developing an evaluation framework. Generally, 

neither these agencies, nor the Department of the Treasury or the Office of 

Management and Budget (OMB) have assessed or plan to assess community 

development tax expenditures individually or as part of a crosscutting review. 

The Government Performance and Results Act Modernization Act of 2010 

(GPRAMA) calls for a more coordinated approach to focusing on results and 

improving performance. OMB is to select a limited number of long-term, 

outcome-oriented crosscutting priority goals and assess whether the relevant 

federal agencies and activities—including tax expenditures—are contributing to 

these goals. These assessments could help identify data needed to assess tax 

expenditures and generate evaluations of tax expenditures’ effect on community 

development. Through related GPRAMA consultations agencies are to have with 

Congress, Congress has a continuing opportunity to say whether it believes 

community development should be among the limited number of 

governmentwide goals. While community development was not on the interim 

priority list, Congress also can urge more evaluation and focus attention on 

community development performance issues through oversight activities. 

In part due to data and methodological limitations, previous studies have not 

produced definitive results about the effectiveness of the New Markets Tax 

Credit, Empowerment Zone tax incentives, historic rehabilitation tax credits, and 

tax aid for certain disaster areas. A key methodological challenge is 

demonstrating a causal relationship between community development efforts and 

economic growth in a specific community. As a result, policymakers have limited 

information about the tax expenditures reviewed, including those that expired

after 2011, and ways to increase effectiveness.

View GAO-12-262. For more information, 

contact Michael Brostek at (202) 512-9110 or 

brostekm@gao.gov.
Page i GAO-12-262 Community Development Tax Expenditures

Letter 1 

Background 5

Overlap Exists in the Design of Community Development Tax 

Expenditures 7

Limited Information and Measures Are Available to Assess the 

Performance of Community Development Tax Expenditures 26

Previous Studies Provide Limited Information on the Effectiveness 

of Select Tax Expenditures in Promoting Community 

Development 40

Conclusions 48

Matters for Congressional Consideration 49

Agency Comments and Our Evaluation 49

Appendix I Objectives, Scope, and Methodology 55

Identification of Community Development Tax Expenditures and 

Interactions 55

Tax Expenditure Information and Performance Measures 64

Previous Studies of Selected Tax Expenditures 65

Appendix II Universe of Community Development Tax Expenditures and Estimates of 

Revenue Losses and Outlays for Fiscal Year 2010 67

Appendix III Multiple Tax Expenditures Fund Community Development, Fiscal Year 

2010 71

Appendix IV Community Development Tax Expenditures by Description, and Targeted 

Geographies and Populations 73

Appendix V Community Development Tax Expenditures by Volume Caps, Other 

Allocation Limits, and Administration 82

Contents
Page ii GAO-12-262 Community Development Tax Expenditures

Appendix VI Tax Provisions and Special Rules Available for Disaster Relief and 

Recovery in Specific Presidentially Declared Disaster Areas 93

Appendix VII Potential Duplication, Overlap, and Fragmentation among Economic 

Development Spending Programs 113

Appendix VIII Comments from the Department of the Treasury 115

Appendix IX GAO Contact and Staff Acknowledgments 118

Bibliography 119

Related GAO Products 122

Tables

Table 1: Four Tax Expenditures Promoting Community 

Development in Distressed Areas Resemble Grants with an 

Entity Selecting Who Receives the Limited Allocation 

Available 12

Table 2: Tax Expenditures Supporting Community Development 

and Other Mission Areas—Statutory Limits and 

Involvement of Entities outside IRS 17

Table 3: Tax Law and Regulatory Limits on Combining Community 

Development Tax Expenditures and Federal Spending 

Programs 22

Table 4: Examples of IRS Data Collection and Potential Gaps and 

Limitations in Information for Specific Community 

Development Tax Expenditures 28

Table 5: Community Development Tax Expenditure Federal 

Information Collection 31
Page iii GAO-12-262 Community Development Tax Expenditures

Table 6: Limitations and Methodological Challenges in Evaluating 

Select Community Development Tax Expenditures 41

Table 7: Summary Definition of Community Development 56

Table 8: List of Tax Expenditures Reported by Treasury and JCT 

under the Community and Regional Development Budget 

Function for Fiscal Year 2010 57

Table 9: List of Tax Expenditures Reported by Treasury Outside 

the Community and Regional Development Budget 

Function That Support Community Development (Fiscal 

Year 2010) 59

Table 10: Overview of Community Development Tax Expenditures 

by Category 61

Table 11: Tax Expenditures Reported under the Community and 

Regional Development Budget Function but Excluded 

from Final Universe 62

Table 12: Economic Development Programs by Agency 113

Figure

Figure 1: Multiple Tax Expenditures Fund Community 

Development, Fiscal Year 2010 8
Page iv GAO-12-262 Community Development Tax Expenditures

Abbreviations

AMGI area median gross income

BAB Build America Bond

CDBG Community Development Block Grant

CDE community development entity

CDFI Fund Community Development Financial Institutions Fund

CFDA Catalog of Federal Domestic Assistance

CIIS Community Investment Impact System

CRA Community Revitalization Act

CRD Commercial Revitalization Deduction

CRS Congressional Research Service

EPA Environmental Protection Agency

EZ/RC Empowerment Zones/Renewal Communities

GO Zone Gulf Opportunity Zone

GPRAMA Government Performance and Results Act Modernization 

 Act of 2010

HFA housing finance agency

HUD Department of Housing and Urban Development

IRS Internal Revenue Service

JCT Joint Committee on Taxation

LIHTC Low-Income Housing Tax Credit

NMTC New Markets Tax Credit

NPS National Park Service

OMB Office of Management and Budget

PART Program Assessment Rating Tool

PERMS Performance Measurement System

QZAB Qualified Zone Academy Bond

RZEDB Recovery Zone Economic Development Bond

RZFB Recovery Zone Facility Bond

SBA Small Business Administration

SHPO state historic preservation office

TCAP Tax Credit Assistance Program

USDA U.S. Department of Agriculture

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Page 1 GAO-12-262 Community Development Tax Expenditures

United States Government Accountability Office

Washington, DC 20548

February 29, 2012

Congressional Requesters

Community development programs, if designed and administered 

efficiently and effectively, can contribute to citizens’ well-being at the least 

cost to taxpayers. Community development encompasses a wide range 

of activities, including certain economic development activities such as 

strategies for reducing unemployment as well as constructing roads and 

sewer systems to attract industry. Community development programs 

may also fund construction and rehabilitation of commercial structures. In 

addition to tens of billions of dollars annually in grants, loans, and loan 

guarantees, the federal government provides community development 

funding channeled through the tax code. As we reported in March 2011, 

tax expenditures—exclusions, credits, deductions, deferrals, and 

preferential tax rates—and the wide range of other policy tools used can 

contribute to mission fragmentation and program overlap.1

Federal agencies do not have a standard definition of what constitutes 

community or economic development. For our May 2011 report on 

potential overlap and fragmentation in economic development programs, 

we identified programs—largely in the form of grants, loan guarantees, or 

direct loans—using a list of nine activities most often associated with 

economic development.2

 

1 GAO, Opportunities to Reduce Potential Duplication in Government Programs, Save Tax 

Dollars, and Enhance Revenue, 

Our work involving 80 economic development 

programs at four agencies— the Departments of Commerce (Commerce), 

Housing and Urban Development (HUD), and Agriculture (USDA) and the 

Small Business Administration (SBA)—indicates that the design of each 

GAO-11-318SP (Washington, D.C.: Mar. 1, 2011). An 

interactive, web-based version of the report is available at 

http://www.gao.gov/ereport/gao-11-318SP. 

2 GAO, Efficiency and Effectiveness of Fragmented Economic Development Programs 

Are Unclear, GAO-11-477R (Washington, D.C.: May 19, 2011). Economic development 

activities include, but are not limited to, planning and developing strategies for job creation 

and retention, developing new markets for existing products, building infrastructure by 

constructing roads and sewer systems to attract industry to undeveloped areas, and 

establishing business incubators to provide facilities for new businesses’ operations. For a 

fuller description of economic development activities, see GAO, Rural Economic 

Development: More Assurance Is Needed That Grant Funding Information Is Accurately 

Reported, GAO-06-294 (Washington, D.C.: Feb. 24, 2006).
Page 2 GAO-12-262 Community Development Tax Expenditures

of these programs appeared to overlap with that of at least one other 

program in terms of the economic development activities that they are 

authorized to fund. Our May 2011 work did not include tax expenditures 

aimed at economic development.

Given your interest in community development and the effectiveness of 

federal tax expenditures, we (1) identified tax expenditures that promote 

community development and areas of potential overlap and interactions 

among them, (2) assessed data and performance measures available 

and used to assess performance for community development tax 

expenditures, and (3) determined what previous studies have found about 

the effectiveness of selected tax expenditures in promoting community 

development.

To identify community development tax expenditures, we developed a list 

of community development activities based on various federal sources 

and compared these activities to the authorized uses of tax expenditures. 

We identified community development activities from the federal budget 

definition of community and regional development, the Catalog of Federal 

Domestic Assistance’s descriptions of spending programs under the 

community and regional development budget function, and descriptions of 

allowable uses under the Community Development Block Grant program. 

Finally, we identified certain tax expenditures that banks can use to meet 

their community development investment tests under the Community 

Reinvestment Act (CRA).

3

 

3 The Community Reinvestment Act (CRA) requires regulators to evaluate periodically 

each insured depository institution’s record in helping meet the credit needs of its entire 

community. That record is taken into account in considering an institution’s application for 

deposit facilities, including mergers and acquisitions. Investing in certain community 

development projects that qualify for tax incentives can help banks earn positive 

consideration toward their CRA regulatory ratings.

We compiled the tax expenditures for fiscal 

year 2010 reported by the Department of the Treasury (Treasury) and the 

Joint Committee on Taxation (JCT) under the community and regional 

development budget function, and we included other tax expenditures 

listed by Treasury that appeared to be at least partially intended to 

support activities we had identified as community development activities. 

We discussed our preliminary universe and selection rationale with 

officials from Treasury, the Internal Revenue Service (IRS), and the Office 

of Management and Budget (OMB) and other federal agencies 

knowledgeable about these tax expenditures, and we refined the universe 
Page 3 GAO-12-262 Community Development Tax Expenditures

as needed.4 For fiscal year 2010, we identified 23 community 

development tax expenditures, including six legislative packages that 

supported disaster relief and recovery.5

To identify areas of potential overlap among the community development 

tax expenditures, we used the definitions from our March 2011 report on 

duplication in government programs:

Additionally, we used JCT and 

IRS documents to identify specific tax provisions available for certain 

disaster areas.

• Overlap occurs when multiple agencies or programs have similar 

goals, similar activities or strategies to achieve them, or similar target 

beneficiaries;

• Fragmentation refers to circumstances where multiple agencies or 

offices are involved in serving the same broad area of national need; 

and

• Duplication occurs when two or more agencies or programs are 

engaged in the same activities or provide the same services to the 

same beneficiaries. The presence of overlap and fragmentation can 

suggest the need to look closer at the potential for unnecessary 

duplication.6

We compiled publicly available information about each tax expenditure’s 

design and implementation, including descriptions, target geographies or 

beneficiaries, volume caps and other allocation limits, and roles of 

agencies involved in administration. We reviewed the Internal Revenue 

Code and IRS regulations to identify allowable interactions or limits on 

using community development tax expenditures together; where specified 

in tax law and regulations, we also identified limits on using tax 

 

4 These agencies included the Congressional Research Service (CRS); Community 

Development Financial Institutions Fund (CDFI Fund); Department of Housing and Urban 

Development (HUD); and National Park Service (NPS).

5 Appendix II lists the 23 tax expenditures. We counted, as one tax expenditure, an entry 

from the Treasury and JCT tax expenditures lists. Some tax expenditures include multiple 

provisions, and in those cases, we identified the specific provisions as well. Appendix IV 

details the multiple provisions available for Empowerment Zones and Renewal 

Communities, and appendix VI lists multiple provisions included in the six legislative 

packages supporting disaster relief and recovery.

6 GAO-11-318SP. 
Page 4 GAO-12-262 Community Development Tax Expenditures

expenditures with other federal spending programs.7

To determine what data and performance measures are available for 

community development tax expenditures, we identified the data 

elements and types of information that IRS and federal agencies collect. 

We also reviewed tax forms, instructions, and other guidance and 

interviewed IRS officials. For certain community development tax 

expenditures where other federal agencies help with administration, we 

also reviewed our prior work and interviewed and collected information 

from the Community Development Financial Institutions Fund (CDFI 

Fund) within Treasury; HUD; and National Park Service (NPS). We 

interviewed officials and reviewed documentation from OMB, Treasury, 

IRS, HUD, and NPS about efforts to assess performance for community 

development tax expenditures and any crosscutting reviews of related tax 

and spending programs.

Based on the 

information we collected and the clarifications that the agencies provided, 

we determined that the tax expenditure descriptive data were sufficiently 

reliable for identifying potential overlap, duplication, and fragmentation.

To determine what is known about effectiveness for selected tax 

expenditures, we selected the Empowerment Zone/Renewal Community 

(EZ/RC) tax programs, the New Markets Tax Credit (NMTC), and tax 

expenditures temporarily available for certain disaster areas. We selected 

these because they accounted for most of the 2010 revenue loss for tax 

expenditures that primarily promote community development. Some 

expired as of December 31, 2011.8

 

7 We did not search documentation from all federal agencies carrying out community and 

economic development programs, and regulations for related spending may also 

document interactions between those programs and the community development tax 

expenditures.

We also selected the rehabilitation tax 

credits because they can be used in combination with other community 

development tax expenditures. We reviewed studies with original data 

analysis or empirical or peer-reviewed research that attempted to 

measure impact, such as changes in poverty and unemployment. We 

also summarized our prior findings about the selected tax expenditures. 

8 The EZ tax incentives and NMTC expired after December 31, 2011; the RC tax 

incentives expired after December 31, 2009. On occasion, Congress has chosen to 

extend retroactively tax provisions that have expired. For example, a law that was signed 

in December of 2010, retroactively extended the EZ tax incentives which had expired on 

December 31, 2009, until December 31, 2011. Tax Relief, Unemployment Insurance 

Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111-312, § 753.
Page 5 GAO-12-262 Community Development Tax Expenditures

Findings from the studies and our prior reports are not generalizable to 

the universe of community development tax expenditures. Appendix I 

contains more details about our scope and methodology.

We conducted this performance audit from January 2011 through 

February 2012 in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives. 

Tax expenditures are preferential provisions in the tax code, such as 

exemptions and exclusions from taxation, deductions, credits, deferral of 

tax liability, and preferential tax rates that result in forgone revenue for the 

federal government. The revenue that the government forgoes is viewed 

by many analysts as spending channeled through the tax system. 

However, tax expenditures and their relative contributions toward 

achieving federal missions and goals are often less visible than spending 

programs, which are subject to more systematic review. Many tax 

expenditures—similar to mandatory spending programs—are governed 

by eligibility rules and formulas that provide benefits to all those who are 

eligible and wish to participate. Tax expenditures do not compete overtly 

with other priorities in the annual budget, and spending embedded in the 

tax code is effectively funded before discretionary spending is considered. 

Tax expenditures generally are not subject to congressional 

reauthorization and, therefore, lack the opportunity for regular review of 

their effectiveness.

We have long recommended greater scrutiny of tax expenditures.9

 

9 See GAO, Government Performance and Accountability: Tax Expenditures Represent a 

Substantial Federal Commitment and Need to Be Reexamined, 

Some 

tax expenditures may be ineffective at achieving their social or economic 

purposes, and information about their performance as well as periodic 

evaluations can help policymakers make more informed decisions about 

resource allocation and the most effective or least costly methods to 

deliver federal support. Performance measurement is the ongoing 

GAO-05-690

(Washington, D.C.: Sept. 23, 2005), and Tax Policy: Tax Expenditures Deserve More 

Scrutiny, GAO/GGD/AIMD-94-122 (Washington, D.C.: June 3, 1994).

Background 
Page 6 GAO-12-262 Community Development Tax Expenditures

monitoring and reporting that focuses on whether programs have 

achieved objectives in terms of the types and levels of activities or 

outcomes of those activities. Program evaluations typically examine a 

broader range of information on program performance and its context 

than is feasible to monitor on an ongoing basis. A “program” may be any 

activity, project, function, or policy that has an identifiable purpose or set 

of objectives, including tax expenditures. In the context of community 

development programs, impact evaluations can be a useful tool to assess 

the net effect of a program by comparing program outcomes with an 

estimate of what would have happened in the absence of the program. 

This form of evaluation is employed when external factors are known to 

influence the program’s outcomes, in order to isolate the program’s 

contribution to achievement of its objectives.10

The Government Performance and Results Act (GPRA) Modernization 

Act of 2010 (GPRAMA) establishes a new framework aimed at taking a 

more crosscutting and integrated approach to focusing on results and 

improving government performance.

Importantly, challenges in 

performance measurement and evaluation are not unique to tax 

expenditures as agencies have encountered difficulties in measuring the 

performance of spending programs as well.

11

 

10 GAO, Performance Measurement and Evaluation: Definitions and Relationships, 

It requires OMB, in coordination 

with agencies, to develop—every 4 years—long-term, outcome-oriented 

goals for a limited number of crosscutting policy areas. On an annual 

basis, OMB is to provide information on how these long-term crosscutting

goals will be achieved. Most of the enhanced planning and reporting 

requirements at both the governmentwide and agency levels are to be 

implemented in 2012 and beyond. GPRAMA also significantly enhances 

requirements for agencies to consult with Congress when establishing or 

adjusting governmentwide and agency goals. OMB and agencies are to 

consult with relevant committees, obtaining majority and minority views, 

about proposed goals at least once every 2 years. GPRAMA makes clear 

that tax expenditures are to be included in identifying the range of federal 

agencies and activities that contribute to crosscutting goals. Moving 

forward, effective GPRAMA implementation can help inform tough 

GAO-11-646SP (Washington, D.C.: May 2, 2011). 

11 Pub. L. No. 111-352, 124 Stat. 3866 (2011). GPRAMA amends the Government 

Performance and Results Act of 1993, Pub. L. No. 103-62, 107 Stat. 285 (1993).
Page 7 GAO-12-262 Community Development Tax Expenditures

choices in setting priorities as government policymakers address the 

rapidly building fiscal pressures facing our national government.

For fiscal year 2010, we identified 23 tax expenditures that fund 

community development activities.12 Appendix II lists each tax 

expenditure with information on its estimated cost, type, and taxpayer 

group, as well as enactment and expiration dates. Five tax expenditures 

primarily promote community development in economically distressed 

areas, including Indian reservations; these programs cost the federal 

government approximately $1.5 billion in fiscal year 2010.13 Nine tax 

expenditures both support community development and address other 

federal mission areas, such as rehabilitating historic or environmentally 

contaminated properties for business use as well as constructing a range 

of transportation facilities, such as airports and docks, and water and 

hazardous waste systems. These multipurpose tax expenditures cost the 

federal government approximately $8.7 billion in fiscal year 2010.14

 

12 See appendix I for details on our scope and methodology.

Two 

large state and local bond tax expenditures also may support community 

development, although community development activities account for only 

a portion of the total costs of those tax expenditures. Finally, the federal 

government has periodically offered temporary tax relief following certain 

disasters, including six packages of tax provisions focused on specific 

areas as well as one provision available for any presidentially declared 

disaster area. Figure 1 illustrates the mix of various tax expenditures that 

support community development.

13 This figure includes $1.46 billion in estimated revenue losses and $60 million in outlays.

14 This figure includes $8.68 billion in estimated revenue losses and $10 million in outlays.

Overlap Exists in the 

Design of Community 

Development Tax 

Expenditures 

Multiple Tax Expenditures 

Fund Community 

Development Activities
Page 8 GAO-12-262 Community Development Tax Expenditures

Interactive graphic Figure 1: Multiple Tax Expenditures Fund Community Development, Fiscal Year 2010

Directions:

Print instructions To print full text version of this graphic, go to appendix III

Mouse over buttons for additional breakdown information

Rehabilitation of older structures:

$410 million

Brownfields development: $80 million

Affordable housing: $6.7 billion

Tax expenditures primarily promoting community

development in distressed areas:

$1.5 billion

Tax expenditures supporting community development 

and other federal mission areas:

$8.7 billion

Tax relief for certain 

presidentially 

declared disaster 

areas

Bond tax expenditures that may 

support community developmenta

Infrastructure 

improvement:

$1.5 billion

aWhile these bond tax expenditures may support community development, community development

activities account for only a portion of the bond provisions’ costs.

Build 

America 

Bonds

Exclusion of interest on

public purpose state 

and local bonds

Source: GAO analysis of Treasury and Joint Committee on Taxation (JCT) information.

Other: $70 million

New Markets Tax Credit: $720 million

Empowerment Zones and Renewal Communities: $730 million
Page 9 GAO-12-262 Community Development Tax Expenditures

The federal government has five tax expenditures primarily to promote 

community development in economically distressed areas, such as lowincome communities and Indian reservations.15 As noted below, all but 

one of these programs have expired.16

• The Empowerment Zones and Renewal Communities (EZ/RC) 

programs ($730 million in revenue losses in fiscal year 2010) were 

established to reduce unemployment and generate growth in 

economically distressed communities that were designated through a 

competitive process.17 Initially, the EZ program offered a mix of grants 

and tax incentives for community and economic development, but 

later EZ rounds and the RC program offered primarily tax incentives 

for business development.18 While eligibility varied slightly by program 

and round, the 40 EZ- and 40 RC-designated communities were 

selected largely on the basis of poverty and unemployment rates, 

population, and other area statistics based on Decennial Census 

data.19 The RC tax provisions expired at the end of 2009, and the EZ 

tax provisions expired at the end of 2011.

• The New Markets Tax Credit (NMTC) ($720 million in revenue losses 

in fiscal year 2010) encourages investment in impoverished, lowincome communities that traditionally lack access to capital. Whereas 

the EZ/RC programs target designated communities, the NMTC 

targets Census tracts where the poverty rate is at least 20 percent or 

where median family incomes do not exceed 80 percent of such 

incomes within a state or a metropolitan area. In January 2010, we 

reported that 39 percent of the Census tracts qualified for the NMTC 

 

15 Appendix IV contains descriptions of each tax expenditure as well as information about 

the geographies and populations targeted.

16 We included expired tax expenditures listed by Treasury or JCT which had estimated 

revenue losses or outlays in fiscal year 2010. See appendix II for specific expiration dates.

17 GAO, Revitalization Programs: Empowerment Zones, Enterprise Communities, and 

Renewal Communities, GAO-10-464R (Washington, D.C.: Mar. 12, 2010).

18 Appendix IV lists seven EZ and six RC tax incentives available in designated 

communities.

19 The 40 EZs include 30 urban and 10 rural communities, and the 40 RCs include 28 

urban and 12 rural communities. In most cases, the EZ/RC designation requirements were 

based on 1990 Census data. The RC designations expired at the end of 2009, and the EZ 

designations expired at the end of 2011.

Five Community Development 

Tax Expenditures Target 

Economically Distressed Areas 
Page 10 GAO-12-262 Community Development Tax Expenditures

program and 36 percent of the U.S. population lived in these Census 

tracts.20 The NMTC expired at the end of 2011.

• Two tax expenditures—Tribal Economic Development Bonds and 

Indian employment credit—target Indian tribal reservations.21 Indian 

tribes are among the most economically distressed groups in the 

United States, and tribal reservations often lack basic infrastructure 

commonly found in other American communities, such as water and 

sewer systems as well as telecommunications lines.22 Created under 

the American Recovery and Reinvestment Act of 2009 (the Recovery 

Act), the temporary bond authority ($10 million in revenue losses in 

fiscal year 2010) provided tribal governments with greater flexibility to 

use tax-exempt bonds to finance economic development projects.23

The $2 billion bond authority was to be allocated by February 2010, 

but Treasury and IRS have extended deadlines to reallocate unused 

bond authority.24 The Indian employment credit expired at the end of 

2011.25

• The Recovery Act also created temporary Recovery Zone bonds—

including Recovery Zone Economic Development Bonds and

 

20 See GAO, New Markets Tax Credit: The Credit Helps Fund a Variety of Projects in 

Low-Income Communities, but Could Be Simplified, GAO-10-334 (Washington, D.C.: 

Jan. 29, 2010).

21 The Indian reservation depreciation provision also permitted taxpayers to accelerate 

their depreciation for certain property used by businesses on Indian reservations. This 

provision expired at the end of 2011. While the Indian reservation depreciation provision 

supported community development, we did not include the provision in the universe 

because it is not listed in either the Treasury or JCT tax expenditure lists we reviewed. For 

more information on the provision, see GAO, Tax Expenditures: Available Data Are 

Insufficient to Determine the Use and Impact of Indian Reservation Depreciation, 

GAO-08-731 (Washington, D.C.: June 26, 2008).

22 See GAO, Telecommunications: Challenges to Assessing and Improving 

Telecommunications For Native Americans on Tribal Lands, GAO-06-189 (Washington, 

D.C.: Jan. 11, 2006).

23 We previously reported on restrictions on Indian tribal governments’ use of tax-exempt 

bonds; see GAO, Federal Tax Policy: Information on Selected Capital Facilities Related to 

the Essential Governmental Function Test, GAO-06-1082 (Washington, D.C.: Sept. 13, 

2006).

24 According to Treasury, tribal bonds issued as of November 2011 represented less than 

3 percent of the available authority.

25 JCT estimated fiscal year 2010 revenue losses were less than $50 million.
Page 11 GAO-12-262 Community Development Tax Expenditures

Recovery Zone Facility Bonds allocated among the states and 

counties and large municipalities within the states based on 

unemployment losses in 2008. These bond authorities ($60 million in 

outlays in fiscal year 2010) expired at the end of 2010.

Four of the five community development tax expenditures targeted to 

economically distressed areas have a statutory limit, such as a specified 

number of community designations, volume cap, or allocation amount, as 

shown in table 1. Although the allocation processes varied, these tax 

expenditures resemble grants in that an agency—either a federal agency 

or a state or local government—selects the qualifying communities, 

community development entities (CDE), or projects to receive the limited 

allocation available.26

• For the EZ/RC program, communities nominated by their state and 

local governments had to submit a strategic plan showing how they 

would meet key EZ program principles or a written “course of action” 

with commitments to carry out specific legislatively mandated RC 

activities. In selecting the designated communities, HUD and USDA 

were required to rank EZ nominees based on the effectiveness of 

their plans, but HUD was required to designate RCs based in part on 

poverty, unemployment, and, in urban areas, income statistics.27 For 

designated EZs and RCs, state and local governments were 

responsible for allocating certain tax provisions with specified limits, 

including the RC Commercial Revitalization Deduction and EZ Facility 

bonds.

• For the NMTC program, the annual tax credit allocation limit was $3.5 

billion for fiscal years 2010 and 2011. The CDFI Fund awards tax 

credit allocations to winning CDE applicants based on application 

scoring by peer review panels. The CDEs, in turn, invest in qualified 

low-income community investments. As of November 1, 2011, the 

CDFI Fund had allocated $29.5 billion in NMTC authority available 

from 2001 to 2010 and announced $3.6 billion in 2011 tax credit 

allocations on February 23, 2012.

 

26 See appendix V for details on volume caps and other allocation limits, and federal and 

non-federal entities involved in the administration of the tax expenditures.

27 For more on the selection process, see GAO, Community Development: Federal 

Revitalization Programs Are Being Implemented, but Data on the Use of Tax Benefits Are 

Limited, GAO-04-306 (Washington, D.C.: Mar. 5, 2004).
Page 12 GAO-12-262 Community Development Tax Expenditures

• For the Recovery Zone bond programs, the national volume cap was 

$10 billion for Recovery Zone Economic Development Bonds and $15 

billion for Recovery Zone Facility Bonds. State and local governments 

were responsible for allocating bond issuance authority to specific 

projects. Tribal Economic Development Bonds had a national volume 

cap of $2 billion. Tribal governments applied for allocations to issue 

bonds for specific projects. 

Table 1: Four Tax Expenditures Promoting Community Development in Distressed Areas Resemble Grants with an Entity 

Selecting Who Receives the Limited Allocation Available

Tax expenditure

Volume caps or 

other allocation 

limits?

Involvement of 

federal entities 

outside IRS?

Involvement of

nonfederal entities?

Empowerment Zones and Renewal Communities (EZ/RC) Yesa Yes Yes

New Markets Tax Credit (NMTC) Yes Yes Yes

Recovery Zone bonds Yes b Yes Yes

Tribal Economic Development Bonds Yes Yes Yes

Indian employment credit No No No

Source: GAO analysis.

Note: See appendix V for more information on volume caps or other allocation limits for each tax 

expenditure, as well as involvement of federal and nonfederal entities in administering such tax 

expenditures.

a

EZ/RC program had limits on the numbers of community designations. Certain EZ/RC tax incentives 

also had volume caps or allocation limits: the Commercial Revitalization Deduction (RC), Facility 

Bond (EZ), and Qualified Zone Academy Bond (EZ/RC).

b

Includes Recovery Zone Economic Development Bonds and Recovery Zone Facility Bonds.

Other tax expenditures available in economically distressed communities 

are comparable to entitlement programs for which spending is determined 

by statutory rules for eligibility, benefit formulas, and other parameters 

rather than by Congress appropriating specific dollar amounts each 

year.28

 

28 Entitlement statutes provide the authority to make payments to any person or 

government if, under the provisions of the law containing that authority, the United States 

is obligated to make such payments to persons or governments who meet the 

requirements established by that law.

Such tax expenditures typically make funds (through reduced 

taxes) available to all qualified claimants, regardless of how many 

taxpayers claim the tax expenditures, how much they claim collectively, or 

how much federal revenue is reduced by these claims. For example, 

businesses may claim Indian employment tax credits for employing Indian 

tribal members and their spouses without limit on the numbers or total 
Page 13 GAO-12-262 Community Development Tax Expenditures

amounts of claims. Similarly, businesses located in EZs and RCs may 

claim the EZ/RC Employment Credit and the Work Opportunity Tax Credit 

for employing eligible residents within an EZ or RC area without an 

aggregate limit on such tax credits.29

The tax expenditures that promote community development as well as 

other federal mission areas—such as producing affordable housing or 

redeveloping brownfields30—all fund certain types of properties and 

infrastructure, as illustrated above in figure 1. Seven of these tax 

expenditures have no expiration date and thus are not subject to regular 

reauthorization.31

• Four tax expenditures contribute to community development by 

revitalizing certain properties for business use. Two tax incentives are 

available for rehabilitating older structures—a tax credit applied to 20 

percent of eligible costs for rehabilitating certified historic structures 

and a tax credit applied to 10 percent of eligible costs for rehabilitating 

other structures built before 1936.32

 

29 Businesses may claim up to $3,000 or $1,500 of employment credits for each employee 

living and working for the employer in an EZ or RC area, respectively. Also, businesses 

may claim a Work Opportunity Tax Credit of up to $2,400 for each new employee age 18 

to 39 living in an EZ or RC area, or up to $1,200 for a youth summer hire. These two tax 

credits cannot be claimed together for the same employee. The aggregate value of these 

credits taken by taxpayers is not limited.

Two brownfields tax expenditures 

were intended to reduce costs to clean up environmentally damaged 

property. The exclusion of gain or loss on the sale or exchange of 

certain brownfield sites reduces the cost of remediating and reselling 

brownfields by tax-exempt organizations. The expensing of 

environmental remediation costs subsidizes environmental cleanup 

costs and may help revitalize areas depressed due to environmental 

contamination. The exclusion of gain or loss on the sale or exchange 

of certain brownfield sites applies only to properties acquired by the 

30 The term "brownfield site" means real property, the expansion, redevelopment, or reuse 

of which may be complicated by the presence or potential presence of a hazardous 

substance, pollutant, or contaminant.

31 See appendix II for estimated costs, types, and taxpayer groups for individual tax 

provisions, as well as enactment and expiration dates.

32 Both tax credits cannot be claimed for a single rehabilitation project. Eligible 

expenditures include costs incurred for rehabilitation and reconstruction of certain older 

buildings. Rehabilitation includes renovation, restoration, and reconstruction and does not 

include expansion or new construction.

Some Tax Expenditures 

Support Community 

Development and Other 

Federal Mission Areas 
Page 14 GAO-12-262 Community Development Tax Expenditures

end of 2009, and the expensing of environmental remediation costs 

expired at the end of 2011.33

• Two tax expenditures fund production of affordable rental housing for 

low-income households—the Low-Income Housing Tax Credit 

(LIHTC) and tax-exempt rental housing bonds. Under the LIHTC, a 9

percent tax credit is available for new construction or substantial 

rehabilitation projects not otherwise subsidized by the federal 

government, and a 4 percent tax credit is available for the projects 

receiving other federal subsidies including rental bond financing.34

Affordable housing projects must satisfy one of two income-targeting 

requirements: 40 percent or more of the units must be occupied by 

households whose incomes are 60 percent or less of the area median 

gross income, or 20 percent or more of the units are occupied by 

households whose incomes are 50 percent or less of the area median 

gross income. For fiscal year 2010, two grant programs also helped 

provide gap financing for LIHTC housing development following 

disruption of the tax credit market in 2008.35

Federally tax-exempt and tax credit bonds issued by state and local 

governments also contribute to community development and other federal 

mission areas by financing infrastructure improvements and other 

 

33 We included the expired exclusion provision because it was listed by Treasury with 

estimated revenue losses in fiscal year 2010.

34 LIHTCs are claimed annually over a 10-year period and subject to a 15-year 

compliance period to avoid tax credit recapture.

35 The Recovery Act established two temporary funding programs that provided capital 

investments to LIHTC projects: (1) the Tax Credit Assistance Program (TCAP) 

administered by HUD and (2) the Grants to States for Low-Income Housing Projects in 

Lieu of Low-Income Housing Credits Program under Section 1602 of the Recovery Act 

(Section 1602 Program) administered by Treasury. TCAP provided gap financing to be 

used by state housing finance agencies (HFA) in the form of grants or loans for capital 

investment in LIHTC projects that were awarded tax credits in fiscal year 2007, 2008, or 

2009; project owners were to spend all TCAP funds by February 2012. Designed to be 

used in lieu of tax credits, the Section 1602 Program allowed state HFAs to exchange a 

portion of their 2009 ceiling (up to 100 percent of unused 2008 LIHTC and 40 percent of 

their 2009 allocation) for grant funds from Treasury at the rate of 85 cents for every tax 

credit dollar, and then award proceeds to finance the construction or acquisition and 

rehabilitation of qualified low-income buildings.
Page 15 GAO-12-262 Community Development Tax Expenditures

projects.36 For example, state and local governments may issue private 

activity bonds to finance airports, docks, and other transportation 

infrastructure; large business projects tied to the employment of residents 

in Empowerment Zones; and water or wastewater facilities that enable 

communities to meet community facilities needs and support 

development.37 Qualified Zone Academy Bonds (QZAB)—the authority for 

which expired at the end of 2011—may be used for renovating school 

facilities, purchasing equipment, developing course materials, or training 

personnel at qualified public schools in economically distressed areas 

including designated EZs or RCs.38 Whereas private activity bonds are 

used to support specific private activities and facilities often intended to 

generate economic development, state and local governments may also 

issue tax-exempt public-purpose state and local bonds and Build America 

Bonds (BAB) to help finance public infrastructure and facilities.39 In 2008, 

we reported that a majority of state and local bonds issued in 2006 were 

allocated for education or general purposes; for the latter category, it was 

not clear what activities or facilities were funded by the bonds.40

 

36 In the case of tax-exempt bonds, investors are allowed to exclude interest earned on 

the bonds from their federal taxable income during each year that they receive interest 

payments. The tax exemption lowers the bond issuer’s borrowing costs and may provide 

equivalent or higher after-tax yields to investors than alternative investments that are not 

tax-exempt. For tax credit bonds, investors receive a tax credit or direct reduction in tax 

liability, equal to a percentage of the bond’s face value for a certain number of years. 

Issuers may also have the option to receive a direct payment from the U.S. Treasury of 

equal value to the tax credit.

Given 

that community development activities comprise only a portion of 

governmental bonds, we did not sum the revenue losses for the two 

37 Private activity bonds can be either taxable or tax-exempt. For example, interest paid 

on bonds can qualify as tax-exempt if the bonds are used by 501(c)(3) nonprofit 

organizations or by governmental authorities specifically established to support qualified 

private activities, such as airports, docks, wharves, and other facilities often intended to 

generate economic development.

38 Schools are also eligible for QZABs if 35 percent or more of students are eligible for 

free or reduced-price school meals. No allocation of QZAB tax credits is permitted after 

2011, though claimants are allowed to carry forward the provisions for 2 years.

39 BABs were enacted under the American Recovery and Reinvestment Act of 2009, and 

the authority to issue BABs expired at the end of 2010. We included this tax expenditure 

listed by Treasury and JCT because it had estimated outlays in fiscal year 2010.

40 See GAO, Tax Policy: Tax-Exempt Status of Certain Bonds Merits Reconsideration, 

and Apparent Noncompliance with Issuance Cost Limitations Should Be Addressed, 

GAO-08-364 (Washington, D.C.: Feb. 15, 2008). 
Page 16 GAO-12-262 Community Development Tax Expenditures

general bond provisions to avoid overstating federal support for 

community development.

As shown in table 2, all of the multipurpose community development tax 

expenditures involve other entities in addition to IRS in administering the 

tax benefits.41 Five multipurpose tax expenditures resemble grants in that 

state and local governments oversee the allocation process to select 

qualifying projects to receive the limited allocation available. For the 

LIHTC for example, state housing finance agencies (HFA) award 9

percent credits to developers for low-income housing projects based on 

each state’s qualified allocation plan, which generally establishes a 

state’s funding priorities and selection criteria. Although the federal 

government does not set specific limits for general-purpose state and 

local bonds and BABs, private activity bond financing—including for rental 

housing and water systems—is generally subject to an annual volume 

cap for each state, and QZABs and bond financing for certain 

transportation facilities also have statutory allocation limits.42

 

41 See appendix V for a list of volume caps and other allocation limits, and federal and 

nonfederal entities involved in the administration of the tax expenditure provisions.

42 For 2010, the private activity bond volume cap for each state was equal to the greater 

of $90 per capita or about $273.8 million.
Page 17 GAO-12-262 Community Development Tax Expenditures

Table 2: Tax Expenditures Supporting Community Development and Other Mission Areas—Statutory Limits and Involvement 

of Entities outside IRS

Tax expenditure

Volume caps 

or other 

allocation 

limits?

Involvement of 

federal entities 

outside IRS?

Involvement of 

nonfederal 

entities? 

Low-Income Housing Tax Credit (LIHTC) Yes No Yes a

20 percent credit for rehabilitation of historic structures No Yes Yes

10 percent credit for rehabilitation of structures (other than historic) No Yes Yes

Exclusion of gain or loss on sale or exchange of certain brownfield sites No Yes Yes b

Expensing of environmental remediation costs No Yes Yes b

Exclusion of interest on rental housing bonds Yes No c Yes

Exclusion of interest for airport, dock, and similar bonds Yes No d Yes

Exclusion of interest on bonds for water, sewage, and hazardous waste 

facilities

Yes No c Yes

Credit for holders of qualified zone academy bonds (QZAB) Yes Yes Yes

Exclusion of interest on public purpose State and local bonds No No Yes

Build America Bonds No No Yes

Source: GAO analysis.

Notes: See appendix V for more information on volume caps or other allocation limits for each tax 

expenditure, as well as involvement of federal and nonfederal entities in administering such tax 

expenditures.

a

While no federal entity besides IRS is responsible for administering the LIHTC, HUD maintains a 

LIHTC database with information on the number of units and low-income units, number of bedrooms, 

year the credit was allocated, year the project was placed in service, whether the project was new 

construction or rehabilitation, type of credit provided, and other sources of project financing.

b

EPA maintains a National Priority List of properties; such listed properties are ineligible for the tax 

incentive.

c

Subject to private activity bond annual volume cap for each state.

d

Limits varied for specific facilities. Bonds for the construction of mass commuting facilities, and 25 

percent of bond issues for privately owned intercity rail facilities, are included in the private activity 

bond annual state volume cap (government-owned facilities are exempted). Bonds for airports, docks 

and wharves are not subject to the private-activity bond volume cap or other restrictions.

The rehabilitation and brownfields tax expenditures resemble entitlement 

programs in that these tax incentives have no allocation limits and are 

available to all eligible claimants. In addition to IRS’s role in administering 

tax law, other federal and state agencies play a role in certifying that the 

properties are eligible for tax benefits. For the 20 percent rehabilitation tax 

credit for certified historic structures, the NPS, with the assistance of 

State Historic Preservation Offices, certifies historic structures, approves 

rehabilitation applications, and confirms that completed rehabilitation 

projects meet the Secretary of Interior’s Standards of Rehabilitation. For 
Page 18 GAO-12-262 Community Development Tax Expenditures

the brownfields tax expenditures, state environmental agencies certify 

eligible properties.

The federal government has offered various mixes of temporary tax 

incentives and special rules to stimulate business recovery and provide 

relief to individuals after certain major disasters.43 See appendix VI for a 

detailed list of 45 tax benefits made available for specific disaster areas.44

Business recovery is a key element of a community’s recovery after a 

major disaster. To assist New York in recovering from the September 11, 

2001, terrorist attacks, Congress passed a 2002 package with seven tax 

benefits targeted to the Liberty Zone in lower Manhattan.45 In the 

aftermath of the 2005 Gulf Coast hurricanes, Congress enacted the Gulf 

Opportunity Zone Act of 2005 (GO Zone Act) offering 33 tax benefits in 

part to promote business recovery and provide debt relief for states.46 A 

2007 Kansas disaster relief package provided 13 tax benefits for 24 

counties in Kansas affected by storms and tornadoes that began on May 

4, 2007.47 A 2008 midwest disaster relief package targeted 26 tax 

benefits for selected counties in 10 states affected by tornadoes, severe 

storms, and flooding from May 20 through July 31, 2008.48

 

43 Some tax expenditures are regularly available for losses attributable to disasters. 

Whereas net operating losses are typically carried back 2 years or carried forward 20 

years, small businesses and farming businesses may carry back casualty losses 

attributable to presidentially declared disasters for 3 years. Additionally, taxpayers 

generally may claim itemized deductions for casualty or theft losses exceeding $100 per 

event and 10 percent of adjusted gross income.

Also in 2008, 

Congress enacted a package offering eight tax benefits available to any 

44 Appendix II has revenue loss estimates for the disaster tax expenditures for fiscal year 

2010. Revenue loss estimates are based on data about tax benefits claimed. Appendix VI 

has revenue estimates for each disaster package as projected at time of enactment. 

Revenue estimates were based on projections of taxpayer use of tax benefits available, 

and actual use of some provisions may have been lower than anticipated at time of 

enactment.

45 Job Creation and Worker Assistance Act of 2002 (Pub. L. No. 107-147, 116 Stat. 21).

46 Pub. L. No. 109-135, 119 Stat. 2577 (Dec. 21, 2005). The Katrina Emergency Tax 

Relief Act of 2005 (Pub. L. No. 109-73, 119 Stat. 126), enacted in August 2005, initially 

provided 19 tax incentives for the Hurricane Katrina disaster area.

47 Food, Conservation, and Energy Act of 2008 (Pub. L. No. 110-246, 122 Stat. 1651).

48 Tax Extenders and the Alternative Minimum Tax Relief Act of 2008 (Div. C of Pub. L. 

No. 110-343, 122 Stat. 3861). 

Temporary Tax Relief Provided 

for Certain Disaster Areas 
Page 19 GAO-12-262 Community Development Tax Expenditures

individual or business located in any presidentially declared disaster area 

during calendar years 2008 and 2009.

The preponderance of the disaster tax incentives offered in the six 

legislative packages we examined were modifications of existing tax 

expenditures, including increased allocations for the NMTC, LIHTC, 

rehabilitation tax credits, and tax-exempt bond financing.49 Several tax 

packages have offered accelerated first-year depreciation allowing 

businesses to more quickly deduct costs of qualified property, as well as 

partial expensing for qualified disaster cleanup and environmental 

remediation costs. Other tax incentives available for individuals in disaster 

areas included increased tax credits for higher education expenses and 

relief from the additional 10 percent tax on early withdrawals of retirement 

funds. An eligible disaster area may encompass communities that were 

economically distressed before the disaster as well as other communities, 

and taxpayers in the qualified area may be eligible for some tax 

incentives even if they did not necessarily sustain losses in the disaster. 

For those disaster tax incentives available to individuals and businesses 

as long as they meet specified federal requirements, the full cost to the 

federal government depends on how many taxpayers claim the provisions 

on their tax returns.

For community development, tax expenditures are not necessarily an 

either/or alternative, and they may be combined to support certain 

community development activities. The design of each community 

development tax expenditure we reviewed appears to overlap with that of 

at least one other tax expenditure, as the following examples illustrate.

• Five tax expenditures targeted similar geography—economically 

distressed areas including tribal areas—although the specific areas 

served varied. Within the EZ- and RC-designated communities, a 

variety of tax incentives were available to help reduce unemployment 

and stimulate business activity. 

 

49 We did not sum disaster revenue loss estimates to avoid double-counting amounts 

already included in estimates for specific tax expenditures. 

Community Development 

Tax Expenditures Overlap 

in Design with Some 

Limits on Combining 

Multiple Tax and Spending 

Programs
Page 20 GAO-12-262 Community Development Tax Expenditures

• Seven bond tax expenditures share a common goal to finance 

infrastructure development.50 The various bond authorities are not 

necessarily duplicative in that they allow flexibility in tax-exempt bond 

financing for similar projects with different ownership characteristics. 

For example, water and sewer facilities can be financed through 

public-purpose governmental bonds if a governmental entity is the 

owner and operator or through private activity bonds if the owner and 

operator is a private business.

• Multiple tax expenditures—including the NMTC, several EZ/RC 

incentives, as well as the rehabilitation and brownfields tax 

expenditures—can be used to fund commercial buildings.51 Within this 

broad area of overlap, the tax expenditures are not necessarily 

duplicative in that some target certain types of buildings. The various 

tax expenditures that can be used to fund commercial buildings have 

geographic or other targets that sometimes coincide and sometimes 

do not. Therefore, for example, the 20 percent rehabilitation tax credit 

targets certified historic structures and the 10 percent rehabilitation 

credit is available for other older structures, but these eligible 

structures may or may not fall within the low-income communities 

eligible for NMTC assistance. 

• Various tax benefits made available for certain disaster areas were 

largely modifications of existing tax expenditures.

The community development tax expenditures we reviewed also may 

potentially overlap with federal spending programs. As discussed above, 

our May 2011 report identified overlap among 80 economic development 

spending programs administered by four agencies—Commerce, HUD, 

SBA, and USDA.52

 

50 Recovery Zone bonds and Tribal Economic Development Bonds target economically 

distressed areas.

Appendix VII discusses areas of overlap among the

economic development spending programs that are similar to the areas of 

community development tax expenditure overlap discussed above. 

51 EZ/RC provisions intended to finance costs for commercial buildings include the RC 

Commercial Revitalization Deduction and EZ Facility Bonds.

52 See GAO-11-477R. For our findings to date on overlap and fragmentation among the 

53 economic development programs that support entrepreneurial efforts, see GAO, 2012 

Annual Report: Opportunities to Reduce Duplication, Overlap, and Fragmentation; 

Achieve Savings; and Enhance Revenue, GAO-12-342SP (Washington, D.C.: Feb. 28, 

2012).
Page 21 GAO-12-262 Community Development Tax Expenditures

Disaster tax aid may also potentially overlap with federal financial 

assistance offered through disaster assistance grants and loans.

Areas of overlap with multiple tax expenditures funding the same 

community development project may not represent unnecessary 

duplication, in part, because some tax expenditures are designed to be 

used in combination. As an example, the 4 percent LIHTC is designed to 

be used in combination with rental housing bonds. In another example, 

the 20 percent historic preservation tax credit may be used in combination 

with other community development tax expenditures, including the NMTC 

and LIHTC. Under the Housing and Economic Recovery Act of 2008, 

state HFAs are allowed to consider historic preservation as a selection 

factor in their qualified allocation plans to promote redeveloping historic 

structures as affordable housing.

As shown in table 3, federal tax laws and regulations impose limits on 

how community development tax expenditures can be combined with 

each other and spending programs to fund the same individual or project. 

For example, employers cannot double dip by claiming two employment 

tax credits for the same wages paid to an individual. Whereas business 

investors may claim accelerated depreciation for LIHTC and NMTC 

projects, businesses generally may not claim accelerated depreciation for 

private facilities financed with tax-preferred bonds.53

 

53 The Internal Revenue Code requires taxpayers to use the Alternative Depreciation 

System, which is straight-line depreciation with a longer recovery period, for property 

financed by tax-exempt bonds as defined under 103(a). Qualified residential rental 

projects which contain a certain proportion of lower-income tenants (under 142(a)(7)) are 

excluded from the definition of tax-exempt bond-financed property.

For the rehabilitation 

tax credits and brownfield tax incentives, taxpayers may not claim costs 

funded by federal or state grants. Also, rehabilitation costs claimed for the 

20 percent credit cannot be counted towards the adjusted basis of a 

property for the purposes of calculating the amount of other federal tax 

credits claimed for the same project; as a result, the effective tax savings 

on using the 20 percent credit with other federal tax credits are less than 

the sum of tax savings provided by each of the credits and deductions if 

they could be used together without this restriction. The information on 

tax law and regulatory limits listed in table 3 is not exhaustive; additional 

limits may apply in other federal laws and regulations.
Page 22 GAO-12-262 Community Development Tax Expenditures

Table 3: Tax Law and Regulatory Limits on Combining Community Development Tax Expenditures and Federal Spending 

Programs

Tax expenditure 

Limits on combining with other community 

development federal tax provisions

Limits on combining with federal spending 

programs

Tax Expenditures primarily promoting community development

Empowerment Zones and Renewal 

Communities (EZ/RC)

Employers may not claim the same wages for 

both the EZ/RC employment credit and the 

EZ/RC Work Opportunity Tax Credit for an 

individual employee.

The EZ provisions, under the Internal 

Revenue Code, allow IRS to issue regulations 

to limit EZ tax incentives in circumstances in 

which such incentives, in combination with 

benefits provided under other federal 

programs, would result in an activity being 

100 percent or more subsidized by the federal 

government.

a

New Markets Tax Credit (NMTC)

b

NMTCs cannot be used with LIHTCs for the 

same project. 

None identified in federal tax laws and 

regulations.

Recovery Zone bonds Facilities financed with the bonds are not 

eligible for accelerated depreciation.

None identified in federal tax laws and 

regulations.

Tribal Economic Development Bonds Facilities financed with the bonds are not 

eligible for accelerated depreciation.

None identified in federal tax laws and 

regulations.

Indian employment credit Employers of qualified American Indians 

cannot count any wages paid during the 1-

year period beginning with the day an 

individual begins work with the employer if any 

portion of those wages were taken into 

account for the Work Opportunity Tax Credit. 

None identified in federal tax laws and 

regulations.
Page 23 GAO-12-262 Community Development Tax Expenditures

Tax expenditure 

Limits on combining with other community 

development federal tax provisions

Limits on combining with federal spending 

programs

Tax expenditures supporting community development and other federal mission areas

Low-Income Housing Tax Credit 

(LIHTC)

The 9 percent credit not available for a lowincome housing project receiving other federal 

housing subsidies. The 4 percent credit is 

available for projects financed with rental 

housing bonds.

LIHTCs may not be claimed with NMTCs for 

the same project.

A low-income housing project’s eligible basis 

does not include any costs financed with 

federally-funded grants. In turn, this reduces 

the amount of LIHTCs to which an owner 

would otherwise be entitled to claim.

Project funding with Community Development 

Block Grant (CDBG) loans may still be eligible 

for 9 percent LIHTCs, without a reduction in 

basis. Additionally, projects receiving HUD 

HOME loans with below-market interest rates 

may claim the 9 percent LIHTC.

The Recovery Act established two temporary 

funding programs that provided capital 

investments to LIHTC projects. The Tax 

Credit Assistance Program (TCAP), 

administered by HUD, provided gap financing 

to be used by HFAs in the form of grants or 

loans for capital investment in LIHTC projects

that were awarded tax credits in fiscal year 

2007, 2008, or 2009. The Grants to States for 

Low-Income Housing Projects in Lieu of LowIncome Housing Credits Program under 

Section 1602 of the Recovery Act (Section 

1602 Program), administered by Treasury, 

allowed state HFAs to exchange a portion of 

their 2009 ceiling (up to 100 percent of 

unused 2008 LIHTCs and 40 percent of their 

2009 allocation) for grant funds from Treasury 

at the rate of 85 cents for every tax credit 

dollar, and then award proceeds to finance 

the construction or acquisition and 

rehabilitation of qualified low-income 

buildings. HFAs are responsible for returning 

funds to HUD or Treasury if a project is not 

placed in service or fails to comply with 

LIHTC requirements.

20 percent credit for preservation of 

historic structures

Costs claimed using the tax credit reduce the 

adjusted basis of projects used for calculating 

other federal tax benefits, such as the LIHTC.

Taxpayers may only claim the tax credit 

based on costs incurred by the taxpayer and 

not from funding provided from other sources, 

including federal or state grant programs such 

as federal CDBG grants or state preservation 

grants. 

10 percent credit for rehabilitation of 

structures (other than historic)

Costs claimed using the tax credit reduce the 

adjusted basis of projects used for calculating 

other federal tax benefits, such as the LIHTC. 

Taxpayers may only claim the tax credit 

based on costs incurred by the taxpayer and 

not from funding provided from other sources, 

including federal or state grant programs such 

as CDBG grants or state preservation grants. 
Page 24 GAO-12-262 Community Development Tax Expenditures

Tax expenditure 

Limits on combining with other community 

development federal tax provisions

Limits on combining with federal spending 

programs

Exclusion of gain or loss on sale or 

exchange of certain brownfield sites

Not applicable. 501(c) organizations may not count funding 

from federal, state, or local governments 

toward the minimum qualified expenditures 

needed to qualify for the tax exclusion. 

Expensing of environmental 

remediation costs

Not applicable. Taxpayers may only claim the tax credit 

based on costs incurred by the taxpayer and 

not from funding provided from other sources, 

such as state forgivable loan and brownfield 

remediation grant programs. 

Exclusion of interest on rental housing 

bonds 

Rental housing bonds may not be combined 

with the 9 percent LIHTC for a low-income 

housing project.

None identified in federal tax laws and 

regulations.

Exclusion of interest for airport, dock, 

and similar bonds

Facilities financed with the bonds are not 

eligible for accelerated depreciation. 

None identified in federal tax laws and 

regulations.

Exclusion of interest on bonds for 

water, sewage, and hazardous waste 

facilities

Facilities financed with the bonds are not 

eligible for accelerated depreciation.

None identified in federal tax laws and 

regulations.

Credit for holders of qualified zone 

academy bonds (QZAB)

Facilities financed with the bonds are not 

eligible for accelerated depreciation.

None identified in federal tax laws and 

regulations.

Exclusion of interest on public 

purpose state and local bonds

Facilities financed with the bonds are not 

eligible for accelerated depreciation.

None identified in federal tax laws and 

regulations.

Build America Bonds (BAB) Facilities financed with the bonds are not 

eligible for accelerated depreciation.

None identified in federal tax laws and 

regulations.

Source: GAO analysis of Internal Revenue Code, IRS regulation, and documentation from HUD, IRS and NPS.

Notes: We identified limitations in combining tax expenditures with related federal tax provisions or 

spending programs based on information located in the Internal Revenue Code and IRS regulations, 

and documentation on specific tax provisions and spending programs from federal agencies, 

including HUD, IRS, and NPS. Additional limitations may apply in other federal laws and regulations. 

There may also be limits on combining community development tax expenditures with state tax 

incentives or spending programs.

a

For example, an employer may hire an employee who qualifies for both the Work Opportunity Tax 

Credit and EZ employment credit and pay that employee $20,000 of wages during the year. The 

employer could apply the Work Opportunity Tax Credit to the first $6,000 of qualifying wages at a 40 

percent rate and then the EZ employment credit for the remaining $14,000 of qualifying wages at a 20 

percent rate. 

b

Internal Revenue Code 1397F applies to tax-exempt bonds, EZs, and enterprise communities, and 

additional incentives for EZs. The regulations governing EZs implement these limitations. 26 CFR 

1.1394-1, 26 CFR 1.1396-1.

An area of potential overlap also exists among the tax expenditures 

subsidizing community development activities and CRA regulatory 

requirements for depository institutions in helping to meet the credit 
Page 25 GAO-12-262 Community Development Tax Expenditures

needs of the communities in which they operate.54 Banks earn positive 

consideration toward their CRA regulatory ratings by investing in projects 

also receiving certain tax benefits.55 In 2007, we reported that investors 

used NMTC and LIHTC to meet their CRA requirements.56 At that time, 

over 40 percent of NMTC investors reported that they used the tax credit 

to remain compliant with CRA. NMTC investors using the tax credit to 

meet CRA requirements also viewed it as very or somewhat important in

their decision to make the investment. Nearly half of NMTC investors we 

surveyed in 2007 reported that they made other investments eligible for 

LIHTC, and nearly three-quarters of those investors using both tax credits 

were also required to comply with the CRA.57

Federal community development financing is fragmented with multiple 

federal agencies administering related spending programs as well as with 

multiple federal, state, and local agencies helping administer certain tax 

expenditures.58 As we have previously reported, mission fragmentation 

and program overlap may sometimes be necessary when the resources 

and expertise of more than one agency are required to address a 

complex public need.59

 

54 We have other work ongoing to examine fragmentation and potential overlap among 

federal tax, spending, and regulatory programs supporting affordable housing and 

homeownership.

For example, IRS, NPS, and state historic 

preservation offices are involved in administering the 20 percent historic 

preservation tax credit for rehabilitating historic structures. NPS oversees 

compliance with technical standards for historic preservation, and IRS 

oversees financial aspects of the tax credit. NPS and IRS have partnered 

55 CRA requires regulators to periodically evaluate each insured depository institution’s 

record in helping meet the credit needs of its entire community. That record is taken into 

account in considering an institution’s application for deposit facilities, including mergers 

and acquisitions.

56 GAO, Tax Policy: New Markets Tax Credit Appears to Increase Investment by Investors 

in Low-Income Communities, but Opportunities Exist to Better Monitor Compliance, 

GAO-07-296 (Washington, D.C.: Jan. 31, 2007).

57 Investors may claim both tax credits, but the NMTC and LIHTC may not be used for the 

same project.

58 As discussed above, fragmentation refers to circumstances where multiple agencies or 

offices are involved in serving the same broad area of national need.

59 GAO, Economic Development: Multiple Federal Programs Fund Similar Economic 

Development Activities, GAO/RCED/GGD-00-220 (Washington, D.C.: Sept. 29, 2000).
Page 26 GAO-12-262 Community Development Tax Expenditures

with IRS providing guidance including frequently asked questions about 

the tax credit on the NPS website. At the same time, fragmentation can 

sometimes result in administrative burdens, duplication of efforts, and 

inefficient use of resources. Applicants may need to apply for tax 

expenditures and spending programs at multiple agencies to address the 

needs of a distressed area or finance a specific project. For example, 

owners and developers seeking to restore an historic structure for use as 

affordable rental housing would need to apply separately to NPS for the 

20 percent historic rehabilitation credit as well as to the state HFA for a 

LIHTC allocation.

Achieving results for the nation increasingly requires that federal agencies 

work together to identify ways to deliver results more efficiently and in a 

way that is consistent with limited budgetary resources. Agencies and 

programs working collaboratively can often achieve more public value 

than when they work in isolation. To address the potential for overlap and 

fragmentation among federal programs, we have previously identified 

collaborative practices agencies should consider implementing in order to 

maximize the performance and results of federal programs that share 

common outcomes.60

We have previously reported that data availability has been a challenge in 

assessing tax expenditure performance.

These practices include defining common 

outcomes; agreeing on roles and responsibilities for collaborative efforts; 

establishing compatible policies and procedures; and developing 

mechanisms to monitor, assess, and report on performance results.

61

 

60 GAO, Results-Oriented Government: Practices That Can Help Enhance and Sustain 

Collaboration among Federal Agencies, 

For community development 

tax expenditures where administration is fragmented across multiple 

agencies, coordination is essential to identify the data needed to measure 

and assess use of the tax benefits and associated outcomes as well as 

cost-effective means of collecting, analyzing, and reporting such data. To 

GAO-06-15 (Washington, D.C.: Oct. 21, 2005).

61 GAO-11-318SP. 

Limited Information 

and Measures Are 

Available to Assess 

the Performance of 

Community 

Development Tax 

Expenditures 
Page 27 GAO-12-262 Community Development Tax Expenditures

the extent possible, data sharing is a way to reduce collection costs and 

paperwork burdens imposed on the public.62

In general, IRS only collects information necessary for tax administration 

or for other purposes required by law. As a result, IRS does not collect 

basic information about the numbers of taxpayers using some community 

development tax expenditures.63 We have consistently reported that IRS 

does not have data on the use of various expensing and special 

depreciation incentives available to encourage investment in EZ/RC 

communities, tribal reservations, and disaster areas. For tax credits, IRS 

has data on the numbers of taxpayers and aggregate amounts claimed, 

but data often do not tie use of the tax credits to specific communities. 

Location information is critical to identifying the community where an 

incentive is used and determining the effect of the tax benefit on local 

economic development. For bonds, IRS collects data on the amount of 

bonds issued and broad purpose categories for governmental bonds and 

allowable uses for qualified private activity bonds. As we reported in 

2008, while the information collected is useful for presenting summary 

information, it provides only a broad picture of the facilities and activities 

for which the bonds are used.64 Though the information collected may be 

sufficient for IRS to administer the tax code, it provides little information 

for use in measuring performance. As a result, information often has not 

been available to help Congress determine the effectiveness of some tax 

expenditures or even identify the numbers of taxpayers using some 

provisions. Table 4 summarizes the types of information, including 

limitations and potential gaps, IRS collects for different types of 

community development tax expenditures.

 

62 Federal tax information—tax returns and return information—are kept confidential under 

Section 6103 of the Internal Revenue Code except as specifically authorized by Congress. 

Section 6103 specifies what federal tax information can be disclosed, to whom, and for 

what purposes.

63 In part because of the Paperwork Reduction Act, IRS generally avoids collecting 

information not directly needed for tax administration because both taxpayers and IRS 

incur costs and other burdens associated with any information-reporting requirements.

64 GAO-08-364. 

IRS Does Not Collect Basic 

Information for Some 

Community Development 

Tax Expenditures and Has 

Some Information for Tax 

Credits and Bonds
Page 28 GAO-12-262 Community Development Tax Expenditures

Table 4: Examples of IRS Data Collection and Potential Gaps and Limitations in Information for Specific Community 

Development Tax Expenditures

Tax expenditure Types of information IRS collects and examples of data limitations

NMTC

LIHTC

EZ/RC employment tax credits

IRS generally collects information on the number of claimants and total amounts claimed for tax 

credits. Additional information about specific locations and projects vary, however.

• For the NMTC, IRS collects information from taxpayers claiming the credit about the name 

and address of the CDE allocated the credit authority and date each investment was made 

for use in tracking the 7-year tax credit claim period. This information does not identify the 

locations and types of projects in which the CDE invests.

• For the LIHTC, IRS Form 8609 Part I is used by state housing finance agencies to notify IRS 

of a tax credit award. The form identifies the project street address, whether the project is 

new construction or an existing building, whether the project has tax-exempt bond financing, 

as well as whether the building is in a difficult to develop area.a

• For EZ employment tax credits, IRS collects some information on EZ businesses’ use of tax 

credits for employing EZ residents. However, the data cannot be separated to show how 

much was claimed for specific EZ communities. In 2010, IRS noted that a change to IRS 

Form 8844 would require legislative direction or a formal request from an agency to obtain 

certain information from the form. 

Form 8609 Part II is used by 

the owner to identify when the 10-year credit period begins and the taxpayer’s elected 

minimum set-aside for low-income housing units in the project. The filing is a one-time 

submission separate from the owner’s tax return. IRS does not collect information on unit size 

and numbers of bedrooms that is not necessary for tax enforcement purposes.

Deductions for depreciation and 

brownfields

IRS uses Form 4562 to collect information about depreciation, and taxpayers can combine 

multiple depreciation schedules and group properties in reporting their total depreciation 

deduction. As a result, data are not sufficient to identify which taxpayers are using a specific 

depreciation incentive, the amount invested, or location of the investment.

• Available data are insufficient to identify users of special depreciation rules targeted for 

Indian reservations. In 2008, we suggested that Congress consider enacting additional 

requirements for taxpayers to report whether they are claiming the special tribal depreciation 

and the reservation where the property is placed in service; no action had been taken as of 

December 2011.

• As we reported previously, IRS does not have data on use of the EZ/RC increased Section 

179 deduction or the RC Commercial Revitalization Deduction, because taxpayers do not 

report these benefits separately from non EZ/RC depreciation items on their returns.

b

The Brownfields Tax Incentive allows a taxpayer to fully deduct the costs of eligible environmental 

cleanup costs at qualified properties in the year incurred, rather than capitalizing as longer-term 

assets. Large and midsize corporations and partnerships separately report this deduction on 

Schedule M-3.

c

d However, smaller businesses claim this deduction as “other expenses” or “other 

deductions” on tax returns. IRS does not collect data to identify the numbers or location of 

cleanup sites.
Page 29 GAO-12-262 Community Development Tax Expenditures

Tax expenditure Types of information IRS collects and examples of data limitations

Liberty Zone and Gulf Opportunity 

Zone disaster tax aid

IRS collects limited information on the use of temporary disaster relief tax expenditures. IRS 

typically uses existing forms to administer disaster relief modifications and expansions to existing 

tax expenditures and taxpayers do not report disaster-related benefits as separate items on their 

returns. 

• We previously reported that for the Liberty Zone tax benefits for response and recovery to 

New York after the September 11, 2001, terrorist attacks, IRS did not collect or report 

information about the use of six of the seven tax benefits or the revenue loss associated with 

those benefits.e

• For the rehabilitation tax credits, IRS collects information necessary for administering higher 

tax credit rates available in specific disaster areas. In lieu of the standard 20 percent credit 

rate, taxpayers may claim a 26 percent credit for rehabilitating certified historic structures 

located in the Gulf Opportunity and Midwest disaster zones. IRS Form 3468 has separate 

lines for the standard credit as well as the two zone credits. 

For example, taxpayers added the amount of depreciation they were allowed 

under the Liberty Zone disaster allowance benefit to other depreciation expenses and 

reported their total depreciation expenses on their returns. Special depreciation and 

expensing provisions were also offered in five other disaster tax packages.

Tax-exempt bond provisions Bond issuers file IRS Form 8038-G for governmental bonds and Form 8038 for tax-exempt private 

activity bonds. These information returns provide limited information on the specific uses of 

funded projects.

• Form 8038-G has eight broad categories, including education, health and hospital, 

transportation, public safety, environment, housing, utilities, and other. Governmental bonds 

and private activity bonds are often used to fund a wide range of projects, and IRS data do 

not identify specific bond-financed projects. For example, IRS publishes statistical information 

about the amount of governmental bonds funding transportation, but IRS does not have 

information on specific improvements and communities affected.

• Form 8038 captures the numbers and amount of bonds issued by state and local 

governments for specific tax-exempt private activity bond provisions. However, it can be 

difficult to tie the bond use to specific communities. For EZ facilities bonds, if a city or state 

government entity with more than one EZ/EC located in its jurisdiction issues these bonds, 

IRS data cannot identify which EZ or EC benefited from the bond issue.

Source: GAO analysis.

a

Difficult to develop areas, where construction, land, and utility costs are high relative to the area’s 

median income, are eligible for an additional credit amount.

b

GAO-08-731. 

c

GAO-10-464R and GAO, Empowerment Zone and Enterprise Community Program: Improvements 

Occurred in Communities, but the Effect of the Program is Unclear, GAO-06-727 (Washington, D.C.: 

Sept. 22, 2006). 

d

Corporations and partnerships with consolidated assets of $10 million or more that are required to 

file IRS Form 1120 corporate income tax return or IRS Form 1065 partnership income tax return, 

must also file Schedule M-3. Schedule M-3 requires companies to reconcile financial accounting net 

income (or loss) with taxable net income and expense and deduction items.

e

GAO, Tax Administration: Information is Not Available to Determine Whether $5 Billion in Liberty 

Zone Tax Benefits Will be Realized, GAO-03-1102 (Washington, D.C.: Sept. 30, 2003).

IRS generally does not collect information on the frequency of use or 

types of businesses claiming tax benefits unless legislatively mandated to 

do so. Collecting additional data to identify users and specific properties 

would require changes in IRS forms and information processing 

procedures. To some extent, the increasing number of taxpayers filing 
Page 30 GAO-12-262 Community Development Tax Expenditures

electronically could make it easier for IRS to collect additional data 

without expensive transcription costs. As we previously reported, in 

considering additional data requirements, Congress would need to weigh 

the need for more information with IRS’s other priorities because such 

requirements likely would increase, to some degree, the administrative 

costs for IRS and the compliance burden on taxpayers.65 If policymakers 

conclude that additional data would facilitate examining a particular tax 

expenditure, decisions would be required on what data are needed, who 

should provide the data, who should collect the data, how to collect the 

data, what it would cost to collect the data, and whether the benefits of 

collecting additional data warrant the cost of doing so.

Federal agencies helping administer specific community development tax 

expenditures also collect some information on the uses and outcomes of 

the projects, although data limitations hamper efforts to measure 

performance. As we have previously reported, HUD was unable to 

validate performance information on the use of some EZ/RC incentives, 

and HUD tracks only a portion of the EZ employment credits. The CDFI 

Fund is taking steps to collect additional information on individual NMTC 

projects. For the 20 percent historic preservation tax credit, NPS surveys 

property owners but does not verify the reliability of the data received for 

performance measurement purposes. Table 5 provides an overview of 

the types of information that HUD, CDFI Fund, and NPS collect for the tax 

expenditures they help administer.

 

65 GAO-08-731. 

Other Federal Agencies 

Collect Some Project Data 

for Certain Community 

Development Tax 

Expenditures, but 

Fragmented 

Administration of 

Overlapping Tax 

Expenditures Complicates 

Efforts to Measure 

Performance
Page 31 GAO-12-262 Community Development Tax Expenditures

Table 5: Community Development Tax Expenditure Federal Information Collection

Agency/tax program Data collected/performance measures

HUD

EZ/RC

HUD uses its Performance Measurement System (PERMS) to evaluate progress and determine 

continued eligibility for each designee. Annual performance reports provide both narrative and 

quantitative data on activities underway in EZ communities. As we previously reported, HUD collected 

data on the use of EZ Facilities Bonds and the RC Community Revitalization Deduction from local 

administrators allocating those tax benefits to specific projects and businesses. HUD was unable to 

systematically validate the PERMS data they received from users of the spending and tax benefits.

HUD reports that the one programwide performance measure is the annual dollar amount of EZ and 

RC employment credits claimed by sole proprietors. This measure does not capture other business 

organizational forms, such as partnerships and corporations. Corporate tax filer data are difficult to 

connect to specific EZs or RCs because corporations may hire EZ/RC employees in locations other 

than their corporate tax filing address. Thus, HUD is tracking only a portion of credits used, and it is 

not an outcome oriented performance measure that attempts to measure any benefits resulting from 

use of the credit in a given area.

CDFI Fund

NMTC

CDFI Fund uses its Community Investment Impact System (CIIS) to collect outcome data from CDEs 

on NMTC projects, including the number of jobs by type, projected real estate square footage, 

numbers of rental and for sale housing units, and the capacity of educational, childcare, and 

healthcare facilities developed using NMTC financing. CDEs used different methodologies to estimate 

the number of jobs, and these techniques vary in their reliability. Although self-reported jobs data to 

the CDFI Fund represents a solid step in tracking the use and accountability of federal resources, the 

CDE data may not reliably identify the number of jobs associated with NMTC financing. As we 

previously reported, self-reported performance information that is not reported accurately could 

provide data that are less reliable for decision making.

Although the CDFI Fund collects project-level data on the self-reported estimates of outcomes, the 

data collection method they used did not always allow them to clearly identify the estimated outcomes 

for each individual project. According to the CDFI Fund, this problem occurred due to software 

problems with CIIS and the agency worked with a contractor to fix these problems. In cases where 

multiple CDEs contribute NMTC funds to the same project, the CDEs often all report outcome data on 

the project in CIIS. Our 2010 analysis indicated that this occurred for about 18 percent of the projects 

in the CIIS database. In such cases, CDEs could report duplicate and inconsistent data for a single 

project which can result in the overcounting or undercounting of estimated project outcomes. 

According to CDFI Fund officials, the current iteration of CIIS allows CDEs to report multiple 

investments, and work is under way to eliminate the ability of private vendors to change project 

numbers and to enforce reporting options for multiple CDEs contributing NMTC funds to the same 

project. In addition, CDFI Fund officials said that they held a series of focus groups with NMTC CDEs 

to identify how to ensure coordination and consistency among CDEs in their reporting.

As we recommended in 2010, CDFI Fund is collecting additional information on the amount of residual 

value to be left in qualified active low-income community businesses at the end of the 7-year credit 

period. Collecting this information may make it more feasible to identify with better precision the net 

benefits flowing to such businesses in relation to the cost of the program to the government program 

in forgone tax revenue.
Page 32 GAO-12-262 Community Development Tax Expenditures

Agency/tax program Data collected/performance measures

NPS

20 percent historic 

preservation tax credit

NPS collects information on the amount of private investment leveraged, the number of low and 

moderate income housing units created, and the number of jobs created per project. NPS also collects 

some information on the use of additional incentives and funding assistance that rehabilitation tax 

credit projects receive. NPS administers a mail survey to property owners certified to receive the 20

percent credit to collect the information. NPS does not verify the data and noted a response rate of 16-

19 percent for its recent mail surveys.

a

NPS also collects information on the projects through the application and certification process. Before 

obtaining approval of proposed rehabilitation projects, applicants estimate the level of private-sector 

investment for the project. Upon NPS certifying the completion of rehabilitation projects, project users 

report the amount actually claimed as qualifying costs associated with the rehabilitation.

Source: GAO analysis.

a

NPS does not collect data for the 10 percent rehabilitation tax credit for nonhistoric structures, and its 

role is limited to decertifying that 10 percent rehabilitation credit projects are not historically 

significant.

IRS and federal agencies helping administer tax expenditures have some 

efforts underway to coordinate and share data. For example, CDFI Fund 

shares data with IRS for tax compliance purposes. IRS selected a sample 

of NMTC investors using CDFI Fund data to assess whether investors 

were claiming the proper amount of tax credits on their returns. NPS 

forwards approvals of completed certified rehabilitation projects to IRS for 

tax enforcement. HUD has collaborated with IRS to attempt to measure 

the use of the EZ/RC employment credits within ZIP codes around EZ/RC 

areas, but data reliability questions prevented its use for performance 

measurement. In response to our 2004 recommendation, IRS and HUD’s 

Office of Community Renewal established a partnership for IRS to share 

aggregate information on the use of the EZ/RC employment tax credits.66

 

66 In 2004, we recommended that HUD, USDA, and IRS collaborate to (1) identify the data 

needed to assess the use of the EZ/RC tax benefits and the various means of collecting 

such data; (2) determine the cost-effectiveness of collecting these data; (3) document the 

findings of their analysis; and, if necessary, (4) seek the authority to collect the data, if a 

cost-effective means was available. See

HUD used IRS data to estimate the number of jobs generated or 

supported by EZ/RC employment credits, but the aggregate data could 

not be tied to specific areas. IRS also expressed concerns about the 

assumptions used in the job estimation exercise as well as the underlying 

assumed cause-and-effect relationship between the credits and jobs. 

Although progress in identifying data on the use of EZ/RC tax benefits 

has been limited, the HUD and IRS efforts represent a step in the right 

direction for agency collaboration in measuring performance of a 

community development tax expenditure.

GAO-04-306. 
Page 33 GAO-12-262 Community Development Tax Expenditures

While this report focuses on federal agencies helping administer 

community development tax expenditures, state and local entities may 

also retain information that could be useful for measuring uses of certain 

tax expenditures. For example, state HFAs collect data on LIHTC 

projects, such as the numbers of units placed in service and other 

sources of funding obtained by the projects.67 In addition to filing 

information returns reporting bond issuance amounts and general uses as 

required by law, state and local governments issuing bonds have 

information about the projects and activities financed with tax-exempt and 

tax credit bonds. For our prior work on the GO Zone, we obtained 

information from state and local officials to determine how much of the tax 

incentives were used and for what purpose.68

Limitations in federal agency efforts to collect reliable data for measuring 

performance for community development programs are not unique to tax 

expenditures. For the EZ program, we previously reported that HUD and 

other agencies had not collected data on the amount of program grant 

funds spent to implement specific activities.69 In our work to date on the 

potential for duplication among 80 economic development spending 

programs, we found that the agencies appeared to collect only limited 

information on program outcomes.70

The overlapping nature of community development tax expenditures with 

administration fragmented across multiple agencies complicates 

collecting data and measuring performance. A single community 

development project can use multiple tax expenditures—within limits 

This information is needed to 

determine whether the potential for overlap and fragmentation is resulting 

in ineffective or inefficient programs.

 

67 HUD also maintains a LIHTC database with information on the number of units and lowincome units, number of bedrooms, year the credit was allocated, year the project was 

placed in service, whether the project was new construction or rehab, type of credit 

provided, and other sources of project financing.

68 GAO, Gulf Opportunity Zone: States Are Allocating Federal Tax Incentives to Finance 

Low-Income Housing and a Wide Range of Private Facilities, GAO-08-913 (Washington, 

D.C.: July 16, 2008).

69 GAO, Empowerment Zone and Enterprise Community Program: Improvements 

Occurred in Communities, but the Effect of the Program is Unclear, GAO-06-727

(Washington, D.C.: Sept. 22, 2006).

70 GAO, Economic Development: Efficiency and Effectiveness of Fragmented Programs 

Are Unclear, GAO-11-872T (Washington, D.C.: July 27, 2011).
Page 34 GAO-12-262 Community Development Tax Expenditures

specified in tax law and regulation—which in turn may be administered by 

different agencies, each collecting data for its own program. For example, 

a mixed-use commercial real estate project that rehabilitates an historic 

structure could be supported by the NMTC and the 20 percent

rehabilitation tax credit. Both the CDFI Fund and NPS would collect jobs 

data on the project, but it is not clear that each agency would attempt to 

measure its unique contribution to the project’s employment outcome. 

Although there are difficulties in accurately prorating the results of 

community development projects with multiple funding streams, CDFI 

Fund is taking steps to improve its collection of outcome information on a 

project level to provide an analytical basis to isolate NMTC contributions 

to project outcomes. CDFI Fund officials noted that further data collection 

on other project funding sources would add to the reporting burden and 

require OMB review under the Paperwork Reduction Act. NPS collects 

jobs data reported by projects receiving the 20 percent rehabilitation tax 

credit, but NPS does not attempt to isolate the extent to which the 

projects benefit from other federal programs. Duplicate or inconsistent 

data for a single project can result in the overcounting or undercounting of 

estimated project outcomes.

Given that community development tax expenditures are designed to be 

used in combination with one another and also may be used in 

combination with other federal spending programs as discussed above, 

basic financial information about the multiple federal sources and 

amounts—from both tax and spending programs—received by a 

community development project could be useful in identifying areas for 

agencies to coordinate in measuring performance for overlapping 

programs. As we reported in 2008, while HUD and Treasury reported 

leverage measures that described the ratio of all other funds (federal, 

state, local, and private funds) compared to a specific program’s funds, 

alternative measures describing total federal investment provided 

considerably different results and could be of potential value to 

policymakers.71

 

71 GAO, HUD and Treasury Programs: More Information on Leverage Measures’ 

Accuracy and Linkage to Program Goals is Needed in Assessing Performance, 

At the time, there was no agency-specific or 

governmentwide guidance on what agencies should disclose about the 

GAO-08-136 (Washington, D.C.: Jan. 18, 2008). The report examined HUD’s Community 

Development Block Grant (CDBG), HOME Investment Partnerships (HOME), and HOPE 

VI programs and Treasury’s Community Development Financial Institutions (CDFI) Fund 

Financial Assistance, Low-Income Housing Tax Credit, and New Markets Tax Credit 

programs. 
Page 35 GAO-12-262 Community Development Tax Expenditures

leverage measures they report or how they calculate them for specific 

programs.72 To provide more accurate, relevant, and useful information to 

Congress and others, our 2008 report recommended that OMB provide 

guidance to help agencies determine how to calculate, describe, and use 

leverage measures in a manner consistent with their programs’ design, 

and reevaluate the use of such measures and disclose their relevance to 

program goals and in future performance reviews of federal housing and 

community and economic development programs.73 Although OMB has 

used leveraging as a program output measure in the past, as of February 

2012, OMB has not taken action to issue guidance for agencies 

calculating leverage measures. Better measures of the total federal 

support and mix of federal funding would be helpful in better 

understanding how tax expenditures contribute to community 

development project outcomes and identifying areas of overlap for further 

coordination.

Periodic reviews could help determine how well specific tax expenditures 

work to achieve their goals and how their benefits and costs compare to 

those of programs, including spending programs, with similar goals. 

Comparing related programs’ performance could then help inform 

judgments about the most effective and economical means of achieving 

desired outcomes, which could include reducing redundancy in related 

tax and spending programs.

We recommended in 1994 and again in 2005 that OMB design and 

implement a structure for conducting reviews of tax expenditures’ 

performance.74

 

72 As we reported in 2007, leveraging can be defined in two ways: (1) using a relatively 

small amount of federal funds to attract private investment and (2) combining or layering 

program funds with other federal, state, local, and private sources of funds. See GAO, 

Leveraging Federal Funds for Housing, Community, and Economic Development, 

We also recommended in 2005 that OMB include tax 

expenditures in budget and performance review processes so that they 

are considered along with related outlay programs in determining the 

GAO-07-768R (Washington, D.C.: May 25, 2007).

73 We also recommended that HUD and Treasury disclose information on the 

completeness and accuracy of the data and the methods used to calculate leverage 

measures, and if used as a performance indicator, the extent to which such measures link 

to program goals and core activities.

74 GAO/GGD/AIMD-94-122 and GAO-05-690. 

Past Collaborative Efforts 

to Assess Performance of 

Community Development 

Tax Expenditures Have 

Been Limited, but 

GPRAMA Calls for 

Crosscutting Reviews
Page 36 GAO-12-262 Community Development Tax Expenditures

adequacy of federal efforts to achieve national objectives. Since their 

initial efforts in the 1997 GPRA report and 1999 budget to outline a 

framework for evaluating tax expenditures and preliminary performance 

measures, OMB and Treasury largely ceased to make progress and 

retreated from setting a schedule for evaluating tax expenditures. 

According to the President’s Fiscal Year 2012 Budget, the Administration 

said that developing an evaluation framework was a significant challenge 

and that the current focus was on addressing challenges with data 

availability and analytical constraints so that the Administration can work 

towards crosscutting analyses examining the effectiveness of tax 

expenditures alongside related spending programs. The President’s 

Fiscal Year 2013 Budget did not provide an update on these efforts.

While incorporating tax expenditures into crosscutting reviews presents

significant analytical challenges, we previously reported that the 

challenges were not insurmountable.75 Under the Bush Administration, for 

the fiscal year 2006 budget request, OMB used its Program Assessment 

Rating Tool (PART) initiative to review the NMTC program as part of a 

crosscutting assessment alongside 18 community and economic 

development spending programs.76

 

75 GAO, 21st Century Challenges: How Performance Budgeting Can Help, 

While the current Administration is no 

longer using PART assessment tools, OMB officials agreed that the 

PART review of NMTC demonstrated the feasibility of applying a common 

framework for assessing a tax expenditure with a specific tax credit 

allocation awarded through a competitive application process similar to a 

grant program. To date, OMB has not made further progress in examining 

the performance of other community development tax expenditures. In its 

fiscal year 2012 budget guidance, OMB instructed agencies, where 

appropriate, to analyze how to better integrate tax and spending policies 

that have similar objectives and goals. Such analysis could be useful in 

identifying redundancies.

GAO-07-1194T (Washington, D.C.: Sept. 20, 2007).

76 OMB described PART as a diagnostic tool meant to provide a consistent approach to 

assessing federal programs as part of the executive budget formulation process. It applied 

25 questions to all “programs” under four broad topics: (1) program purpose and design, 

(2) strategic planning, (3) program management, and (4) program results (i.e., whether a 

program is meeting its long-term and annual goals) as well as additional questions that 

are specific to one of seven mechanisms or approaches used to deliver the program.
Page 37 GAO-12-262 Community Development Tax Expenditures

For federal community development programs, a crosscutting review 

would need to involve OMB and Treasury as well as the departments and 

agencies helping administer the tax expenditures as well as related 

spending programs. As of January 2012, Treasury’s Office of Tax 

Analysis had no evaluations ongoing or planned for the community 

development tax expenditures we reviewed. In December 2011, Treasury 

issued a report with its recommendations to Congress for Indian tribal 

government tax-exempt bond financing.77 As discussed above, HUD, 

NPS, and CDFI Fund have taken steps to collect performance information 

for specific community development tax expenditures. As of January 

2012, HUD had no plans to assess EZ tax incentives which expired 

December 31, 2011. For the 20 percent rehabilitation tax credit, NPS 

funded development of a model to estimate economic impacts, such as 

job creation and shared statistical information with outside researchers.78

As of January 2012, NPS had no plans for additional evaluations or 

research collaboration with other agencies. The CDFI Fund has 

contracted out for an independent evaluation of the NMTC (discussed 

further below) and sought funding to develop a community development 

impact measurement estimator. According to CDFI Fund, the proposed 

tool could help standardize data collection and performance reporting for 

community development investments. Given that some community 

development tax expenditures target overlapping geographic areas, such 

as the NMTC and EZ/RC, any comprehensive approach to reviewing the

performance of programs in such communities would involve 

collaboration among multiple agencies.

 

77 See U.S. Department of the Treasury, Report and Recommendations to Congress 

reqarding Tribal Economic Development bond provision under Section 7871 of the Internal 

Revenue Code (Washington, D.C.: Dec. 19, 2011). This study was mandated under 

Section 1402(b) of Title I of Division B of the Recovery Act. Treasury recommended 

repealing the essential governmental function standard for Indian tribal governmental taxexempt bond financing and allowing Indian tribal governments to issue tax-exempt private 

activity bonds for the same types of projects and activities as are allowed for state and 

local governments subject to a national volume cap and certain other limitations. The 

President’s Fiscal Year 2013 Budget included a proposal to implement the report 

recommendations.

78 See David Listokin, et al., Second Annual Report on the Economic Impact of the 

Federal Historic Tax Credit, Rutgers University Edward J. Bloustein School of Planning 

and Public Policy (New Brunswick, N.J.: 2011).
Page 38 GAO-12-262 Community Development Tax Expenditures

Moving forward, GPRAMA—if effectively implemented—should result in 

crosscutting reviews of federal efforts to achieve intended outcomes, 

such as developing communities. The act requires OMB, in coordination 

with agencies, to select a limited number of long-term, outcome-oriented 

crosscutting priority goals for the federal government. On an annual 

basis, OMB is to identify the federal agencies, organizations, program 

activities, tax expenditures, regulations, policies, and other activities that 

contribute to each goal along with crosscutting performance measures 

and quarterly performance targets. Concurrent with the President’s Fiscal 

Year 2013 Budget, the Administration announced 14 interim crosscutting 

federal priority goals in February 2012.79

One interim goal touches on an aspect of community development—the 

Entrepreneurship and Small Business goal is to increase federal services 

to entrepreneurs and small businesses with an emphasis on startups and 

growing firms as well as underserved markets. Strategies to accomplish 

this goal include improving alignment and communication between 

agency programs that assist small businesses and increasing access to 

financing programs for entrepreneurs and small businesses. The goal 

identifies the NMTC as a contributing program, and other programs with 

the potential to contribute may be identified over time.

In addition to the five 

management function goals required under GPRAMA, nine interim goals 

address crosscutting policy areas, and some goals specifically identify tax 

expenditures as contributing programs. According to the Administration, 

the interim goals reflect areas where cross-agency collaboration and 

regular review are expected to yield progress.

On a quarterly basis beginning in June 2012, OMB is to assess whether 

the relevant federal agencies and program activities, including any related 

tax expenditures, are contributing to achieving each goal. The new 

crosscutting planning and reporting requirements could lead to the 

development of performance information in areas that are currently 

incomplete. On August 17, 2011, OMB issued guidance to agencies on 

implementing GPRAMA and updated Circular A-11 with information on 

how GPRAMA will affect performance planning and reporting. Although 

neither of these documents explicitly addresses tax expenditures, OMB 

plans to develop guidance on examining tax expenditures’ contribution as 

 

79 The Administration called these Cross-Agency Priority (CAP) Goals. A complete list of 

the CAP goals is available on Performance.gov; see 

http://goals.performance.gov/goals_2013.
Page 39 GAO-12-262 Community Development Tax Expenditures

part of cross-agency and agency priority goal reporting that would be put 

in place in fall 2012.

GPRAMA significantly enhances requirements for agencies to consult 

with Congress in establishing and adjusting governmentwide and agency 

goals. As we recently reported, these consultations provide important 

opportunities for Congress to provide input on what results agencies 

should seek to achieve, how those results will be achieved, how to 

measure progress, and how to report on results.80

Beyond providing input to the agencies and OMB during the consultations 

to shape their performance goals, Congress can foster results-oriented 

cultures in the federal government by using performance information in its 

decision making processes. For the community development tax 

expenditures, Congress can focus Executive Branch attention on 

addressing performance issues through myriad oversight activities, such 

as oversight agendas, hearings, letters to agencies, and formal and 

informal meetings with agency officials responsible for administering and 

evaluating these tax expenditures. Given the overlap and fragmentation 

across community development tax and spending programs, coordinated 

congressional efforts, such as joint hearings, may facilitate crosscutting 

reviews and ensure Executive Branch efforts are mutually reinforcing.

For example, Congress 

has a continuing opportunity to provide input on its priorities for which 

areas should be selected as outcome-oriented crosscutting priority goals 

for the federal government. The federal priority goals are to be revised or 

updated at least every 4 years, starting with the fiscal year 2015 budget 

due in February 2014. Consultations also provide Congress an 

opportunity to better understand challenges confronting particular 

programs, such as any data limitations and methodological issues in 

measuring and assessing tax expenditure performance. Consultations are 

not necessarily one-time events, and Congress could reach out to 

agencies to provide input at any time.

 

80 GAO, Managing for Results: Opportunities for Congress to Address Government 

Performance Issues, GAO-12-215R (Washington, D.C.: Dec. 9, 2011).
Page 40 GAO-12-262 Community Development Tax Expenditures

Our systematic review of literature for select community development tax 

expenditures generally found few studies that attempted to assess the 

effectiveness of programs in promoting certain measures of community 

development, such as reducing poverty or unemployment rates. We 

reviewed government studies and academic literature on the following 

community development tax expenditures: the NMTC, EZ tax program, 

disaster relief tax provisions, and the rehabilitation tax credits.81 In 

reviewing this literature, we focused on studies that attempted to analyze 

the impact of the tax expenditures on community development through 

empirical methods. We also summarized our prior observations and 

recommendations on options to improve tax expenditure design and 

considerations in authorizing similar community development tax 

programs. For the NMTC, we did not identify any empirical studies issued 

since our last report in January 2010.82 For the EZ program, we identified 

several studies published since our most recent report in March 201083

 

81 See appendix I for our methodology in selecting these tax expenditures for the literature 

review. A bibliography of studies we reviewed is included at the end of this report.

that attempted to measure the effect of the program on some measure of 

community development, as described below. We identified one study on 

82 GAO-10-334; GAO-07-296; and GAO, New Markets Tax Credit Program: Progress 

Made in Implementation, but Further Actions Needed to Monitor Compliance, GAO-04-326

(Washington, D.C.: Jan. 30, 2004).

83 GAO-10-464R; GAO-06-727; and GAO, Community Development: Federal 

Revitalization Programs Are Being Implemented, but Data on the Use of Tax Benefits Are 

Limited,GAO-04-306 (Washington, D.C.: Mar. 5, 2004).

Previous Studies 

Provide Limited 

Information on the 

Effectiveness of 

Select Tax 

Expenditures in 

Promoting 

Community 

Development 

Scarcity of Literature for 

Select Tax Expenditures’ 

Effectiveness
Page 41 GAO-12-262 Community Development Tax Expenditures

the rehabilitation tax credits that attempted to measure one aspect of 

community development. We did not identify any empirical studies on 

disaster tax relief provisions. The scarcity of literature on some tax 

expenditures may be due to the fact that establishing that a community 

development tax expenditure or spending program has causal impact on 

economic growth in a specific community can be challenging. Table 6 

below summarizes key methodological issues in attempting to measure 

effectiveness of the tax expenditures we selected.

Table 6: Limitations and Methodological Challenges in Evaluating Select Community Development Tax Expenditures

Tax expenditure

Limitation or challenge in evaluation

Small relative

to total economic

activity in area 

Limited data to 

establish causal link Temporary incentive

Difficult to establish 

geographic 

comparison area 

NMTC X X X 

EZ/RC X X X 

Disaster relief X X X X 

Historic rehabilitation tax 

credits X X X 

Source: GAO analysis.

As we reported in 2010, making definitive assessments about the extent 

to which benefits flow to targeted communities as a direct result of NMTC 

investments presented challenges.84

 

84

For example, the small size of the 

NMTC projects relative to the total economic activity within an area made 

it difficult to detect the separate effect of a particular project. Many of the 

eligible communities may already have significant business activities that 

could mask NMTC impacts. Limitations associated with available data 

also made it difficult to determine whether benefits generated in a lowincome community outside the scope of a particular project are the direct 

result of the NMTC program. As discussed above, CDFI Fund is 

collecting additional data on the use of the NMTC that may provide further 

insights into its use and impact on communities. For example, CDFI Fund 

is now collecting data on the amount of equity that CDEs estimate will be 

left in the businesses at the end of the 7-year period in which tax credits 

GAO-10-334. 

Various Challenges Inhibit 

Evaluations of the New 

Markets Tax Credit
Page 42 GAO-12-262 Community Development Tax Expenditures

can be claimed. Collecting this information may provide CDFI Fund with 

additional information on the credit’s cost-effectiveness.

Our 2007 NMTC report used statistical methods to attempt to measure 

the credit’s effectiveness, but determined that further analysis is needed 

to determine whether the economic costs of shifting investment are 

justified.85

In our 2010 NMTC report, we offered two redesign options to potentially 

increase the credit’s effectiveness in dispensing funds to low-income 

businesses—replacing the tax credit with a grant or making changes to 

the related entities test.

Our analysis did find that the credit may be increasing 

investment in low-income communities, although this finding was not, in 

and of itself, sufficient to determine that the credit was effective. 

Increased investment in low-income communities can occur when NMTC 

investors increase their total funds available for investment or when they 

shift funds from other uses. A complete evaluation of the program’s 

effectiveness would require determining the costs of the program, 

including any behavioral changes by taxpayers that may be introduced by 

shifted investment funds. Neither our statistical analysis nor the results of 

a survey we administered allowed us to determine definitively whether 

shifted investment funds came from higher-income communities or from 

other low-income community investments.

86

 

85

Converting the credit to a grant would likely 

increase the equity that could be placed in low-income businesses. In 

commenting on our 2010 report, CDFI Fund expressed concern that a 

grant may not channel a greater portion of the federal subsidy to intended 

recipients than the tax credit and that a grant program could have 

administrative costs or other effects that would reduces its desirability. 

Though the grant approach would involve considering a number of design 

issues, Congress has turned to grant programs in other cases where tax 

credits had formerly been used. For example, to fill funding gaps in LIHTC 

projects, Congress offered state HFAs the option to exchange LIHTCs for 

Recovery Act Section 1602 federal grants to subsidize low-income rental 

housing development. As we suggested in 2010, Congress should 

consider offering grants in lieu of credits if it chooses to extend the 

GAO-07-296. 

86 The related entities test requires that the CDE have no more than a 50 percent 

ownership stake in a qualified low-income community business.
Page 43 GAO-12-262 Community Development Tax Expenditures

program which expired at the end of 2011.

87

We did not identify any empirical studies on the effectiveness of the 

NMTC since our last report, but CDFI Fund has contracted with the Urban 

Institute for an evaluation of the NMTC that may lead to additional 

insights into the program’s effectiveness. In 2010, the Urban Institute 

published a literature review to inform a forthcoming evaluation, including 

challenges inherent in evaluating economic and community development 

programs in general.

If it does so, Congress 

should require Treasury’s CDFI Fund to gather data to assess whether 

and to what extent the grant program increases the amount of federal 

subsidy provided to low-income community businesses compared to the 

NMTC; how costs for administering the program incurred by the CDFI 

Fund; CDEs, and investors would change; and whether the grant program 

otherwise affects the success of efforts to assist low-income communities. 

88 CDFI Fund reports that the Urban Institute is 

primarily relying on surveys to CDEs and businesses to conduct the 

evaluation. The Urban Institute conducted a preliminary briefing on the 

study's results with CDFI Fund in January 2012. After submitting a draft 

report to CDFI Fund, the Urban Institute will issue a final report in the 

spring 2012.

 

87 The President's Fiscal Year 2012 Budget proposed extending the NMTC program to the 

end of 2012, with a maximum amount of $5 billion for qualified equity investments in 2012. 

The President’s Fiscal Year 2013 Budget proposed extending the program through 2013 

with $5 billion available for allocation in both 2012 and 2013.The 2012 and 2013 budgets 

also proposed modifying the NMTC to offset alternative minimum tax (AMT) liability. The 

Joint Committee on Taxation estimates that the 2012 proposal would cost $2.95 billion 

over 2011 through 2021, and the estimate for the 2013 proposal was not available as of 

February 28, 2012. In 2010, we reported that if such an AMT allowance increased the pool 

of investors and the price investors are willing to pay for the credit, it might have the 

beneficial effect of ensuring that a larger portion of the subsidy ended up in qualified active 

low-income community businesses. However, such an allowance would increase federal 

revenue losses to the extent that investors subject to the AMT who are not currently 

investing in NMTCs become NMTC investors and claim credits that would otherwise go 

unclaimed.

88 Martin D. Abravanel, Nancy M. Pindus, Brett Theodus, Evaluating Community and 

Economic Development Programs: A Literature Review to Inform Evaluation of the New 

Markets Tax Credit Program, The Urban Institute, September 2010.
Page 44 GAO-12-262 Community Development Tax Expenditures

Our prior work has found improvements in certain measures of 

community development in EZ communities, but data and methodological 

challenges make it difficult to establish causal links. Our 2006 report 

found that Round 1 EZs that received a combination of grant and tax 

benefits did show improvements in poverty and unemployment, but we 

did not find a definitive connection between these changes and the EZ 

program.89 Our 2010 report on the EZ/RC program reviewed seven 

academic studies of Round 1 projects and found that the evaluations 

used different methods and reported varying results with regard to 

poverty and unemployment.90 For example, one study concluded that the 

program reduces poverty and unemployment, while another study found 

that the program did not improve those measures of community 

development. As with the NMTC, our prior EZ/RC work has demonstrated 

challenges in measuring the effects of the program.91

Since our 2010 EZ/RC report, we noted that more recent studies 

comparing employment, housing values, and poverty rates in EZ 

communities with similarly economically distressed areas have yielded 

mixed results. Two studies have found lower unemployment in the 

designated areas where the provisions have been used relative to similar 

non-EZ areas. Specifically, one study reviewed federal and state 

enterprise zones and found positive impacts on local labor markets in 

terms of the unemployment rate and poverty rate.

For example, data 

limitations make it difficult to thoroughly evaluate the program’s 

effectiveness in that use of the EZ/RC Employment Credit cannot be tied 

to specific communities. Demonstrating what would have happened in the 

absence of the credit is difficult. External factors, such as national and 

local economic trends, can make it difficult to isolate the effects of the 

EZ/RC tax incentives.

92

 

89

In addition, the 

researchers found positive, but statistically insignificant, spillover effects 

to neighboring Census tracts. The second study focused on Round 1 of 

the EZ program and found that the EZ designation substantially increased 

GAO-06-727. 

90 GAO-10-464R. 

91 GAO-06-727. 

92 John C. Ham, et al., “Government Programs Can Improve Local Labor Markets: 

Evidence from State Enterprise Zones, Federal Empowerment Zones and Federal 

Enterprise Community,” Journal of Public Economics, vol. 95, no. 7-8 (2011): 779-797.

While Some Studies Have 

Found Improvements in 

EZ Communities, 

Establishing Clear 

Program Results Is 

Difficult
Page 45 GAO-12-262 Community Development Tax Expenditures

employment in zone neighborhoods, particularly for zone residents.93

Importantly, the researchers examined Round 1 of the program that relied 

on a mix of tax benefits and grant funding. In addition, another study 

found that EZ program results seem to vary among different types of 

businesses within the designated zones.94

Both JCT and the Congressional Research Service (CRS) conducted 

literature reviews and reported modest effects and methodological 

limitations in making any definite assessments on the effectiveness of 

EZs.

For example, researchers 

found that EZ tax incentives increase the share of retail and service 

sector establishments but decreases the share of transportation, finance, 

and real estate industries. They noted that the effectiveness of the EZ 

wage credit may be affected by the types of industries that are located in 

the designated area. However, while these studies have found that 

certain economic outcomes are associated with an area being eligible for 

EZ incentives, due to data limitations the studies cannot estimate the 

extent to which these outcomes vary with the amount of incentives 

actually used in an area.

95 JCT reported that studies generally found modest effects overall 

with relatively high costs. In addition, it is difficult to determine whether 

the spending or tax incentives were responsible for any increases in 

economic activity. CRS’s review of academic literature found modest, if 

any, effects of the program and called into the question their costeffectiveness. According to CRS, one persistent issue in evaluating the 

potential impact of EZs is the inherent difficulty of identifying the effect of 

the programs apart from overall economic conditions.

 

93 Matias Busso, Jesse Gregory, and Patrick M. Kline, “Assessing the Incidence and 

Efficiency of a Prominent Place Based Policy,” National Bureau of Economic Research 

Working Paper No. 16096 (2010).

94 Andrew Hanson and Shawn Rohlin, “The Effect of Location-Based Tax Incentives on 

Establishment Location and Employment across Industry Sectors,” Public Finance Review

vol. 39, no. 2 (2011): 195-225.

95 Joint Committee on Taxation, Incentives for Distressed Communities: Empowerment 

Zones and Renewal Communities, JCX-38-09 (Oct. 5, 2009): 22-23; and Congressional 

Research Service, Empowerment Zones, Enterprise Communities, and Renewal 

Communities: Comparative Overview and Analysis (Feb. 14, 2011): 18.
Page 46 GAO-12-262 Community Development Tax Expenditures

With the expiration of the RCs at the end of 2009 and EZs at the end of 

2011, we have made observations in prior work that Congress can

consider if these or similar programs are authorized in the future.96

Without adequate data on the use of program grant funds or tax benefits, 

neither the responsible federal agencies nor we could determine whether 

the EZ/EC funds had been spent effectively or that the tax benefits had in 

fact been used as intended. If Congress authorizes similar programs that 

rely heavily on tax benefits in the future, it would be prudent for federal 

agencies responsible for administering the programs to collect information 

necessary for determining whether the tax benefits are effective in 

achieving program goals.97 In 2010, the U.S. Census Bureau began 

releasing more frequent poverty and employment updates at the Census 

tract level than it has traditionally provided. This information could be a 

useful tool in determining the effects of such programs on poverty and 

employment in designated Census tracts.

Though we identified literature that discussed use of disaster tax 

provisions and their design, none of the articles attempted to measure 

empirically the impact the incentives had on promoting community 

development. A potential challenge in designing tax relief for disaster 

areas is that those communities within the zones most affected by the 

disaster may be slower to respond to the incentives than other areas 

within the zone. Our prior work on the GO Zone reported that bonds were 

awarded on a first-come, first-served basis that led to awarding bond 

allocation to projects in less damaged areas in the zone because 

businesses in these areas were ready to apply for and issue bonds before 

businesses in more damaged areas could make use of the incentive.98

 

96 The President’s Fiscal Year 2012 and 2013 Budgets proposed designating 20 new 

Growth Zones (14 urban areas and 6 rural areas). The Joint Committee on Taxation 

estimates that the 2012 proposal (effective for 2012 through the end of 2016) would cost 

$2.4 billion from 2011 through 2021, and the estimate for the 2013 proposal (effective for 

2014 through the end of 2018) was not available as of February 28, 2012. The Secretary 

of Commerce would select the zones in consultation with HUD and USDA through a 

competitive application process. The proposed growth zones would offer two tax 

incentives—an employment credit and accelerated depreciation. The Secretary of the 

Treasury would be given authority to collect data from taxpayers on the use of such tax 

incentives by zone.

97 GAO-06-727. 

98 GAO-08-913. 

Limited Data Collection 

and Methodological 

Challenges in Establishing 

Comparison Areas May 

Inhibit Evaluations of 

Effectiveness on Disaster 

Provisions
Page 47 GAO-12-262 Community Development Tax Expenditures

Thus, assessing the impact of disaster relief on an entire zone may not 

reflect how the provisions affected specific areas within the zone. Another 

key challenge in evaluating disaster relief tax expenditures is the difficulty 

in establishing a comparison area where a “comparable” disaster has 

taken place but government programs or tax provisions were not 

available. Moreover, evaluations of disaster relief tax expenditures may 

be difficult because IRS collects limited information on the use of 

temporary disaster aid, as discussed above.

While we identified numerous articles focused on historic restoration 

funded with the federal rehabilitation tax credits and the potential benefits 

of historic preservation in adapting currently vacant or underused 

property, we identified only one study that attempted to empirically 

measure the impact of the tax credit on community development. The 

study analyzed rehabilitation investment in the Boston office building

market between 1978 and 1991 and found that the percentage of 

investment spending that would have occurred without the tax credit 

varied over time from about 60 to 90 percent.99 Another study we 

reviewed used economic modeling to quantify some community 

development outputs associated with the 20 percent rehabilitation tax 

credit, such as estimated jobs and projected income data.100

A challenge in attempting to evaluate how the rehabilitation tax credits 

affect measures of community development is that the credits have a dual 

purpose and are not solely intended to promote community development. 

Evaluators may have difficulty reviewing the program’s effectiveness 

because they lack specific data on the geographic locations of the 

However, 

the study did not assess whether a rehabilitation project would have 

occurred in the absence of the credit nor did it compare community 

development in a project community with development in similar 

communities. As we previously reported, a complete evaluation of a 

credit’s effectiveness also requires determining the costs of the program 

and an assessment of the program’s economic and social benefits.

 

99 James D. Schilling, et al, “How Tax Credits Have Affected the Rehabilitation of the 

Boston Office Market,” Journal of Real Estate Research, vol. 28, no. 4 (2006): 321-348.

100 David Listokin, et al, Second Annual Report on the Economic Impact of the Federal 

Historic Tax Credit, Rutgers University Edward J. Bloustein School of Planning and Public 

Policy (New Brunswick, N.J.: 2011).

Literature on the 

Rehabilitation Tax Credits 

Has Often Not Focused on 

Community Development 

Aspects 
Page 48 GAO-12-262 Community Development Tax Expenditures

projects. In addition, the small size of the rehabilitation tax credit projects 

relative to the total activity in the area’s economy makes it difficult to 

isolate the economic effects of the credit.

The annual federal commitment to community development is substantial, 

with revenue losses from community development-related tax 

expenditures alone totaling many billions of dollars. However, all too often 

even basic information is not available about who claims tax benefits from 

community development tax expenditures and which communities benefit 

from the activities supported by the tax expenditures. Further, relatively 

few evaluations of the effectiveness of community development tax 

expenditures have been done and when they have been done, results 

have often been mixed about their effects. These issues are familiar and 

long-standing for tax expenditures generally. We have made 

recommendations to OMB in 1994 and 2005 to move the Executive 

Branch forward in obtaining and using information to evaluate tax 

expenditures’ performance, which can help in comparing their 

performance to that of related federal efforts.

GPRAMA offers a new opportunity to make progress on these issues. For 

those limited areas where OMB sets long-term, outcome-oriented, 

crosscutting priority goals for the federal government, a more coordinated 

and focused effort should ensue to identify, collect, and use the 

information needed to assess how well the government is achieving the 

goals and how those efforts can be improved. We look forward to 

progress in achieving GPRAMA’s vision for a more robust basis for 

judging how well the government is achieving its priority goals. The 

Administration’s interim crosscutting policy goals include some that 

identify tax expenditures among the contributing programs and activities. 

OMB’s forthcoming guidance should be helpful in further drawing tax 

expenditures into the GPRAMA crosscutting performance framework.

Clearly, community development is but one of many areas where OMB 

could choose to set priority goals, and the interim goals to date 

encompass 1 of the 23 tax expenditures we reviewed. In this regard, 

Congress has a continuing opportunity to express its priorities about the 

goals that should be selected, including whether community development 

should be among the next cycle of goals. Whether or not OMB selects 

community development as a priority goal area, Congress also has the 

opportunity to urge more evaluation and focus Executive Branch efforts 

on addressing community development performance issues through 

oversight activities, such as hearings and formal and informal meetings 

Conclusions 
Page 49 GAO-12-262 Community Development Tax Expenditures

with agency officials. Given the overlap and fragmentation across 

community development tax and spending programs, coordinated 

congressional efforts, such as joint hearings, may facilitate crosscutting 

reviews and ensure Executive Branch efforts are mutually reinforcing.

While GPRAMA provides a powerful opportunity to review how tax 

expenditures contribute to crosscutting goals, progress is likely to be 

incremental and require sustained focus. Evaluating the impact of 

community development efforts is inherently difficult and definitive 

performance conclusions often cannot be drawn. Data limitations are not 

easy or inexpensive to overcome, and resources to evaluate programs 

must compete with other priorities even as the federal government copes 

with significant fiscal challenges. Thus, judicious choices will need to be 

made as efforts to improve tax expenditure performance information 

available to policymakers continue.

Congress may wish to use GPRAMA’s consultation process to provide 

guidance on whether community development should be among OMB’s 

long-term crosscutting priority goals as well as stress the need for 

evaluations whether or not community development is on the crosscutting 

priority list. Congress may also wish to focus attention on addressing 

community development tax expenditure performance issues through its 

oversight activities.

We provided a draft of this report for review and comment to the Director 

of OMB, the Secretary of the Treasury, the Commissioner of Internal 

Revenue, as well as representatives of three federal agencies helping 

administer certain community development tax expenditures—the 

Director of the CDFI Fund, the Secretary of Housing and Urban 

Development (HUD), and the Secretary of the Interior (Interior). The 

Deputy General Counsel of OMB, the Director of HUD’s Office of 

Community Renewal, the GAO Audit Liaison of Interior, and the Director 

of the CDFI Fund provided general comments. The first three provided 

email comments and the last provided a comment letter which is reprinted 

in appendix VIII. Only the HUD comments addressed our matters for 

congressional consideration directly, stating that the report provided 

minimal justification for them. Although the Secretary of the Treasury and 

Commissioner of Internal Revenue did not provide written comments, 

Treasury’s Office of Tax Analysis and IRS’s Office of Legislative Affairs 

provided technical changes, which we incorporated where appropriate.

Matters for 

Congressional 

Consideration 

Agency Comments 

and Our Evaluation
Page 50 GAO-12-262 Community Development Tax Expenditures

While not commenting on our matters for congressional consideration, 

OMB staff reiterated the view that the Administration has made significant 

progress in addressing tax expenditures.101

In its comments, HUD described the report as substantive and 

comprehensive in addressing community development tax incentives with 

accurate information about the EZ/RC tax expenditures and HUD’s role in 

their administration. However, HUD expressed the view that we had 

minimal justification for our matters for Congress to consider using the 

GPRAMA consultation process to express congressional priorities related 

to community development and to focus attention on community 

development tax expenditures’ performance through its oversight 

activities. We disagree. The basic issues we found in this review—the all 

too often lack of even basic information about tax expenditures’ use and 

OMB staff cited assorted 

Fiscal Year 2013 budget proposals which it estimated would save billions 

of dollars by eliminating certain spending through the tax code and 

modifying other tax provisions. Some of the budget proposals relate to tax 

expenditures covered in this report, and we updated the text to reflect the 

President’s latest proposals. We also updated our report to reflect the 

release of new interim crosscutting priority goals and that the 

Administration has identified some tax expenditures that contribute to 

these goals, as required under GPRAMA. OMB staff said that this is a 

significant step forward and will be important for broader GPRAMA 

implementation over 2012 and 2013. We agree that this inclusion of tax 

expenditures along with related other programs in the GPRAMA goals is 

an important step toward providing policymakers with the breadth of 

information needed to understand the full federal effort to accomplish 

national objectives. Finally, OMB staff expressed concern that we were 

suggesting that tax expenditures be addressed through a “one size fits 

all” framework. We do not believe this report or earlier products suggest 

that assessing the performance of tax expenditures be done in only one 

way. We have emphasized the need for greater scrutiny of tax 

expenditures and more transparency over how well they work and how 

they compare to other related federal programs. 

 

101 OMB expressed this view in reviewing the tax expenditure discussion in a draft of 

GAO, Follow-up on 2011 Report: Status of Actions Taken to Reduce Duplication, Overlap, 

and Fragmentation, Save Tax Dollars, and Enhance Revenue, GAO-12-453SP

(Washington, D.C.: Feb. 28, 2012). For that report, we determined that as of January 2012 

the Executive Branch had not made progress in implementing our 2005 recommendations 

to review tax expenditures’ performance and include tax expenditures along with related 

programs in budget presentations and Executive Branch performance management 

processes. See GAO-05-690 and GAO-11-318SP. 
Page 51 GAO-12-262 Community Development Tax Expenditures

the relative paucity of evaluations of their performance—are among the 

key issues that could be mitigated through GPRAMA crosscutting goals 

and Congress’s oversight activities. HUD also said we had skirted the 

issue of identifying programs with the greatest probability for elimination 

due to duplication, fragmentation, and overlap. This was not among our 

review’s objectives and we believe the type of information we present can

assist Congress in understanding what information is available to support 

such decisions. As we have previously reported, agencies engaging 

Congress in identifying which issues to address and what to measure are 

critical, and GPRAMA significantly enhances requirements on the 

consultation process.102

In its comments, Interior disagreed with several findings. Interior

characterized our report as expressing the view that unwarranted overlap, 

fragmentation, or duplication existed involving the 20 percent historic 

rehabilitation credit that Interior’s NPS helps administer. Interior agreed 

that the tax credit—which has a primary purpose to preserve and 

rehabilitate historic buildings—has a two-fold mission to also promote 

community development by revitalizing historic districts and 

neighborhoods. However, Interior disagreed that the historic rehabilitation 

tax credit overlaps or duplicates with other community development tax 

expenditures. Interior stated that only the tax credit has a specific purpose 

to preserve historic buildings, that the tax credit is not targeted to certain 

census tracts or low-income areas, and that Congress generally did not 

exclude historic tax credit users from also using other federal programs. 

In addition, Interior said that the administration of the historic rehabilitation 

tax credit was not fragmented, but instead was an example of joint 

administration that effectively draws upon the best resources of two 

federal agencies in a coordinated way to implement the law. Finally,

With the release of the interim crosscutting goals, 

we believe that Congress has a continuing opportunity to express its 

priorities regarding community development ahead of the next goal cycle 

due in February 2014. HUD also noted the expiration of some tax 

expenditures and sought clarification about their inclusion in the report. 

Our report includes recently expired tax expenditures and where 

applicable discusses our prior findings and suggestions for Congress to

consider if it wishes to extend the tax expenditures that have expired or 

create similar new ones. HUD also provided technical and editorial 

comments which we incorporated as appropriate.

 

102 See GAO, Government Performance: GPRA Modernization Act Provides Opportunities 

to Help Address Fiscal, Performance, and Management Challenges, GAO-11-466T

(Washington, D.C.: Mar. 16, 2011).
Page 52 GAO-12-262 Community Development Tax Expenditures

Interior disagreed with our finding that limited information is available 

about the effectiveness of the 20 percent historic rehabilitation tax credit. 

Our report does not characterize any overlap, fragmentation, or 

duplication as “unwarranted.” Rather, we provide a factual description 

based on standard definitions used in many GAO reports of the 

relationships between the various tax expenditures that have at least a 

partial purpose of supporting community development. We make the 

same point that Interior raises as well—that Congress was aware of and 

often designed rules to govern the interrelationships among these tax 

expenditures. Accordingly, our report says these interrelationships do not 

necessarily represent unnecessary duplication. Based on Interior’s 

comments, however, we further clarified our text to note that one of the 

differences between the historic rehabilitation credit and the other 

community development tax expenditures is that the rehabilitation credit 

targets certain older structures. Regarding Interior’s comment about 

fragmentation in the credit’s administration, our report describes the roles 

of IRS and NPS and says fragmentation may sometimes be necessary 

when the resources and expertise of more than one agency are required, 

such as in the case of NPS overseeing technical standards for historic 

preservation. As we reported, however, fragmentation can result in 

administrative burdens when an applicant needs to apply at multiple 

agencies to finance a specific project, such as restoring a historic building 

as low-income housing. Finally, regarding Interior’s comments on the 

effectiveness of the rehabilitation tax credit, we continue to note that little 

is known about the effectiveness of the credit as a community 

development program given that we identified only one empirical analysis 

of the effect of the tax credit on community development. Interior pointed 

specifically to reports based on an economic model NPS helped fund. 

However, as our report states, the modeling reports did not assess what 

would have happened in the absence of the historic rehabilitation tax 

credits or compare development in tax credit project communities to 

similar communities.

In its comment letter (reprinted in app. VIII), the CDFI Fund said that it 

appreciated GAO’s ongoing efforts to improve and strengthen 

performance measurement and evaluation of community and economic 

development programs. The CDFI Fund said that it has committed 

resources to systematically evaluate the impacts of the NMTC program 

and proposed to develop tools that would have provided standard 

benchmarking and estimation techniques for measuring outcomes and 

coordinating reporting for projects with multiple sources of funding. Our 

literature review for this report drew on a study contracted by the CDFI 

Fund that provided an overview of the inherent challenges in evaluating 
Page 53 GAO-12-262 Community Development Tax Expenditures

community development programs. The literature review will inform a 

forthcoming independent evaluation of the NMTC to be issued later this 

spring. The CDFI Fund also provided technical comments which we 

incorporated as appropriate.

The CDFI Fund said that it continued to have strong reservations with our 

2010 option for Congress to consider offering grants in lieu of NMTC tax 

credits if it extends the NMTC program. As stated in our 2010 report and 

reiterated as a cost saving option in our 2011 duplication report, our 

analysis suggests that converting the NMTC to a grant program would 

increase the amount of the equity investment that could be placed in lowincome businesses and make the federal subsidy more cost-effective.103

Our 2010 report addressed both concerns that the CDFI Fund reiterated 

in its comments on this report.

As arranged with your offices, unless you publicly announce the contents 

of this report earlier, we plan no further distribution until 30 days after the 

date of this report. At that time, we will send copies of this report to the 

Director of the Office of Management and Budget, the Secretary of the 

Treasury, the Commissioner of Internal Revenue, and other interested 

parties. In addition, the report will be available at no charge on the GAO 

website at http://www.gao.gov. 

If you or your staff have questions about this report, please contact me at 

(202) 512-9110 or brostekm@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. Other key contributors to this report are listed in appendix 

IX. 

Michael Brostek

Director, Strategic Issues

 

103 See GAO-10-334 and GAO-11-318SP. 
Page 54 GAO-12-262 Community Development Tax Expenditures

List of Requesters

The Honorable Sander Levin

Ranking Member

Committee on Ways and Means

House of Representatives

The Honorable Lloyd Doggett

Ranking Member

Subcommittee on Human Resources

Committee on Ways and Means

House of Representatives

The Honorable Jim McDermott

Ranking Member

Subcommittee on Trade

Committee on Ways and Means

House of Representatives

The Honorable Richard E. Neal

Ranking Member

Subcommittee on Select Revenue Measures

Committee on Ways and Means

House of Representatives

The Honorable Earl Blumenauer

House of Representatives

The Honorable Ron Kind

House of Representatives

The Honorable Bill Pascrell, Jr. 

House of Representatives

The Honorable Linda Sánchez

House of Representatives
Appendix I: Objectives, Scope, and 

Methodology

Page 55 GAO-12-262 Community Development Tax Expenditures

Our objectives were to (1) identify tax expenditures that promote 

community development, and areas of potential overlap and interactions 

among them; (2) assess data and performance measures available and 

used to assess performance for community development tax 

expenditures; and (3) determine what previous studies have found about 

the effectiveness of selected tax expenditures in promoting community 

development.

While both the U.S. Department of the Treasury (Treasury) and the Joint 

Committee on Taxation (JCT) annually compile a list of tax expenditures 

and estimates of their cost, the Treasury and JCT lists differ somewhat in 

terms of what is listed as a tax expenditure and how many specific 

provisions may be combined in a listed tax expenditure. Our count of 

community development tax expenditures is based on the Treasury and 

JCT published tax expenditure lists, detailed below. Where a single tax 

expenditure listing encompasses more than one tax code provision, we 

separately describe those provisions to provide a more detailed 

perspective of the mix of tax assistance available for community 

development.

Federal agencies do not have a standard definition of what constitutes 

community or economic development. To identify community 

development tax expenditures, we developed a list of community 

development activities based on various federal sources and compared 

these activities to the authorized uses of tax expenditures. As a starting 

point for developing the list of activities, we used the definition of the 

community and regional development budget function and its three 

subfunctions—urban community development, rural and regional 

development, and disaster relief and insurance.104

We also used descriptions of spending programs under the community 

and regional development budget function as detailed in the 2010 Catalog 

of Federal Domestic Assistance (CFDA).

Both Treasury and 

JCT list tax expenditures by budget function.

105

 

104 GAO, A Glossary of Terms Used in the Federal Budget Process, 

We further reviewed 

GAO-05-734SP

(Washington, D.C.: Updated Sept. 2005), 136-137.

105 General Services Administration, 2010 Catalog of Federal Domestic Assistance

(Washington, D.C.: Oct. 2010).

Appendix I: Objectives, Scope, and 

Methodology 

Identification of 

Community 

Development Tax 

Expenditures and 

Interactions 
Appendix I: Objectives, Scope, and 

Methodology

Page 56 GAO-12-262 Community Development Tax Expenditures

descriptions of allowable uses under the Community Development Block 

Grant (CDBG)—the largest single spending program in the budget 

function.106 Finally, we reviewed the community development definition for 

the Community Reinvestment Act (CRA) and identified certain tax 

expenditures that banks can use in meeting CRA community investment 

tests.107

Table 7: Summary Definition of Community Development

We included tax expenditures targeted to certain geographies, 

such as low-income areas or designated disaster areas, or specific 

populations, such as Native Americans. Table 7 summarizes the 

definition of community development for purposes of this report.

Category Activities included

Community development in urban and rural 

areas

a

Development of physical and financial infrastructure designed to promote viable 

community economies, including communication infrastructure facilities developed as 

an integral part of a community development program.

b

Disaster relief and insurance Programs intended to help communities and families recover from natural disasters. b

Assistance to specific geographies and 

populations

Activities that revitalize or stabilize certain geographies (e.g. low- or moderate-income 

geographies; Appalachia) or provide economic development assistance to specific 

populations, such as Native Americans. 

c

Source: GAO analysis of descriptions of spending programs under the community and regional development budget function, and as 

detailed in the 2010 Catalog of Federal Domestic Assistance (CFDA), descriptions of allowable uses under the Community 

Development Block Grant (CDBG), and the community development definition for the Community Reinvestment Act (CRA).

a

Activities are those we compiled from descriptions of spending programs under the community and 

regional development budget function, and as detailed in the 2010 CFDA, descriptions of allowable 

uses under CDBG, and the community development definition for CRA. 

b

The category is derived from the description of the Community and Regional Development budget 

function and related subfunctions. See GAO, A Glossary of Terms Used in the Federal Budget 

Process, GAO-05-734SP (Washington, D.C.: Updated Sept. 2005).

c

The category is derived from descriptions of spending programs detailed in the 2010 CFDA, 

descriptions of allowable uses under CDBG, and the community development definition for CRA.

We compiled a preliminary list of tax expenditures for fiscal year 2010 

listed under community and regional development budget function by 

 

106 U.S. Department of Housing and Urban Development, Economic Development Toolkit

(Washington, D.C.: April 2010).

107 12 CFR Parts 25, 228, 345 and 563e (as listed on Feb. 10, 2011). The Community 

Reinvestment Act (CRA) requires regulators to evaluate periodically each insured 

depository institution’s record in helping meet the credit needs of its entire community. 

That record is taken into account in considering an institution’s application for deposit 

facilities, including mergers and acquisitions. Investing in certain community development 

projects eligible for tax incentives can help banks earn positive consideration toward their 

CRA regulatory ratings.
Appendix I: Objectives, Scope, and 

Methodology

Page 57 GAO-12-262 Community Development Tax Expenditures

Treasury and JCT. Our universe included expired tax expenditures listed 

by either Treasury or JCT which had estimated revenue losses or outlays 

in fiscal year 2010. While the tax expenditure lists published by Treasury 

and JCT are generally similar, specific tax expenditures reported by each 

under the community and regional development budget function differed, 

as shown in table 8. Four tax expenditures were listed by both under the 

community and regional development budget function. Another four tax 

expenditures were reported by both Treasury and JCT but appeared 

under community and regional development function on one list and 

under a different budget function on the other list. Fourteen tax 

expenditures were reported under the community and regional 

development budget function by either Treasury or JCT, including eight 

tax expenditures supporting disaster relief and recovery.108

Table 8: List of Tax Expenditures Reported by Treasury and JCT under the Community and Regional Development Budget 

Function for Fiscal Year 2010

Tax expenditure Budget function

Tax expenditure list

Treasury JCT

Listed by both under the community and regional development budget function

Empowerment Zones and Renewal Communities 

(EZ/RC)

Community and Regional Development a Yes Yes

New Markets Tax Credit (NMTC) Community and Regional Development Yes Yes

Recovery Zone bonds Community and Regional Development b Yes Yes

Tribal Economic Development Bonds Community and Regional Development Yes Yes

Listed by both but either Treasury or JCT listed under another budget function

Build America Bonds (BAB) Community and Regional Development (JCT); General 

Purpose Fiscal Assistance (Treasury)

Yes Yes

Exclusion of interest on bonds for water, sewage, 

and hazardous waste facilities

Community and Regional Development (JCT); Natural 

Resources and Environment (Treasury)

Yes Yes

Exclusion of interest for airport, dock, and similar 

bonds 

Community and Regional Development (Treasury); 

Transportation (JCT)

Yes Yes

10 percent credit for rehabilitation of structures 

(other than historic)

Community and Regional Development (Treasury); 

Commerce and Housing (JCT)

Yes Yes

 

108 We also identified one tax expenditure supporting disaster relief and recovery—the 

employee retention credit for employers in certain federal disaster areas—which is listed 

by Treasury under the education, training, employment, and social services budget 

function.
Appendix I: Objectives, Scope, and 

Methodology

Page 58 GAO-12-262 Community Development Tax Expenditures

Tax expenditure Budget function

Tax expenditure list

Treasury JCT

Listed by only one under the community and regional development budget function

Credit to holders of Gulf and Midwest tax credit 

bonds

Community and Regional Development c Yes No

District of Columbia tax incentives Community and Regional Development No Yes

Eliminate requirement that financial institutions 

allocate interest expense attributable to tax-exempt 

interest

Community and Regional Development No Yes

Employee retention credit for employers in certain 

federal disaster areas

Community and Regional Development c Yes No

Exemption of certain mutuals’ and cooperatives’ 

income

Community and Regional Development Yes No

Expensing of environmental remediation costs Community and Regional Development Yes No

Five-year carryback period for certain net operating 

losses of electric utility companies

Community and Regional Development No Yes

Gulf Opportunity Zone Community and Regional Development c No Yes

Indian employment credit Community and Regional Development No Yes

Katrina Emergency Act Community and Regional Development c No Yes

Kansas disaster relief Community and Regional Development c No Yes

Midwest disaster relief Community and Regional Development c No Yes

National disaster relief Community and Regional Development c No Yes

New York Liberty Zone Community and Regional Development c No Yes

Three-year carryback of small businesses’ and 

farmers’ casualty losses attributable to 

presidentially declared disasters

Community and Regional Development 

c

No Yes

Sources: OMB, Analytical Perspectives, Budget of the United States Government, Fiscal Year 2012 (Washington, D.C.: 2011); JCT, 

Estimates of Federal Tax Expenditures for Fiscal Years 2010-2014, JCS-3-10 (Washington, D.C.: Dec. 15, 2010).

a

JCT listed Empowerment Zones and Renewal Communities separately.

b

Includes Recovery Zone Economic Development Bonds (RZEBD) and Recovery Zone Facility Bonds 

(RZFB).

c

The tax expenditure is intended to support disaster relief and recovery.

Whereas JCT lists six disaster tax packages as tax expenditures, 

Treasury officials told us that disaster-related revenue losses were 

included in Treasury estimates for specific tax expenditures made 

available in disaster areas. For example, revenue losses from additional 

allocations of the Low-Income Housing Tax Credit for the GO Zone were 

incorporated into Treasury’s Low-Income Housing Tax Credit estimate. 

To avoid double-counting, we dropped two tax expenditures—credit to 

holders of Gulf and Midwest tax credit bonds, and employee retention 

credit for employers in certain federal disaster areas—listed separately by 

Treasury that were included in the JCT disaster package estimates. We 
Appendix I: Objectives, Scope, and 

Methodology

Page 59 GAO-12-262 Community Development Tax Expenditures

used JCT and Internal Revenue Service (IRS) documents to identify 

specific tax code provisions within the disaster relief tax expenditures on 

JCT’s list.109

Using our list of community development activities as criteria, we also 

identified tax expenditures reported by Treasury under other budget 

functions that appeared to be at least partially intended to support 

activities we had identified as community development activities. Table 9 

includes six tax expenditures reported by Treasury under other budget 

functions and our rationale for inclusion.

 Appendix VI lists 45 tax provisions and special rules in the 

six disaster relief tax expenditures included in JCT’s list. We did not sum 

disaster revenue loss estimates to avoid double counting amounts 

already included in estimates for specific tax expenditures.

Table 9: List of Tax Expenditures Reported by Treasury Outside the Community and Regional Development Budget Function 

That Support Community Development (Fiscal Year 2010)

Tax expenditure Budget function Rationale for inclusion

Credit for holders of qualified 

zone academy bonds (QZAB)

Education, training, 

employment, and social 

services

The tax credit is targeted towards public schools in Empowerment 

Zones and Renewal Communities (which are listed under the 

community and regional development budget function). Also, banks 

may generally receive positive consideration under Community 

Reinvestment Act (CRA) requirements for bond purchases to provide 

community services to low- or moderate-income individuals and 

revitalize and/or stabilize low- or moderate-income areas.

Exclusion of gain or loss on sale 

or exchange of certain 

brownfield sites 

Natural resources and 

environment

The exclusion funds redevelopment of brownfields similar to the 

expensing of environmental remediation cost tax expenditure listed 

by Treasury under the community and regional development budget 

function. 

 

109 Documents used include, but are not limited to: IRS, Tax Law Changes Related to 

Hurricanes Katrina, Rita and Wilma (FS-2006-12), Jan. 2006; JCT, General Explanation of 

Tax Legislation Enacted in the 110th Congress, JCS-1-09 (Washington, D.C.: Mar. 18, 

2009); JCT, Technical Explanation of H.R. 3768, the “Katrina Emergency Tax Relief Act of 

2005,” as Passed by the House and the Senate on September 21, 2005, JCX-69-05 

(Washington, D.C.: Sep. 22, 2005); JCT, Technical Explanation of the “Job Creation and 

Worker Assistance Act of 2002,” JCX-12-02 (Washington, D.C.: Mar. 6, 2002); and JCT, 

Technical Explanation of the Revenue Provisions of H.R. 4440, the “Gulf Opportunity 

Zone Act of 2005,” as Passed by the House of Representatives and the Senate, JCX-88-

05 (Washington, D.C.: Dec. 16, 2005).
Appendix I: Objectives, Scope, and 

Methodology

Page 60 GAO-12-262 Community Development Tax Expenditures

Tax expenditure Budget function Rationale for inclusion

Exclusion of interest on public 

purpose state and local bonds 

General purpose fiscal 

assistance

Tax-exempt bonds finance public infrastructure and can be used to 

finance transportation and water system improvements similar to 

private activity bond tax expenditures listed under the community 

and regional development budget function. This public purpose bond 

tax expenditure is similar to the Build America Bonds tax expenditure 

listed by JCT under the community and regional development budget 

function.

Exclusion of interest on rental 

housing bonds 

Commerce and housing The tax-exempt bonds finance affordable rental housing activities 

which are also eligible activities under the Community Development 

Block Grant (CDBG). Banks may receive positive consideration 

under CRA requirements for investing in rental housing bonds to 

support affordable housing. 

Low-Income Housing Tax Credit 

(LIHTC)

Commerce and housing The tax credit funds affordable rental housing activities, which are 

also eligible activities under CDBG. Banks also may receive positive 

consideration under CRA requirements for investing in LIHTC 

projects. 

20 percent credit for 

rehabilitation of historic 

structures 

Natural resources and 

environment

This credit is similar to the 10 percent nonhistoric rehabilitation tax 

credit listed by Treasury under the community and regional 

development budget function. Historic preservation activities are also 

eligible under CDBG. Banks may receive positive consideration 

under CRA requirements for investing in historic preservation 

projects using the tax credit.

Source: GAO analysis.

Table 10 shows how we categorized the community development tax 

expenditures as primarily promoting community development versus 

supporting community development and other federal mission areas.
Appendix I: Objectives, Scope, and 

Methodology

Page 61 GAO-12-262 Community Development Tax Expenditures

Table 10: Overview of Community Development Tax Expenditures by Category

Category Basis for categorization

Number of tax 

expenditures

Primarily promoting 

community development

We included tax expenditures listed by Treasury or JCT only under the 

community and regional development budget function and not any other 

budget function.

In part to avoid potential double counting of revenue losses for disaster tax 

aid, we further categorized seven tax expenditures supporting disaster 

relief and recovery in certain areas from tax expenditures. Five tax 

expenditures primarily promoting community development are targeted to 

economically distressed areas.

12

Supporting community 

development and other 

federal mission areas

We included tax expenditures listed by both Treasury and JCT, with either 

Treasury or JCT listing the tax expenditure under a budget function other 

than community and regional development. We also included the tax 

expenditures listed by Treasury under budget functions other than 

community and regional development whose description and intended 

purposes align with our list of community development activities. Based on 

external feedback, we categorized both tax expenditures brownfields 

redevelopment as supporting community development.

Based on external feedback, we distinguished large government bond tax 

expenditures that also may support community development, but 

community development activities account for only a portion of the bonds. 

To avoid overstating federal support for community development, we did 

not sum the revenue losses for the two general bond provisions.

a

11

Source: GAO analysis.

a

Treasury listed expensing of environmental remediation costs under the community and regional 

development budget function but listed the exclusion of gain or loss on the sale or exchange of 

certain brownfield sites under the natural resources and environment budget function.

We shared the preliminary universe of community development tax 

expenditures with Treasury, IRS, Office of Management and Budget 

(OMB) and CRS. We also shared the preliminary universe with federal 

agencies helping administer specific community development tax 

expenditures, including the Community Development Financial 

Institutions (CDFI) Fund which administers the New Markets Tax Credit; 

the Department of Housing and Urban Development (HUD) which helps 

administer the Empowerment Zones and Renewal Communities 

programs; and the National Park Service (NPS) which helps administer 

rehabilitation tax credits. We asked these agencies to review the 

preliminary universe and confirm that the tax expenditures could be used 

to promote community development, delete tax expenditures that were 

listed incorrectly or are duplicative, or add tax programs that we had 

omitted.

Based on feedback from federal agencies, we refined the universe of 

community development tax expenditures as appropriate. We excluded 
Appendix I: Objectives, Scope, and 

Methodology

Page 62 GAO-12-262 Community Development Tax Expenditures

six tax expenditures reported under the community and regional budget 

function, as shown in table 11. As discussed above, we excluded two 

disaster tax expenditures listed by Treasury to avoid double counting 

disaster aid packages listed by JCT. Similarly, we excluded a District of 

Columbia tax expenditure listed by JCT to avoid duplication with 

Treasury’s estimate for Empowerment Zones and Renewal Communities. 

We excluded three tax expenditures listed by Treasury or JCT under the 

community and regional development budget function that were not 

specifically linked to community development activities. Our final universe 

does not include various energy tax expenditures that may be claimed for 

bank investments used to meet CRA regulatory requirements nor tax 

expenditures for deductible charitable contributions. Although certain 

charitable contributions may fund organizations or activities that 

contribute to community development, we excluded charitable 

contribution tax deductions from the universe based on external feedback 

that it is not feasible to isolate the community development portion of the 

large charitable contributions tax expenditures or link the charitable aid to 

specific communities.

Table 11: Tax Expenditures Reported under the Community and Regional Development Budget Function but Excluded from 

Final Universe

Tax expenditure Rationale for exclusion

Credit to holders of Gulf and Midwest 

Tax Credit Bonds

The tax credit was excluded to avoid duplication with the Gulf opportunity zone and 

Midwest disaster relief tax expenditures. 

District of Columbia tax incentives The JCT tax expenditure estimate for the mix of tax incentives targeted to the District of 

Columbia as excluded to avoid duplication with Treasury’s Empowerment Zones and 

Renewal Communities estimate. 

Eliminate requirement that financial 

institutions allocate interest expense 

attributable to tax-exempt interest

According to officials we interviewed, the tax expenditure is not specifically tied to 

community development activities. 

Employee retention credit for employers 

in certain federal disaster areas

The tax credit was excluded to avoid duplication with the Katrina Emergency Act, Gulf 

opportunity zone, Kansas disaster relief, and Midwest disaster relief tax expenditures.

Exemption of certain mutuals’ and 

cooperatives’ income

According to officials we interviewed, the tax expenditure is not specifically tied to 

community development activities. 

Five-year carryback period for certain net 

operating losses of electric utility 

companies

According to officials we interviewed, the tax expenditure is not specifically tied to 

community development activities. 

Sources: GAO analysis.

See appendix II for our final universe of 23 community development tax 

expenditures. This count reflects the number of tax expenditures as 

reported on the Treasury or JCT lists. Whereas appendix II lists the 

Empowerment Zones and Renewal Communities (EZ/RC) as a single tax 
Appendix I: Objectives, Scope, and 

Methodology

Page 63 GAO-12-262 Community Development Tax Expenditures

expenditure consistent with Treasury’s list, appendix IV details the various 

tax incentives available in EZs and RCs. We used Treasury revenue loss 

estimates for each tax expenditure except in cases where only JCT 

reported a tax expenditure. Where appropriate, we summed revenue loss 

estimates to approximate the total federal revenue forgone through tax 

expenditures that support community development.110

To identify areas of potential overlap among the tax expenditures, we 

used the definitions from our March 2011 report on duplication in 

government programs:

Certain tax 

expenditures, including tax credit and direct payment bonds, also have 

associated outlays, and we included those outlays in presenting total 

costs. While sufficiently reliable as a gauge of general magnitude, the 

sum of the individual tax expenditure estimates does not take into 

account interactions between individual provisions.

• Overlap occurs when multiple agencies or programs have similar 

goals, similar activities or strategies to achieve them, or similar target 

beneficiaries;

• Fragmentation refers to circumstances where multiple agencies or 

offices are involved in serving the same broad area of national need; 

and

• Duplication occurs when two or more agencies or programs are 

engaged in the same activities or provide the same services to the 

same beneficiaries.111

Using information from prior GAO products, publications from CRS, IRS, 

JCT, Office of the Comptroller of Currency (OCC), and OMB; as well as 

documentation from other federal agencies helping administer specific tax 

expenditures, we compiled publicly available information about each tax 

expenditure’s design and implementation, including descriptions; specific 

geographies or populations targeted; volume caps and other allocation 

limits; and roles of entities within and outside the federal government in 

 

110 We did not sum JCT estimates for disaster tax expenditures to avoid double counting 

amounts included in estimates for Treasury tax expenditures we identified as promoting 

community development. Also, we did not sum the total costs for two large bond tax 

expenditures to avoid overstating federal support for community development.

111 GAO, Opportunities to Reduce Potential Duplication in Government Programs, Save 

Tax Dollars, and Enhance Revenue, GAO-11-318SP (Washington, D.C.: Mar. 1, 2011).
Appendix I: Objectives, Scope, and 

Methodology

Page 64 GAO-12-262 Community Development Tax Expenditures

administration.112 Based on the information we collected and the 

clarifications that the agencies provided, we determined that this 

descriptive information was sufficiently reliable for the purposes of this 

engagement to identify potential duplication, overlap, and fragmentation. 

We reviewed the Internal Revenue Code and IRS regulations to identify 

allowable interactions or limits on using community development tax 

expenditures together. Where specified in tax law and regulations, we 

also identified interactions and limits on using tax expenditures with other 

federal spending programs. The review of allowable interactions and 

limits was not exhaustive—we did not search documentation from all 

federal agencies carrying out community development programs, and 

regulations for related spending programs may also document 

interactions between those programs and the community development 

tax expenditures.

To determine what data and performance measures are available and 

used to assess community development tax expenditures, we identified 

the data elements and types of information that IRS and federal agencies 

collect. We also reviewed tax forms, instructions, and other guidance and 

interviewed IRS officials to determine the types of information that IRS 

collects on how the tax expenditures in our universe are used. For certain 

community development tax expenditures in our universe where other 

federal agencies help with administration—the New Markets Tax Credit, 

Empowerment Zone/Renewal Community tax incentives, and the 

rehabilitation tax credits—we reviewed prior GAO reports, and 

interviewed and collected information from the CDFI Fund, HUD, and 

NPS to identify their roles in helping administer the tax expenditures and 

any measures the agencies use to review tax expenditure performance. 

We also interviewed officials and reviewed documentation from OMB, 

Treasury, IRS, HUD, and NPS about efforts to assess performance for 

community development tax expenditures and any crosscutting reviews of 

related tax and spending programs. For the purposes of this report, we 

focused on information collected by federal agencies. State and local 

entities also collect information on some of the tax expenditures included 

in our universe. For example, housing finance agencies collect data on 

low-income housing tax credit projects. Similarly, state and local bond 

 

112 This report includes a list of Related GAO Products. See also CRS, Tax Expenditures: 

Compendium of Background on Individual Provisions, S. Prt. 111-58 (Washington, D.C.: 

Dec. 28, 2010).

Tax Expenditure 

Information and 

Performance 

Measures 
Appendix I: Objectives, Scope, and 

Methodology

Page 65 GAO-12-262 Community Development Tax Expenditures

financing authorities may have additional data on specific projects and 

activities funded with federally subsidized bond financing.

To determine what previous studies have found about effectiveness for 

selected tax expenditures, we conducted a literature review for selected 

tax expenditures—the Empowerment Zone/Renewal Community tax 

programs, the New Markets Tax Credit program, and tax expenditures 

available for certain disaster areas. We selected these tax expenditures 

because they account for most of the 2010 revenue loss for the tax 

expenditures that primarily promote community development. The EZ tax 

incentives and the NMTC expired after December 31, 2011.113 For the 

EZ/RC and NMTC programs, we focused on literature published since our 

2010 reports on these programs.114 We also selected the rehabilitation 

tax credits;115

• studies that include original data analysis, 

these multipurpose tax expenditures support community 

development as well another federal mission area, and they can be used 

in combination with other community development tax expenditures. We 

searched databases, such as Proquest, Google Scholar, and Econlit, for 

studies through May 2011. To target our literature review on 

effectiveness, we identified studies that attempted to measure the impact 

of the incentives on certain measures of community development, such 

as the poverty and unemployment rate. We reviewed studies that met the 

following criteria:

• studies based on empirical or peer-reviewed research, and

• studies not derived from or sponsored by associations representing 

industry groups and other organizations that may benefit from 

adjustments to laws and regulations concerning community 

development tax expenditures.

Using these criteria, we identified and reviewed eight studies on the 

EZ/RC programs published since our most recent report on the topic. For 

NMTC, although we did not identify any new studies meeting our criteria, 

 

113 The set of RC tax incentives had expired after December 31, 2009.

114 GAO-10-464R and GAO-10-334. 

115 A 20 percent tax credit applies for rehabilitating certified historic structures, and a 10 

percent tax credit applies for rehabilitating noncertified structures placed into service 

before 1936.

Previous Studies of 

Selected Tax 

Expenditures 
Appendix I: Objectives, Scope, and 

Methodology

Page 66 GAO-12-262 Community Development Tax Expenditures

we included a literature review study contracted by CDFI Fund that was 

intended to provide the groundwork for a forthcoming evaluation and 

provides an overview of inherent challenges in evaluating community 

development programs.116 Additionally, we summarized our prior findings 

about the selected tax expenditures, and these findings are not 

generalizable to the universe of community development tax 

expenditures. For the rehabilitation tax credits, we identified one study 

that used empirical methods to measure one aspect of community 

development. We also included an academic study prepared with 

assistance from NPS that highlights some limitations in attempting to 

evaluate the effectiveness of the rehabilitation tax credits. For disaster 

relief incentives, we identified peer reviewed articles that made potentially 

useful qualitative points, but the articles did not use rigorous or empirical 

methods to examine effectiveness.117 See the bibliography for a listing of 

the studies we reviewed in detail.118

We conducted this performance audit from January 2011 through 

February 2012 in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives.

 

116 Martin D. Abravanel, Nancy M. Pindus, and Brett Theodos, Evaluating Community and 

Economic Development Programs: A Literature Review to Inform Evaluation of the New 

Markets Tax Credit Program. Prepared by the Urban Institute at the request of the U.S. 

Department of the Treasury Community Development Financial Institutions (CDFI) Fund 

(Washington, D.C.: 2010).

117 David Listokin; et al., Second Annual Report on the Economic Impact of the Federal 

Historic Tax Credit, Rutgers University Edward J. Bloustein School of Planning and Public 

Policy (New Brunswick, N.J.: 2011).

118 See the Related GAO Products section of this report for a list of previously issued 

products we reviewed.
Appendix II: Universe of Community Development Tax Expenditures and Estimates of 

Revenue Losses and Outlays for Fiscal Year 2010

Page 67 GAO-12-262 Community Development Tax Expenditures

(Dollars in millions) 

Number Tax expenditure 

Fiscal year 

2010 estimated 

revenue losses

Fiscal year 

2010 

estimated 

outlays Budget function(s) Type

Taxpayer 

group Enactment date

Expiration date

(if applicable) a

Tax expenditures primarily promoting community development

a

1. Empowerment Zones and Renewal 

Communities (EZ/RC)b $730 N/A Community and regional development

Multiple Individual and 

corporate

8/10/1993 (EZ); 

12/21/2000 (RC)

12/31/2009 (RC); 

12/31/2011 (EZ)c

2. New Markets Tax Credit $720 N/A Community and regional 

development

Credit Individual and 

corporate

12/21/2000 12/31/2011 

3. Recovery Zone bondsd $0 $60 Community and regional 

development

Multiplee Individual and 

corporate

2/17/2009 12/30/2010

4. Tribal Economic Development 

Bonds

$10 N/A Community and regional 

development

Exclusione Individual and 

corporate

2/17/2009 N/Af

5. Indian employment creditg N/A h Community and regional 

development

Credit Individual and 

corporate

8/10/1993 12/31/2011

Tax expenditures supporting community development and other federal mission areas

6. Low-Income Housing Tax Credit 

(LIHTC)i $5,650 N/A Commerce and housing Credit Individual and corporate

10/22/1986 N/A

7. 20 percent credit for rehabilitation of 

historic structures

$390 N/A Natural resources and 

environment (Treasury); 

commerce and housing 

(JCT)

Credit Individual and 

corporate

11/5/1990 N/A

8. 10 percent credit for rehabilitation of 

structures (other than historic)

$20 N/A Community and regional 

development (Treasury); 

commerce and housing 

(JCT)

Credit Individual and 

corporate

11/5/1990 N/A

Appendix II: Universe of Community 

Development Tax Expenditures and Estimates of 

Revenue Losses and Outlays for Fiscal Year 2010 
Appendix II: Universe of Community Development Tax Expenditures and Estimates of 

Revenue Losses and Outlays for Fiscal Year 2010

Page 68 GAO-12-262 Community Development Tax Expenditures

(Dollars in millions) 

Number Tax expenditure 

Fiscal year 

2010 estimated 

revenue losses

Fiscal year 

2010 

estimated 

outlays Budget function(s) Type

Taxpayer 

group Enactment date

Expiration date

(if applicable) a

9.

a

Exclusion of gain or loss on sale or 

exchange of certain brownfield sites

$70 N/A Natural resources and 

environment (Treasury); 

commerce and housing 

(JCT)

Exclusion Individual and 

corporate

10/22/2004 12/31/2009j

10. Expensing of environmental 

remediation costs

$10 N/A Community and regional 

development

Deferral Individual and 

corporate

8/5/1997 12/31/2011

11. Exclusion of interest on rental 

housing bonds

$1,050 N/A Commerce and housing Exclusion Individual and 

corporate

12/5/1980 N/A

12. Exclusion of interest for airport, 

dock, and similar bonds

$840 N/A Community and regional 

development (Treasury); 

Transportation (JCT)

Exclusion Individual and 

corporate

6/28/1968 N/A

13. Exclusion of interest on bonds for 

water, sewage, and hazardous 

waste facilities

$460 N/A Natural resources and 

environment (Treasury); 

community and regional 

development (JCT)

Exclusion Individual and 

corporate

6/28/1968 (water 

and sewage 

facilities); 

10/22/1986 

(hazardous 

waste facilities)

N/A

14. Credit for holders of qualified zone 

academy bonds (QZAB)

$190 $10 Education, training, 

employment, and social 

services

Credite Corporate 8/5/1997 12/31/2011k

15. Exclusion of interest on public 

purpose state and local bondsl $30,440 N/A General purpose fiscal 

assistance

Exclusion Individual and 

corporate

8/16/1954l N/A

16. Build America Bondsl $0 $1,850 General purpose fiscal 

assistance (Treasury); 

community and regional 

development (JCT)

Credite Individual and 

corporate

2/17/2009 12/31/2010
Appendix II: Universe of Community Development Tax Expenditures and Estimates of 

Revenue Losses and Outlays for Fiscal Year 2010

Page 69 GAO-12-262 Community Development Tax Expenditures

(Dollars in millions) 

Number Tax expenditure 

Fiscal year 

2010 estimated 

revenue losses

Fiscal year 

2010 

estimated 

outlays Budget function(s) Type

Taxpayer 

group Enactment date

Expiration date

(if applicable) a

Disaster relief and recovery tax expendituresg

a

17. New York Liberty Zone N/A n Community and regional 

development

Multipleo Individual and 

corporate

3/9/2002 Varied 

18. Katrina Emergency Act N/A n Community and regional 

development

Multipleo Individual and 

corporate

9/23/2005 Varied 

19. Gulf Opportunity Zone $700 N/A Community and regional 

development

Multipleo Individual and 

corporate

12/22/2005 Varied 

20. Kansas disaster relief N/A n Community and regional 

development

Multipleo Individual and 

corporate

6/18/2008 Varied 

21. Midwest disaster relief $1,100 N/A Community and regional 

development

Multipleo Individual and 

corporate

10/3/2008 Varied 

22. National disaster relief $400 N/A Community and regional 

development

Multipleo Individual and 

corporate

10/3/2008 Varied 

23. Three-year carryback of small 

businesses’ and farmers’ casualty 

losses attributable to presidentially 

declared disasters

N/A p Community and regional 

development

Deduction Individual 8/5/1997 N/A

Sources: GAO analysis of Congressional Budget Office , IRS, JCT and OMB documentation.

Notes: Revenue losses and outlay effects reflect Treasury estimates from the President’s Fiscal Year 2012 budget unless otherwise specified. Treasury 

rounds revenue losses to the nearest $10 million. JCT rounds revenue losses to the nearest $100 million and does not report an estimated amount for 

revenue losses of less than $50 million. Revenue loss estimates do not incorporate any behavioral responses and thus do not necessarily represent the 

exact amount of revenue that would be gained if a specific tax expenditure were repealed.

N/A: Not applicable.

a

Enactment dates reflect the original enactment. Some tax expenditures originally due to expire may have been extended over time. Expiration date as 

of February 17, 2012. 

b

The EZ and RC programs offered packages of tax incentives in specific designated communities. Appendix IV lists seven EZ and six RC tax incentives.
Appendix II: Universe of Community Development Tax Expenditures and Estimates of 

Revenue Losses and Outlays for Fiscal Year 2010

Page 70 GAO-12-262 Community Development Tax Expenditures

c

According to HUD officials, all RC tax programs expired and are no longer available to RC designees as of December 31, 2009. All EZ tax programs 

expired and are no longer be available to EZ designees after December 31, 2011.

d

Includes both Recovery Zone Economic Development Bonds and Recovery Zone Facility Bonds.

e

For certain tax credit bonds, state, local, and tribal government issuers had the option of receiving a direct payment from the U.S. Treasury in the 

amount of the tax credit. Appendix IV describes these bond tax expenditures in more detail.

f

All $2 billion in available Tribal Economic Development bond volume was to be allocated by February 28, 2010, but Treasury and IRS have extended 

deadlines in order to reallocate unused bond authority. According to Treasury, tribal bonds issued as of November 2011 represented less than 3 percent 

of the available authority. 

g

Tax expenditure listed only by JCT.

h

JCT indicated a revenue loss of less than $50 million.

i

The American Recovery and Reinvestment Act (Recovery Act) established two funding programs that provide capital investments to LIHTC projects: (1) 

the Tax Credit Assistance Program (TCAP) administered by HUD and (2) the Grants to States for Low-Income Housing Projects in Lieu of Low-Income 

Housing Credits Program under Section 1602 of the Recovery Act (Section 1602 Program) administered by Treasury. The administration of the TCAP 

and Section 1602 programs is entirely separate from the administration of the LIHTC program. For fiscal year 2010, HUD outlayed about $1.05 billion of 

TCAP funds and Treasury had outlayed about $1.9 billion of Section 1602 Program funds.

j

In order to use the tax exclusion, brownfield properties must be purchased by December 31, 2009.

k

No allocation of QZAB tax credits is permitted after this date, though claimants are allowed to carry forward the provisions for 2 years.

l

While this bond provision may support community development, community development activities account for only a portion of the bond provisions’ 

costs.

mThe exclusion of interest on public-purpose state and local bonds has been in effect, in one form or another, since the enactment of the Revenue Act of 

1913, ch. 16, 38 Stat. 114.

n

JCT indicated a revenue loss of less than $50 million in fiscal year 2010.

o

Appendix VI lists the specific tax provisions and special rules available for certain presidentially declared disaster areas as well as projected revenue 

estimates at the time of enactment. Whereas revenue loss estimates are based on data about tax benefits claimed, projected revenue estimates for 

each package at time of enactment were based on projections of taxpayer use of tax benefits available; actual use of and resulting revenue losses for 

some provisions may have been lower than anticipated at time of enactment.

p

JCT did not quantify revenue losses for this tax expenditure.
Appendix III: Multiple Tax Expenditures Fund 

Community Development, Fiscal Year 2010

Page 71 GAO-12-262 Community Development Tax Expenditures

(Dollars in millions) 

Category Specific tax expenditure

Fiscal year 2010

total costs

Tax expenditures primarily 

promoting community development 

in distressed communities 

a

Empowerment Zones and Renewal Communities $730

New Markets Tax Credit $720

Other, subtotal $70

• Recovery Zone bonds $60 b

• Tribal Economic Development Bonds

c

$10

• Indian employment credit

Total – tax expenditures primarily promoting community development in distressed areas

d

$1,520

Tax relief for certain presidentially 

declared disaster areas

See Appendix VI for tax provisions and special rules available for disaster 

relief and recovery for specific presidentially declared disaster areas e

Tax expenditures supporting 

community development and other 

federal mission areas 

e

Affordable housing, subtotal $6.700

• Low-Income Housing Tax Creditf $5,650

• Exclusion of interest on rental housing bonds $1,050

Rehabilitation of older structures, subtotal $410

• 20 percent credit for rehabilitation of historic structures $390

• 10 percent credit for rehabilitation of structures (other than historic) $20

Brownfields development, subtotal $80

• Exclusion of gain or loss on sale or exchange of certain brownfield sites $70

• Expensing of environmental remediation costs $10

Infrastructure improvement, subtotal $1,500

• Exclusion of interest for airport, dock, and similar bonds $840

• Exclusion of interest on bonds for water, sewage, and hazardous waste 

facilities

$460

• Credit for holders of qualified zone academy bonds $200

Total – tax expenditures supporting community development and other federal mission areas

g

$8,690

Bond tax expenditures that may 

support community development

Exclusion of interest on public purpose state and local bonds h $30,440

Build America Bonds $1,850

Total – bond tax expenditures that may support community development

i

$32,290

Source: GAO analysis of Treasury and Joint Committee on Taxation (JCT) information.

a

Total costs include revenue losses and outlays estimated by Treasury unless otherwise specified.

b

Includes both Recovery Zone Economic Development Bonds and Recovery Zone Facility Bonds.

c

Total includes $60 million in outlays for fiscal year 2010.

d

JCT indicated a revenue loss of less than $50 million.

e

We did not sum total costs of disaster package tax expenditures listed by JCT to avoid double 

counting estimated revenue losses for Treasury tax expenditures we identified as promoting 

community development.

Appendix III: Multiple Tax Expenditures 

Fund Community Development, Fiscal Year 

2010
Appendix III: Multiple Tax Expenditures Fund 

Community Development, Fiscal Year 2010

Page 72 GAO-12-262 Community Development Tax Expenditures

f

The American Recovery and Reinvestment Act (Recovery Act) established two funding programs 

that provide capital investments to LIHTC projects: (1) the Tax Credit Assistance Program (TCAP) 

administered by HUD and (2) the Grants to States for Low-Income Housing Projects in Lieu of LowIncome Housing Credits Program under Section 1602 of the Recovery Act (Section 1602 Program) 

administered by Treasury. The administration of the TCAP and Section 1602 programs is entirely 

separate from the administration of the LIHTC program. For fiscal year 2010, HUD outlayed about 

$1.05 billion of TCAP funds and Treasury had outlayed about $1.9 billion of Section 1602 Program 

funds.

g

Total includes $190 million in revenue losses, and $10 million in outlays for fiscal year 2010.

h

While these bond tax expenditures may support community development, community development 

activities account for only a portion of the bond provisions’ costs.

i

Total includes $1,850 million in outlays for fiscal year 2010.
Appendix IV: Community Development Tax Expenditures by Description, and Targeted 

Geographies and Populations

Page 73 GAO-12-262 Community Development Tax Expenditures

Number Tax expenditure Description Targeted geographies and populations

Tax expenditures primarily promoting community development

1. Empowerment Zones and Renewal 

Communities (EZ/RC)

Businesses in designated Empowerment Zones (EZ) or 

Renewal Communities (RC) are eligible to claim various tax 

incentives, listed below.a These incentives may help reduce 

unemployment, generate economic growth, and stimulate 

community development and business activity. 

30 urban EZs, 10 rural EZs, 28 urban RCs and 12 rural RCs 

located throughout the United States. These areas consist of 

Census tracts that are economically depressed and meet 

statutory or regulatory requirements (based on 1990 Census 

data) for (1) poverty level, (2) overall unemployment, (3) total 

population, and (4) maximum required area of EZs or RCs. 

Additionally, the boundaries of RCs were expanded based on 

2000 Census data.

The eligibility requirements differed by round, by program, and 

between urban and rural nominees; for example, round I urban 

EZs (selected in 1993) were selected using 6 indicators of 

general distress, including incidence of crime and narcotics 

use and amount of abandoned housing, while urban and rural 

ECs (selected in 2000) were selected using 17 indicators, 

including number of persons on welfare and high school 

dropout rates.

• Employment credit (EZ/RC) Businesses may claim an annual tax credit of up to $3,000 or 

$1,500 for each employee living and working for the employer in 

an EZ or RC area, respectively.

Businesses in EZs and RCs, and employees living and 

working for the employer in EZs or RCs.

• Work Opportunity Tax Credit

(EZ/RC)

Businesses may claim a tax credit of up to $2,400 for each new 

employee age 18 to 39 living in an EZ/RC, or up to $1,200 for a 

youth summer hire ages 16 or 17 living in an EZ or RC.

Businesses in EZs and RCs, and employees living and 

working for the employer in EZs or RCs aged 18-39, or youth 

summer hires ages 16 or 17 living in an EZ or RC.

• Commercial Revitalization 

Deduction (RC)

Businesses may claim an accelerated method of depreciation to 

recover certain business costs of new or substantially 

rehabilitated commercial buildings located in an RC; states may 

allocate up to $12 million annually per RC for the provision.

New construction and rehabilitation projects in RCs.

• Increased Section 179 deduction 

(EZ/RC)

Businesses may claim an increased deduction of up to the 

smaller of $35,000 or the cost of eligible property purchases 

(including equipment and machinery) for businesses in an 

EZ/RC.

Businesses incurring costs for tangible personal property, such 

as equipment and machinery, for use in EZs or RCs.

Appendix IV: Community Development Tax 

Expenditures by Description, and Targeted 

Geographies and Populations
Appendix IV: Community Development Tax Expenditures by Description, and Targeted 

Geographies and Populations

Page 74 GAO-12-262 Community Development Tax Expenditures

Number Tax expenditure Description Targeted geographies and populations

• Facility Bonds (EZ) State and local governments can issue tax-exempt bonds to 

provide loans to qualified businesses to finance construction 

costs in EZs. State and local government entities can issue up 

to $60 million for each rural EZ, $130 million for each urban EZ 

with a population of less than 100,000, and $230 million for 

each urban EZ with a population greater than or equal to 

100,000. These bonds are not subject to state volume caps.

Large business projects tied to the employment of residents in 

EZs. 

• Rollover of capital gains (EZ) Owners of businesses located in EZs may be able to postpone 

part or all of the gain from the sale of a qualified EZ asset that 

they hold for more than 1 year.

Businesses located in EZs.

• Increased exclusion of capital 

gains (EZ)

Taxpayers can exclude 60 percent of their gain from the sale of 

small business stock in a corporation that qualifies as an 

enterprise zone business.

Enterprise zone businesses located in EZs.

• Exclusion of capital gains (RC) Owners of businesses located in RCs can exclude qualified 

capital gains from the sale or exchange of a qualified 

community asset held more than 5 years.

Businesses located in RCs.

2. New Markets Tax Credit (NMTC) Investors are eligible to claim a tax credit for investing in 

certified Community Development Entities (CDE) for 39 percent 

of the investment over 7 years. CDEs, in turn, invest in qualified 

low-income community investments such as mixed-use 

facilities, housing developments, and community facilities, 

which may contribute to employment in low-income 

communities.

Low-income communities defined as Census tracts (1) in 

which the poverty rate is at least 20 percent, or (2) outside a 

metropolitan area in which the median family income does not 

exceed 80 percent of median statewide family income or within 

a metropolitan area in which the median family income does 

not exceed 80 percent of the greater statewide or metropolitan 

area median family income. Low-income communities also 

include certain areas not within Census tracts, tracts with low 

population, and Census tracts with high-migration rural 

counties.
Appendix IV: Community Development Tax Expenditures by Description, and Targeted 

Geographies and Populations

Page 75 GAO-12-262 Community Development Tax Expenditures

Number Tax expenditure Description Targeted geographies and populations

3. Recovery Zone bonds State and local governments issuing Recovery Zone Economic 

Development Bonds (RZEDB) allow investors to claim a tax 

credit (equal to 45 percent of the interest rate established 

between the buyer and the issuer of the bond). States and 

localities also had the option of receiving a direct payment from 

the U.S. Treasury of equal value to the tax credit. Bond 

proceeds were to be used to fund (1) capital expenditures paid 

or incurred with respect to property located in the designated 

recovery zone (e.g., Empowerment Zones or Renewal 

Communities); (2) expenditures for public infrastructure and 

construction of public facilities; and (3) expenditures for job 

training and educational programs.

Individuals and corporations can exclude Recovery Zone 

Facility Bond (RZFB) interest income from their taxable income. 

Bond proceeds are used by state and local governments to 

finance projects pertaining to any trade or business, aside from 

exceptions listed below. More specifically, RZFBs may be 

issued for any depreciable property that (1) was constructed, 

reconstructed, renovated, or acquired after the date of 

designation of a “recovery zone;” (2) the original use of which 

occurs in the recovery zone; and (3) substantially all of the use 

of the property is in the active conduct of a “qualified business,” 

which is defined to include any trade or business except for 

residential rental facilities or other specifically listed projects 

under Internal Revenue Code 144(c)(6)(B), including golf 

courses, massage parlors, and gambling facilities. 

RZEDBs and RZFBs target any area designated “recovery 

zones”, including (1) areas having significant poverty, 

unemployment, rate of home foreclosures, or general distress; 

(2) areas that are economically distressed by reason of the 

closure or realignment of a military installation pursuant to the 

Defense Base Closure and Realignment Act of 1990; or is (3) 

any area for which an Empowerment Zone or Renewal 

Community was in effect as of February 17, 2009.

4. Tribal Economic Development Bonds Purchasers of Tribal Economic Development Bonds, a 

temporary category of tax-exempt bonds, could exclude that 

interest income from their taxable income.. Indian tribal 

governments were allowed greater flexibility to use the bonds to 

finance economic development projects, which in turn were to 

promote development on Indian reservations. Previously, Indian 

tribal governments could only issue tax-exempt bonds for 

essential government services.b

Indian reservations.
Appendix IV: Community Development Tax Expenditures by Description, and Targeted 

Geographies and Populations

Page 76 GAO-12-262 Community Development Tax Expenditures

Number Tax expenditure Description Targeted geographies and populations

5. Indian employment credit Businesses on Indian reservations are eligible to claim a tax 

credit for employing Indian tribal members and their spouses. 

The credit is for 20 percent of the first $20,000 in wages and 

health benefits paid to tribal members and spouses. This credit 

is intended to provide businesses with an incentive to hire 

certain individuals living on or near an Indian reservation.

Businesses on Indian reservations, and Indian tribal members 

and spouses.

Tax expenditures supporting community development and other federal mission areas

6. Low-Income Housing Tax Credit 

(LIHTC)

State housing finance agencies (HFA) award the tax credits to 

owners of qualified rental properties who reserve all or a portion 

of their units for occupancy for low-income tenants. Once 

awarded LIHTCs, project owners typically attempt to obtain 

funding for their projects by attracting third-party investors that 

contribute equity to the projects. These investors can then claim 

the tax credits. This arrangement of providing LIHTCs in return 

for an equity investment is generally referred to as “selling” the 

tax credits. The credit is claimed over a 10-year period, but a 

project must comply with LIHTC requirements for 15 years. A 9 

percent tax credit—intended to subsidize 70 percent of the 

qualified basis in present value terms—is available for the costs 

for new construction or substantial rehabilitation projects not 

otherwise subsidized by the federal government. An 

approximately 4 percent tax credit—intended to subsidize about 

30 percent of the qualified basis in present value terms—is 

available for the acquisition costs for existing buildings.c The 4 

percent credit is also used for housing financed with tax-exempt 

rental housing bonds. The low-income housing tax credit 

program is intended to stimulate the production of affordable 

rental housing nationwide for low-income households. 

Households with income at or below 60 percent of an area’s 

median gross income (AMGI).d

Qualified Census tracts and difficult development areas are 

eligible for additional credits. In a qualified Census tract, 50 

percent or more of the households have incomes of less than 

60 percent of the area’s median income. In a difficult 

development area, construction, land, and utility costs are high 

relative to the area’s median income.
Appendix IV: Community Development Tax Expenditures by Description, and Targeted 

Geographies and Populations

Page 77 GAO-12-262 Community Development Tax Expenditures

Number Tax expenditure Description Targeted geographies and populations

7. 20 percent credit for rehabilitation of 

historic structures

Building owners and private investors may qualify to claim a 20

percent tax credit for costs to substantially rehabilitate buildings 

that are on the National Register of Historic Places or are 

otherwise certified as historic by the National Park Service

(NPS). To be eligible for the credit, buildings must be used for 

offices; rental housing; or commercial, industrial, or agricultural 

enterprises. Building owners must hold the building for 5 years 

after completing the rehabilitation or pay back at least a portion 

of the credit. The credit is intended to attract private investment 

to the historic cores of cities and towns. The credit is also 

intended to generate jobs, enhance property values, and 

augment revenues for state and local governments through 

increased property, business and income taxes.

Certified historic buildings either listed individually in the 

National Register of Historic Places, or located in a registered 

historic district and certified by NPS as contributing to the 

historic significance of that district.

8. 10 percent credit for rehabilitation of 

structures (other than historic)

Individuals or corporations may claim a 10 percent tax credit for 

costs to substantially rehabilitate nonhistoric, nonresidential 

buildings placed into service before 1936. These structures 

must retain specified proportions of the buildings’ external and 

internal walls and internal structural framework. To be eligible 

for the credit, buildings must be used for offices or commercial, 

industrial, or agricultural enterprises. Qualified spending must 

exceed the greater of $5,000 or the adjusted basis (cost less 

depreciation taken) of the building spent in any 24-month 

period. The credit is intended to attract private investment to the 

historic cores of cities and towns. The credit is also intended to 

generate jobs, enhance property values, and augment revenues 

for state and local governments through increased property, 

business and income taxes.

Nonresidential buildings placed into service before 1936; 

especially those located in older neighborhoods and central 

cities. 

9. Exclusion of gain or loss on sale or 

exchange of certain brownfield sites 

Tax-exempt organizations may exclude gains or losses from the 

unrelated business income tax when they acquire and sell 

brownfield properties on which there has been an actual or 

threatened release of certain hazardous substances. This 

exclusion reduces the total cost of remediating environmentally 

damaged property and may attract the capital and enterprises 

needed to rebuild and redevelop polluted sites.

Environmentally contaminated sites identified as brownfields 

held for use in a trade or business on which there has been an 

actual or threatened release or disposal of certain hazardous 

substances. The exclusion does not target specific 

geographies or populations.
Appendix IV: Community Development Tax Expenditures by Description, and Targeted 

Geographies and Populations

Page 78 GAO-12-262 Community Development Tax Expenditures

Number Tax expenditure Description Targeted geographies and populations

10. Expensing of environmental 

remediation costs 

Firms may deduct expenses related to controlling or abating 

hazardous substances in a qualified brownfield property. This 

deduction subsidizes environmental cleanup and may help 

develop and revitalize urban and rural areas depressed from 

environmental contamination. 

Environmentally contaminated sites identified as brownfields 

held for use in a trade or business on which there has been an 

actual or threatened release or disposal of certain hazardous 

substances. The deduction does not target specific 

geographies or populations.

11. Exclusion of interest on rental 

housing bonds

Individuals and corporations can exclude private activity bond 

interest income from their taxable income. Bond proceeds are 

used by state and local governments to finance the construction 

of multifamily residential rental housing units for low- and 

moderate-income families. Low-income housing construction 

partly financed with the tax-exempt bonds may be used with the 

4 percent low-income housing tax credit.

Households with incomes at or below 60 percent of an area’s 

median gross income (AMGI).

12. Exclusion of interest for airport, dock, 

and similar bonds

Individuals and corporations can exclude private activity bond 

interest income from their taxable income. Bond proceeds are 

used by state and local governments to finance the construction 

of government-owned airports, docks, and wharves; mass 

commuting facilities such as bus depots and subway stations; 

and high-speed rail facilities and government-owned sport and 

convention facilities.

Infrastructure such as airports, docks, wharves, mass 

commuting facilities, and intercity rail facilities. The bond 

provision does not target specific geographies or populations.

13. Exclusion of interest on bonds for 

water, sewage, and hazardous waste 

facilities

Individuals and corporations can exclude private activity bond 

interest income from their taxable income. Bond proceeds are 

used by state and local governments to finance the construction 

of water, sewage, and hazardous waste facilities. 

Infrastructure such as water treatment plants, sewer systems 

and hazardous waste facilities; the bond provision does not 

target specific geographies or populations.
Appendix IV: Community Development Tax Expenditures by Description, and Targeted 

Geographies and Populations

Page 79 GAO-12-262 Community Development Tax Expenditures

Number Tax expenditure Description Targeted geographies and populations

14. Credit for holders of qualified zone

academy bonds (QZAB)

Banks, insurance companies, and other lending corporations 

that purchase qualified zone academy bonds are eligible to 

claim a tax credit equal to the dollar value of their bonds 

multiplied by a Treasury-set credit rate. Or, issuers had the 

option for qualified zone academies to receive a direct payment 

from the Treasury of equal value to the tax credit. School 

districts with qualified zone academies issue the bonds and use 

at least 95 percent of the bond proceeds to renovate facilities, 

provide equipment, develop course materials, or train personnel 

in such academies. Business or nonprofit partners must also 

provide at least a 10 percent match of QZAB funds, either in 

cash or in-kind donations, to qualified zone academies. The 

bond program helps school districts reduce the burden of 

financing school renovations and repairs.

Public schools below the college level that (1) are located in an 

Empowerment Zone, Enterprise Community or Renewal 

Community, or (2) have at least 35 percent of their student 

body eligible for free or reduced-cost lunches.

15. Exclusion of interest on public 

purpose state and local bonds

Individuals and corporations can exclude governmental bond 

interest income from their taxable income. State and local 

governments generally use bond proceeds to build capital 

facilities such as highways, schools, and government buildings.

Capital facilities owned and operated by governmental entities 

that serve the public interest. The bond provision does not 

target specific geographies or populations.

16. Build America Bonds (BAB) Individuals and corporations could claim a tax credit equal to 35 

percent of the interest rate established between the buyer and 

the issuer of the bond. State and local governments issuing 

BABs also had the option of receiving a direct payment from the 

Treasury of equal value to the tax credit. Bond proceeds were 

intended to be used for stimulating development of public 

infrastructure in communities, as well as to aid state and local 

governments. If issuers choose to receive a direct payment, 

then they must use bond proceeds for capital expenditures.

No specific geographies or populations are targeted. 
Appendix IV: Community Development Tax Expenditures by Description, and Targeted 

Geographies and Populations

Page 80 GAO-12-262 Community Development Tax Expenditures

Number Tax expenditure Description Targeted geographies and populations

Disaster relief and recovery tax expenditures

17. New York Liberty Zone Individuals and corporations affected by the September 11, 

2001, terrorist attacks were eligible for seven tax provisions. 

These provisions included tax-exempt bonds targeted toward 

reconstruction and renovation; a special depreciation allowance 

for certain property that was damaged or destroyed; and a tax 

credit for businesses to hire and retain employees in the New 

York Liberty Zone.e

Areas of Lower Manhattan affected by terrorist attacks 

occurring on September 11, 2001.

18. Katrina Emergency Act Individuals and corporations affected by Hurricane Katrina, 

which struck in August 2005, were eligible to claim 19 tax 

provisions for relief and recovery. These provisions included 

exemptions for housing displaced individuals; employee 

retention tax credits for affected businesses; and suspensions 

on limitations for corporate charitable contributions towards 

hurricane relief efforts.e

 

Hurricane Katrina disaster area (consisting of the states of 

Alabama, Florida, Louisiana, Mississippi), including core 

disaster areas determined by the President to warrant 

individual or individual and public assistance from the federal 

government following Hurricane Katrina in August 2005.

19. Gulf Opportunity Zone (GO Zone) Individuals and corporations affected by hurricanes Katrina, 

Rita, and Wilma, which struck between August-October 2005, 

were eligible to claim 33 GO Zone tax provisions. These 

provisions include tax-exempt bond financing, expensing for 

certain clean-up and demolition costs, and additional allocations 

of the New Markets Tax Credit for investments that served the 

GO Zone.e

 

Counties and parishes in Alabama, Florida, Louisiana, 

Mississippi and Texas that warranted additional, long-term 

federal assistance following Hurricanes Katrina, Rita and 

Wilma in 2005 were designated as Katrina, Rita and/or Wilma 

GO Zones.

20. Kansas disaster relief Individuals and corporations in the Kansas disaster zone 

affected by severe storms and tornadoes beginning on May 4, 

2007 could have claimed 13 tax provisions for relief and 

recovery. These provisions included suspensions of limitations 

on claiming personal casualty losses, employee retention tax 

credits for affected businesses, and expensing for certain cleanup and demolition costs.e

 

Twenty-four counties in Kansas affected by storms and 

tornadoes that began on May 4, 2007.
Appendix IV: Community Development Tax Expenditures by Description, and Targeted 

Geographies and Populations

Page 81 GAO-12-262 Community Development Tax Expenditures

Number Tax expenditure Description Targeted geographies and populations

21. Midwest disaster relief Individuals and corporations affected by severe storms, 

tornadoes or flooding in 10 states from May 20-July 31, 2008 

were eligible for a package of 26 tax benefits, including taxexempt bond financing, increased rehabilitation tax credits for 

damaged or destroyed structures, and suspensions of 

limitations on claiming personal casualty losses.e

 

Selected counties in 10 states affected by tornadoes, severe 

storms and flooding occurring from May 20-July 31, 2008.

22. National disaster relief Individuals and corporations situated in any federally declared 

disaster area during 2008 and 2009 were able to claim eight 

disaster relief and recovery tax provisions, including deductions 

for abatement or control of hazardous substances released on 

account of disasters, a 5-year carryback period for net operating 

losses from qualified disaster losses, and a special depreciation 

allowance for qualified disaster property.e

 

Individuals and businesses located in any geography declared

a disaster area in the United States during tax years 2008 and 

2009.

23. Three-year carry back of small 

businesses’ and farmers’ casualty 

losses attributable to presidentially 

declared disasters

Qualified small or farming businesses affected by disasters in 

federally declared disaster areas are eligible to claim a net 

operating loss for up to 3 years after the loss was incurred, 

instead of the usual 2 years generally permitted. This credit may 

allow small and farming businesses in communities declared 

disaster areas to recoup a portion of their losses following a 

disaster. 

Qualified small businesses and farming businesses located in 

any federally declared disaster area. Qualified small 

businesses are sole proprietorships or partnerships with 

average annual gross receipts (reduced by returns and 

allowances) of $5 million or less during the 3-year period 

ending with the tax year of the net operating loss. 

Sources: GAO analysis of CRS, Environmental Protection Agency (EPA), JCT, NPS and OMB documentation.

a

EZ and RC tax benefits also included tax credits for holders of Qualified Zone Academy Bonds (QZAB); see listing for QZAB tax expenditure.

b

For more information on the bond financing by Indian tribal governments, see GAO, Federal Tax Policy: Information on Selected Capital Facilities 

Related to the Essential Governmental Function Test, GAO-06-1082 (Washington, D.C.: Sept.13, 2006) and U.S. Department of the Treasury, Report 

and Recommendations to Congress reqarding Tribal Economic Development Bond provision under Section 7871 of the Internal Revenue Code

(Washington, D.C.: Dec. 19, 2011). 

c

For new buildings that are not federally subsidized and placed in service after July 30, 2008, and before December 31, 2013, the present value factor 

(applicable percentage) is no less than 9%. Otherwise, the applicable percentage is based on federal mid-term and long-term interest rates and 

fluctuates on a monthly basis. 

d

A taxpayer may elect to provide housing for households with income at or below 50 percent of AMGI.

e

In addition to the tax provisions highlighted here, appendix VI lists all tax provisions and special rules available under each disaster tax package.
Appendix V: Community Development Tax Expenditures by Volume Caps, Other Allocation

Limits, and Administration

Page 82 GAO-12-262 Community Development Tax Expenditures

Number Tax expenditure 

Volume cap or other allocation 

limits?

Involves administration by a federal 

agency outside IRS?

Involves administration by nonfederal 

entity?

Tax expenditures primarily promoting community development

1. Empowerment Zones and 

Renewal Communities (EZ/RC)

Varied. Five EZ and four RC tax 

incentives did not have any 

volume caps or allocation limits.a

Yes; HUD oversaw EZ programs in urban 

areas, and the USDA oversaw EZ programs 

in rural areas.

HUD is responsible for outreach efforts and 

serves as a promoter for EZs and RCs. HUD 

and IRS established a partnership regarding 

the EZ/RC tax incentives, where both HUD 

and IRS provide representation at workshops 

and conferences.

Yes; state and local governments nominate 

communities for EZ and RC designation. 

Nominated EZ communities had to submit a 

strategic plan showing how they would meet 

key program principles, while nominated RCs 

had to submit a written “course of action” with 

commitments to carry out specific legislatively 

mandated activities.

• RC Commercial Revitalization 

Deduction (CRD)

Limit of up to an annual total of 

$12 million per RC.

No; IRS has sole federal responsibility for the 

administration of the CRD program. HUD 

collected data from local administrators used 

for commercial projects in RCs.

Yes; state governments allocate CRD authority 

to eligible businesses engaged in commercial 

projects within RCs. 

• EZ Facility Bonds Limits on issuing EZ facility bond 

volume were up to $60 million for 

each rural EZ, up to $130 million 

for each urban EZ with a 

population of less than 100,000, 

and $230 million for each urban 

EZ with a population greater than 

or equal to 100,000.

No; IRS has sole federal responsibility for the 

administration of EZ facility bond program. 

HUD collected information from local 

administrators of EZs on the use of facility 

bonds used for construction projects in EZs.

Yes; state and local governments issue EZ 

facility bonds to finance construction costs. 

Appendix V: Community Development Tax 

Expenditures by Volume Caps, Other 

Allocation Limits, and Administration
Appendix V: Community Development Tax Expenditures by Volume Caps, Other Allocation 

Limits, and Administration

Page 83 GAO-12-262 Community Development Tax Expenditures

Number Tax expenditure 

Volume cap or other allocation 

limits?

Involves administration by a federal 

agency outside IRS?

Involves administration by nonfederal 

entity?

2. New Markets Tax Credit (NMTC) Yes; the maximum amount of 

annual investment eligible for 

NMTCs was $3.5 billion each 

year in calendar years 2010 and 

2011.

Yes; the Treasury Community Development 

Financial Institutions (CDFI) Fund certifies 

organizations as community development 

entities (CDE), CDFI Fund also provides 

allocations of NMTCs to CDEs through a 

competitive process.

The CDFI Fund is responsible for monitoring 

CDEs to ensure that CDEs are compliant with 

their allocation agreements through the New 

Markets Compliance Monitoring System and, 

on a more limited basis, by making site visits 

to selected CDEs. The CDFI Fund also 

provides IRS with access to CDFI data for 

monitoring CDEs’ compliance with NMTC 

laws and regulations.

Yes; once a CDE receives an allocation of tax 

credits, the CDE can offer the tax credits to 

investors, who in turn acquire stock or a capital 

interest in the CDE. The investor can gain a 

potential return for a “qualified equity 

investment” in the CDE. In return for providing 

the tax credit to the investor, the CDE receives 

proceeds from the offer and must invest 

“substantially all” of such proceeds into qualified 

low-income community investments. 

3. Recovery Zone bonds Yes; the Recovery Zone 

Economic Development Bond 

(RZEDB) and Recovery Zone 

Facility Bond (RZFB) programs 

had national volume caps of $10 

billion and $15 billion, 

respectively.b These volume 

caps were allocated among the 

states and counties and large 

municipalities within the states 

based on relative declines in 

employment in 2008.

Yes; Treasury determined the amount of 

RZEDB and RZFB volume cap allocations 

received by each state and the District of 

Columbia based on declines in employment 

levels for each state and the District during 

2008 relative to declines in national 

employment levels during the same period.

Yes; each state was responsible for allocating 

shares of RZEDB and RZFB volume caps to 

counties and large municipalities based on 

declines in employment levels for such areas 

during 2008 relative to declines in employment 

levels for all counties and municipalities in such 

states during the same period. State and local 

governments issued RZEDBs, and had the 

option of allowing investors to claim a tax credit 

for the bonds. States and localities also had the 

option of receiving a direct payment from the 

Treasury of equal value to the tax credit.
Appendix V: Community Development Tax Expenditures by Volume Caps, Other Allocation 

Limits, and Administration

Page 84 GAO-12-262 Community Development Tax Expenditures

Number Tax expenditure 

Volume cap or other allocation 

limits?

Involves administration by a federal 

agency outside IRS?

Involves administration by nonfederal 

entity?

4. Tribal Economic Development 

Bonds

Yes; the bond program had a $2 

billion national volume cap.c Yes; Treasury allocated bond capacity to Indian tribal governments in consultation with 

the Secretary of Interior, and the Department 

of Interior (Interior) maintains updated lists of 

Indian tribal entities that are eligible to apply 

for allocations of bond volume. Interior may 

also issue letters to Indian tribal entities 

indicating federal recognition of such entities 

in order to demonstrate eligibility for the bond 

program. 

Yes; Indian tribal governments applied for Tribal 

Economic Development Bonds, issued the 

bonds, and used proceeds from bond sales to 

finance economic development projects or 

nonessential governmental activities.

Indian tribal governments had the option of 

allowing investors to claim a tax credit for the 

bonds. Indian tribal governments also had the 

option of receiving a direct payment from the 

Treasury of equal value to the tax credit. 

5. Indian employment credit No No No

Tax expenditures supporting community development and other federal mission areas

6. Low-Income Housing Tax Credit 

(LIHTC)

Yes; in 2010, the allocation limit 

was the greater of $2.10 percapita or $2.43 million for each 

state, U.S. territory, and the 

District of Columbia. The per 

capita amount is subject to cost 

of living adjustments.

No; the IRS has sole federal responsibility for 

the administration of LIHTC program. 

However, the program is closely coordinated 

with HUD housing programs for the 

computation of the area median gross income 

(AMGI) used to determine household 

eligibility and maximum rents, as well as the 

definition of income. he IRS also uses HUD’s 

Uniform Physical Condition Standards to 

determine whether the low-income housing is 

suitable for occupancy.d

HUD also maintains a LIHTC database with 

information on the project address, number of 

units and low-income units, number of 

bedrooms, year the credit was allocated, year 

the project was placed in service, whether the 

project was new construction or rehabilitation, 

type of credit provided, and other sources of 

project financing.

Yes; state housing finance agencies (HFA) 

award LIHTCs to owners of qualified lowincome housing projects based on each state’s 

qualified allocation plan, which generally

establishes a state’s selection criteria for how its 

LIHTCs will be awarded. Additionally, state 

HFAs monitor LIHTC properties for compliance 

with Internal Revenue Code requirements, such 

as rent ceilings and income limits for tenants, 

and report noncompliance to the IRS.e
Appendix V: Community Development Tax Expenditures by Volume Caps, Other Allocation 

Limits, and Administration

Page 85 GAO-12-262 Community Development Tax Expenditures

Number Tax expenditure 

Volume cap or other allocation 

limits?

Involves administration by a federal 

agency outside IRS?

Involves administration by nonfederal 

entity?

7. 20 percent credit for preservation 

of historic structures

No Yes; the Secretary of Interior sets Standards 

of Rehabilitation for claiming the tax credit. 

Within Interior, NPS maintains a National 

Register of Historic Places; approves 

applications for rehabilitation projects 

proposing use of the 20 percent rehabilitation 

tax credit; and certifies whether completed 

projects meet the Secretary’s standards and 

are eligible for the tax credit.

NPS may inspect a rehabilitated property at 

any time during the five-year period following 

certification of rehabilitation for claiming the 

20 percent preservation tax credit, and NPS 

may revoke certification if work was not done 

according to standards set by the agency. 

NPS also notifies the IRS of such revocations 

or dispositions so the tax credit may be 

recaptured.

Yes; state historic preservation offices (SHPO) 

review applications and forward 

recommendations for historic designation of 

structures to NPS, provide program information 

and technical assistance to applicants, and 

conduct site visits. SHPOs may also inspect a 

rehabilitated property at any time during a fiveyear period following completion of a 

rehabilitation project using the tax credit.

8. 10 percent credit for rehabilitation 

of structures (other than historic)

No Yes; NPS determines whether buildings in 

historic districts do not contribute to such 

districts and, consequently, are not deemed 

to be historic structures. Such decertification 

is required before owners of such structures 

can claim for the 10 percent tax credit. 

Yes; SHPOs review decertification applications 

and forward recommendations to NPS, provide 

program information and technical assistance to 

applicants. 

9. Exclusion of gain or loss on sale 

or exchange of certain brownfield 

sites 

No Yes; EPA maintains a National Priority List of 

properties; such listed properties are ineligible 

for the tax incentive.

Yes; state environmental agencies certify 

brownfield properties on which there has been 

an actual or threatened release or disposal of 

certain hazardous substances. Following 

certification, taxpayers may incur eligible 

remediation expenditures and claim the tax 

provision.
Appendix V: Community Development Tax Expenditures by Volume Caps, Other Allocation 

Limits, and Administration

Page 86 GAO-12-262 Community Development Tax Expenditures

Number Tax expenditure 

Volume cap or other allocation 

limits?

Involves administration by a federal 

agency outside IRS?

Involves administration by nonfederal 

entity?

10. Expensing of environmental 

remediation costs 

No Yes; EPA maintains a National Priority List of 

properties; such listed properties are ineligible 

for the tax incentive.

Yes; state environmental agencies certify 

brownfield properties on which there has been 

an actual or threatened release or disposal of 

certain hazardous substances. Following 

certification, site owners may claim the tax 

deduction, including for some expenditures 

incurred from prior tax years.

11. Exclusion of interest on rental 

housing bonds

Yes, the bond provision is 

subject to the private activity 

bond annual volume cap for each 

state.f 

No Yes; state and local governments, typically 

housing finance agencies, may issue bonds and 

use proceeds from bond sales to finance the 

construction of multifamily residential rental 

housing units for low- and moderate-income 

families. 

12. Exclusion of interest for airport, 

dock, and similar bonds

Varied; bond for the construction 

of mass commuting facilities, and 

25 percent of bond issues for 

privately-owned intercity rail 

facilities, are included in the 

private activity bond annual state 

volume cap (government-owned 

facilities are exempted).f

Bonds for airports, docks and 

wharves are not subject to the 

private-activity bond volume cap 

or other restrictions.

No Yes; state and local governments may issue 

bonds, and use proceeds from bond sales to 

finance construction of airports, docks, wharves, 

mass commuting facilities and intercity rail 

facilities.

13. Exclusion of interest on bonds for 

water, sewage, and hazardous 

waste facilities

Yes, the bond provisions are 

subject to the private activity 

bond annual volume cap for each 

state.f 

No Yes; state and local governments may issue 

bonds, and then use proceeds from bond sales 

to finance capital improvements for water, 

sewer and hazardous waste facilities.
Appendix V: Community Development Tax Expenditures by Volume Caps, Other Allocation 

Limits, and Administration

Page 87 GAO-12-262 Community Development Tax Expenditures

Number Tax expenditure 

Volume cap or other allocation 

limits?

Involves administration by a federal 

agency outside IRS?

Involves administration by nonfederal 

entity?

14. Credit for holders of qualified zone 

academy bonds (QZAB) 

Yes; the bond provision has 

national volume caps of $1.4 

billion in 2010, and $400 million 

in 2011. 

Yes; Treasury determines the credit rate of 

QZABs and allocates shares of QZAB volume 

to state education agencies on the basis of 

the states’ respective populations of 

individuals below the poverty line (as defined 

by OMB).

Yes; state education agencies determine the 

share of QZAB volume allocated to qualified 

zone academies, and issues QZABs following 

approval by local education agencies.

Local education agencies issue QZABs after 

applying for and obtaining permission from 

states.

Business or nonprofit partners provide at least a 

10 percent match of QZAB funds, either in cash 

or in-kind donations, to qualified zone 

academies. 

15. Exclusion of interest on public 

purpose state and local bonds

No No Yes; state, and local governments may issue 

bonds, and then use proceeds from bond sales 

to finance eligible projects—primarily public 

infrastructure projects such as highways, 

schools, and government buildings.g

16. Build America Bonds (BAB) No No Yes; state and local governments issued the 

bonds, and then use proceeds from bond sales 

to finance expenditures typically funded by taxexempt governmental bonds (excluding private 

activity bonds), such as for schools, 

transportation infrastructure, and water and 

sewer systems. State and local governments 

had the option of allowing investors to claim a 

tax credit for the bonds. States and localities 

also had the option of receiving a direct 

payment from the Treasury of equal value to the 

tax credit. 
Appendix V: Community Development Tax Expenditures by Volume Caps, Other Allocation 

Limits, and Administration

Page 88 GAO-12-262 Community Development Tax Expenditures

Number Tax expenditure 

Volume cap or other allocation 

limits?

Involves administration by a federal 

agency outside IRS?

Involves administration by nonfederal 

entity?

Disaster relief and recovery tax expenditures

17. New York Liberty Zone Varied.h Authority to designate 

up to $8 billion in tax-exempt 

private activity bonds (New York 

Liberty bonds) and $9 billion in 

advance refunding bonds.

No Yes; the Governor of the State of New York and 

the Mayor of New York City were allowed to 

issue tax-exempt New York Liberty bonds, and 

use proceeds to finance reconstruction and 

renovation projects within the New York Liberty 

Zone. The Governor and Mayor were allowed to 

issue advance refunding bonds to pay principal, 

interest, or redemption price on certain prior 

issues of bonds issued for facilities located in 

New York City (and certain water facilities 

located outside of New York City). 

18. Katrina Emergency Act No No No

19. Gulf Opportunity Zone (GO Zone) Varied.h Multiple provisions 

within the tax expenditure 

package have volume caps or 

other revenue loss limitations.

Varied; multiple provisions within the tax 

expenditure package involved administration 

by federal agencies besides IRS. 

Varied; multiple provisions within the tax 

expenditure package involved administration by 

state and local governments and other entities. 

Advance refunding of state and 

local tax-exempt bonds

The maximum amount of 

advance refunding for certain 

governmental and qualified 

501(c)(3) bonds that may have 

been issued was capped at $4.5 

billion in the case of Louisiana, 

$2.25 billion in the case of 

Mississippi, and $1.125 billion in 

the case of Alabama.

No State and local governments in the GO Zone—

Alabama, Louisiana, and Mississippi—issued 

advance refunding bonds.

Tax credit bonds Gulf Tax Credit Bonds had a 

volume cap of $200 million for 

Louisiana, $100 million for 

Mississippi, and $50 million for 

Alabama.

Yes; Treasury determines the credit rate of 

Gulf Tax Credit Bonds. 

State and local governments in the GO Zone—

Alabama, Louisiana, and Mississippi—issued 

Gulf Tax Credit Bonds to help pay principal, 

interest, and premiums on outstanding state 

and local government bonds.
Appendix V: Community Development Tax Expenditures by Volume Caps, Other Allocation 

Limits, and Administration

Page 89 GAO-12-262 Community Development Tax Expenditures

Number Tax expenditure 

Volume cap or other allocation 

limits?

Involves administration by a federal 

agency outside IRS?

Involves administration by nonfederal 

entity?

Tax-exempt bond financing 

beyond state volume caps

The maximum aggregate face 

amount of GO Zone Bonds that 

may have been issued in 

Alabama, Louisiana or 

Mississippi was capped at 

$2,500 multiplied by the 

population of the respective state 

within the GO Zone; no other 

states were eligible for taxexempt bond financing.

No State and local governments in the GO Zone—

Alabama, Louisiana, and Mississippi—issued 

bonds, though state governments approved 

projects for bond financing.

Increased credit cap and other 

modified provisions for use of the 

Low-Income Housing Tax Credit 

(LIHTC)

A special allocation of the LIHTC 

was issued for each of three 

years (2006, 2007 and 2008) to

each of the States within the GO 

Zone. Each year’s special 

allocation was capped at $18.00 

multiplied by the population of 

the respective state in the GO 

Zone. In addition, the otherwise 

applicable LIHTC ceiling amount 

was increased for Florida and 

Texas by $3,500,000 per State.

No See above description of the LIHTC regarding 

the involvement of state housing finance 

agencies (HFA). 

New Markets Tax Credit (NMTC) - 

additional allocations for lowincome community investments

An additional allocation of the

New Markets Tax Credit (NMTC) 

in amounts equal to $300 million 

for 2005 and 2006, and $400 

million for 2007, were to be 

allocated among qualified 

community development entities 

(CDE) to make qualified lowincome community investments 

within the Gulf Opportunity Zone.

See above description of the NMTC regarding 

involvement of the Community Development 

Financial Institutions (CDFI) Fund.

See above description of the NMTC regarding 

the involvement of CDEs. 

20. Kansas disaster relief No No No
Appendix V: Community Development Tax Expenditures by Volume Caps, Other Allocation 

Limits, and Administration

Page 90 GAO-12-262 Community Development Tax Expenditures

Number Tax expenditure 

Volume cap or other allocation 

limits?

Involves administration by a federal 

agency outside IRS?

Involves administration by nonfederal 

entity?

21. Midwest disaster relief Varied.h Multiple provisions 

within the tax expenditure 

package have volume caps or 

other revenue loss limitations.

Varied; multiple provisions within the tax 

expenditure package involved administration 

by federal agencies besides IRS.

Varied; multiple provisions within the tax 

expenditure package involved administration by 

state and local governments.

Tax credit bonds The maximum amount of 

Midwestern Tax Credit Bonds 

that may have been issued was 

capped at: (1) $100 million for 

any state with an aggregate 

population located in all Midwest 

disaster areas within the state of 

at least 2,000,000; (2) $50 million 

for any state with an aggregate 

population located in all Midwest 

disaster areas within the state of 

at least 1,000,000 but less than 

2,000,000; and (3) $0 for any 

other state.

Yes; Treasury determines the credit rate of 

Midwestern Tax Credit Bonds.

State governments in the Midwest disaster area 

issued Midwestern tax credit bonds to help pay 

principal, interest and premiums on outstanding

state and local government bonds.

Tax-exempt bond financing 

beyond state volume caps

The maximum aggregate face 

amount of Midwestern disaster 

zone bonds that may have been 

issued in any state in which a 

Midwestern disaster area was 

located, was capped at $1,000 

multiplied by the population of 

the respective state within the 

Midwestern disaster zone; no 

other states were eligible for taxexempt bond financing.

No State and local governments in the Midwest 

disaster area issued bonds.
Appendix V: Community Development Tax Expenditures by Volume Caps, Other Allocation 

Limits, and Administration

Page 91 GAO-12-262 Community Development Tax Expenditures

Number Tax expenditure 

Volume cap or other allocation 

limits?

Involves administration by a federal 

agency outside IRS?

Involves administration by nonfederal 

entity?

Increased credit cap and other 

modified provisions for use of the 

Low-Income Housing Tax Credit 

(LIHTC)

A special allocation of the LIHTC 

was issued for each of three 

years (2008, 2009, and 2010) to 

any state in which a Midwest 

disaster area was located. Each 

year’s special allocation was 

capped at $8.00 multiplied by the 

population of the respective state 

in a Midwest disaster area.

No See above description of the LIHTC regarding 

the involvement of state housing finance 

agencies (HFA). 

22. National disaster relief No No Yes; for the provision allowing expensing of 

environmental remediation costs from disasters, 

state environmental agencies certify brownfield 

properties on which there has been an actual or 

threatened release or disposal of certain 

hazardous substances as a result of a federally 

declared disaster. 

23. Three-year carry back of small 

businesses’ and farmers’ casualty 

losses attributable to presidentially 

declared disasters

No No No

Sources: GAO analysis of CRS, EPA, IRS, JCT, Office of the Comptroller of Currency (OCC), and OMB information.

a

EZ/RC also included tax credits for holders of qualified zone academy bonds (QZAB); see listing for QZAB tax expenditure.

b

State and local governments had the authority to issue RZEDBs and RZFBs from February 17, 2009 through December 31, 2010.

c

All $2 billion in available Tribal Economic Development bond volume was to be allocated by February 28, 2010, but Treasury and IRS have extended 

deadlines in order to reallocate unused bond authority. According to Treasury, tribal bonds issued as of November 2011 represented less than 3 percent 

of the available authority. 
Appendix V: Community Development Tax Expenditures by Volume Caps, Other Allocation 

Limits, and Administration

Page 92 GAO-12-262 Community Development Tax Expenditures

d

The American Recovery and Reinvestment Act (Recovery Act) established two temporary funding programs that provided capital investments LIHTC 

projects: (1) the Tax Credit Assistance Program (TCAP) administered by the Department of Housing and Urban Development (HUD) and (2) the Grants 

to States for Low-Income Housing Projects in Lieu of Low-Income Housing Credits Program under Section 1602 of the Recovery Act (Section 1602 

Program) administered by the Department of the Treasury (Treasury). The administration of the TCAP and Section 1602 programs is entirely separate 

from the administration of the LIHTC program by IRS. HUD obligated Recovery Act Tax Credit Assistance Program (TCAP) funds to provide gap 

financing to State Housing Finance Agencies (HFA) for capital investment in LIHTC projects that were awarded tax credits in fiscal year 2007, 2008 or 

2009, and was able to recapture such funds from any HFA whose projects do not comply with TCAP requirements. Under the Recovery Act Section 

1602 program, whose funds were designed for use in lieu of LIHTCs, Treasury provided payments to HFAs in exchange for a portion of their 2009 

ceiling (up to 100 percent of unused 2008 LIHTCs and 40 percent of their 2009 allocation) for grant funds at the rate of 85 cents for every tax credit 

dollar, and can recapture such funds from any HFA whose projects do not comply with Section 1602 requirements.

e

For information on the activities of state HFAs in administering the Recovery Act TCAP and Section 1602 programs, see GAO, Recovery Act: 

Opportunities to Improve Management and Strengthen Accountability over States’ and Localities’ Uses of Funds, GAO-10-999 (Washington, D.C.: Sept. 

20, 2010).

f

In 2010, the private activity bond annual volume cap for each state was equal to the greater of $90 per-capita or about $273.8 million. The volume cap is 

tied to inflation by legislation and is adjusted annually.

g

Tribal governments are authorized to issue tax-exempt bonds only if substantially all of the proceeds are used for essential governmental functions or 

certain manufacturing facilities.

h

Appendix VI lists the specific tax provisions and special rules available from this package of disaster relief and recovery tax expenditures.
Appendix VI: Tax Provisions and Special Rules Available for Disaster Relief and Recovery in 

Specific Presidentially Declared Disaster Areas

Page 93 GAO-12-262 Community Development Tax Expenditures

Tax provision

or special rule Description

Tax packages supporting disaster relief and recovery

New York 

Liberty 

Zone

Katrina 

Emergency 

Act a

Gulf 

Opportunity 

Zone b

Kansas 

disaster 

relief c

Midwest 

disaster 

relief d

National 

disaster 

relief e

Number of 

packages 

where 

provision

is used f

Bond provisions

Bonds issued by state and local governments

1. Advance 

refunding of state 

and local taxexempt bonds

Legislation targeted towards the New York Liberty Zone 

and the Gulf Opportunity Zones (GO Zone) allowed an 

additional advance refunding to redeem certain prior taxexempt bond issuances from state and local 

governments. The provision allowed state and local 

governments to refund, or refinance, bonds that are not 

redeemed within 90 days after the refunding bonds are 

issued.

X X 2 

2. Determination 

of income eligibility 

for residential 

rental project 

requirements to 

qualify for taxexempt facility 

bond financing

Residential rental property may be financed with taxexempt facility bonds issued by state and local 

governments, if the financed project is a “qualified 

residential rental project” with required ratios of residents 

with certain income limitations. Under the provision, the 

operator of a qualified residential rental project may rely 

on the representations of prospective tenants displaced 

by reason of certain disasters to determine whether such 

individual satisfies the income limitation for a qualified 

residential rental project.

X X X 3 

Appendix VI: Tax Provisions and Special Rules 

Available for Disaster Relief and Recovery in 

Specific Presidentially Declared Disaster Areas
Appendix VI: Tax Provisions and Special Rules Available for Disaster Relief and Recovery in 

Specific Presidentially Declared Disaster Areas

Page 94 GAO-12-262 Community Development Tax Expenditures

Tax provision

or special rule Description

Tax packages supporting disaster relief and recovery

New York 

Liberty 

Zone

Katrina 

Emergency 

Act a

Gulf 

Opportunity 

Zone b

Kansas 

disaster 

relief c

Midwest 

disaster 

relief d

National 

disaster 

relief e

Number of 

packages 

where 

provision

is used f

3. Special rules for 

mortgage revenue 

bonds

Mortgage revenue bonds are tax-exempt bonds issued by 

state and local governments to make mortgage loans to 

qualified mortgagors for the purchase, improvement, or 

rehabilitation of owner-occupied residences, and are 

typically required to exclusively finance mortgages for 

“first-time homebuyers.” Qualified mortgage revenue 

bonds, may be issued in targeted disaster areas without a 

first-time homebuyer financing requirement. Additionally, 

the permitted amount of qualified home-improvement 

loans increases from $15,000 to $150,000 for residences 

in a disaster zone.

X X X X 4 

4. Tax credit 

bonds

State and local governments in GO Zones and the 

Midwest disaster area may have issued tax credit bonds 

in areas affected by certain disasters. 95 percent of these 

bonds must be used to (1) pay principal, interest, or

premium on outstanding bonds (other than private activity 

bonds) issued by state and local governments, or (2) 

make a loan to any political subdivision (e.g., local 

government) of such state to pay principal, interest, or 

premium on bonds (other than private activity bonds) 

issued by such political subdivision. These bonds differed 

from tax-exempt bonds in that rather than receiving taxexempt interest payments, bondholders were entitled to a 

federal tax credit equal to a certain percentage of their 

investment.

X X 2 
Appendix VI: Tax Provisions and Special Rules Available for Disaster Relief and Recovery in 

Specific Presidentially Declared Disaster Areas

Page 95 GAO-12-262 Community Development Tax Expenditures

Tax provision

or special rule Description

Tax packages supporting disaster relief and recovery

New York 

Liberty 

Zone

Katrina 

Emergency 

Act a

Gulf 

Opportunity 

Zone b

Kansas 

disaster 

relief c

Midwest 

disaster 

relief d

National 

disaster 

relief e

Number of 

packages 

where 

provision

is used f

5. Tax-exempt 

bond financing 

beyond state 

volume caps 

In certain disaster areas, tax-exempt bonds for qualified 

private activities may have been issued and were not 

restricted by aggregate annual state private activity bond 

limits. These bonds allow state and local governments to 

finance the construction or rehabilitation of properties 

following a disaster.

X X X 3 

Bonds issued by Treasury

6. Gulf Coast 

Recovery Bonds

Treasury named Series I inflation-indexed savings bonds 

purchased through financial institutions as “Gulf Coast 

Recovery Bonds” from March 29-December 31, 2006, in 

order to encourage public support for recovery and 

rebuilding efforts in areas devastated by Hurricanes 

Katrina, Rita, and Wilma. Proceeds from the sale of the

bonds were not specifically designated for hurricane relief 

and recovery efforts.

X 1 

Credits

7. Credit for 

employer-provided 

housing

The provision provided a temporary tax credit of 30 

percent to qualified employers for the value of employerprovided lodging to qualified employees affected by 

certain disasters. The amount taken as a credit was not 

deductible by the employer.

X X 2 

8. Employee 

retention credit for 

employers

Certain disaster relief tax packages included a credit of 40 

percent of the qualified wages (up to a maximum of 

$6,000 in qualified wages per employee) paid by an 

eligible employer that conducted business in a disaster 

zone and whose operations were rendered inoperable by 

the disaster.

X X X X 4 
Appendix VI: Tax Provisions and Special Rules Available for Disaster Relief and Recovery in 

Specific Presidentially Declared Disaster Areas

Page 96 GAO-12-262 Community Development Tax Expenditures

Tax provision

or special rule Description

Tax packages supporting disaster relief and recovery

New York 

Liberty 

Zone

Katrina 

Emergency 

Act a

Gulf 

Opportunity 

Zone b

Kansas 

disaster 

relief c

Midwest 

disaster 

relief d

National 

disaster 

relief e

Number of 

packages 

where 

provision

is used f

9. Expansion of 

Hope Scholarship 

Credit 

For 2005, the Hope Scholarship Credit rate was 100 

percent on the first $1,000 of qualified tuition and related 

expenses, and 50 percent on the next $1,000 of qualified 

tuition and related expenses. For 2005, the Hope credit 

was temporarily increased for students attending eligible 

educational institutions in the GO Zone to 100 percent of 

the first $2,000 in qualified tuition and related expenses 

and 50 percent of the next $2,000 of qualified tuition and 

related expenses, for a maximum credit of $3,000 per 

student. For 2006, this provision increased the tax credit 

again to 100 percent of the first $2,200 of qualified tuition 

and related expenses (instead of $1,100 under standard 

law in 2006), and 50 percent of the next $2,200 of 

qualified tuition and related expenses (instead of $1,100) 

for a maximum credit of $3,300 per student (instead of 

$1,650). For 2008 and 2009, the Hope scholarship credit 

was extended to students attending eligible educational 

institutions in the Midwestern disaster area, based on 

increased credit rates enacted in 2006. 

X X 2 

10. Expansion of 

Lifetime Learning 

Credit 

Individual taxpayers are typically allowed to claim a 

nonrefundable credit, the Lifetime Learning Credit, equal 

to 20 percent of qualified tuition and related expenses of 

up to $10,000 (resulting in a total credit of up to $2,000) 

incurred during the taxable year on behalf of the taxpayer, 

the taxpayer’s spouse, or any dependents. The Lifetime 

Learning Credit rate was temporarily increased from 20 

percent to 40 percent for students attending institutions in 

certain disaster areas.

X X 2 
Appendix VI: Tax Provisions and Special Rules Available for Disaster Relief and Recovery in 

Specific Presidentially Declared Disaster Areas

Page 97 GAO-12-262 Community Development Tax Expenditures

Tax provision

or special rule Description

Tax packages supporting disaster relief and recovery

New York 

Liberty 

Zone

Katrina 

Emergency 

Act a

Gulf 

Opportunity 

Zone b

Kansas 

disaster 

relief c

Midwest 

disaster 

relief d

National 

disaster 

relief e

Number of 

packages 

where 

provision

is used f

11. Increase in 

rehabilitation tax 

credits with 

respect to certain 

property

The provision increased from 20 to 26 percent, and from 

10 to 13 percent, respectively, the preservation credits 

with respect to any certified historic structure or qualified 

rehabilitated building located in certain disaster areas, 

provided the qualified rehabilitation expenditures with 

respect to such buildings or structures were incurred 

during an established period of time following the disaster. 

X X 2 

12. Increased 

credit cap and 

other modified 

provisions for use 

of the Low-Income 

Housing Tax 

Credit (LIHTC)

The LIHTC cap amount increased for affected states 

within the GO Zones and the Midwestern disaster area. 

Also, rules concerning implementation of the LIHTC were 

modified for the GO Zone; in the case of property placed 

in service from 2006-2008 in a nonmetropolitan area 

within the GO Zone, LIHTC income targeting rules are 

applied by using a national nonmetropolitan median gross 

income standard instead of the area median gross income 

standard typically applied to low-income housing projects.

X X 2 

13. New Markets 

Tax Credit 

(NMTC)— 

additional 

allocations for lowincome community 

investments

The provision allowed an additional allocation of NMTCs 

in an amount equal to $300 million for 2005 and 2006, 

and $400 million for 2007, to be allocated among qualified 

community development entities to make qualified lowincome community investments within the Katrina GO 

Zone. 

X 1 
Appendix VI: Tax Provisions and Special Rules Available for Disaster Relief and Recovery in 

Specific Presidentially Declared Disaster Areas

Page 98 GAO-12-262 Community Development Tax Expenditures

Tax provision

or special rule Description

Tax packages supporting disaster relief and recovery

New York 

Liberty 

Zone

Katrina 

Emergency 

Act a

Gulf 

Opportunity 

Zone b

Kansas 

disaster 

relief c

Midwest 

disaster 

relief d

National 

disaster 

relief e

Number of 

packages 

where 

provision

is used f

14. Special lookback rule for 

determining 

Earned Income 

Tax Credit and 

Refundable Child 

Credit

Individuals whose principle residence were in certain 

disaster areas or were otherwise displaced from their 

homes by disasters may have elected to calculate their 

Earned Income Tax Credit and Refundable Child Credit 

for the taxable year when the disaster occurred using their 

earned income from the prior taxable year.

X X X 3 

15. Work 

Opportunity Tax 

Credit—expansion 

to certain disaster 

areas

Employers hiring and retaining individuals who worked in 

certain disaster areas were eligible to claim up to $2,400 

in Work Opportunity Tax Credits per employee (or 40 

percent of up to the first $6,000 of wages). Employees in 

other targeted categories for the tax credit (e.g., qualified 

veterans or families receiving food stamps) are typically 

required to provide certification from a designated local 

agency of their inclusion in such groups on or before they 

begin work, or their employer provides documentation to 

said agencies no later than 28 days after the employee 

begins work. However, employees who worked and/or 

lived in certain disaster areas do not require certification 

from such agencies for employers to qualify for the tax

credit.

X X 2 
Appendix VI: Tax Provisions and Special Rules Available for Disaster Relief and Recovery in 

Specific Presidentially Declared Disaster Areas

Page 99 GAO-12-262 Community Development Tax Expenditures

Tax provision

or special rule Description

Tax packages supporting disaster relief and recovery

New York 

Liberty 

Zone

Katrina 

Emergency 

Act a

Gulf 

Opportunity 

Zone b

Kansas 

disaster 

relief c

Midwest 

disaster 

relief d

National 

disaster 

relief e

Number of 

packages 

where 

provision

is used f

Deductions

Carryback of net operating losses (NOL)g

16. Carryback of 

NOLs— special 5-

year carryback for 

qualified disaster 

losses 

Under present law, a net operating loss (NOL) is, 

generally, the amount by which a taxpayer’s business 

deductions exceed its gross income. In general, an NOL 

may be carried back 2 years and carried over 20 years to 

offset taxable income in such years. NOLs offset taxable 

income in the order of the taxable years to which the NOL 

may be carried. This provision provided a special 5-year 

carryback period for NOLs to the extent of qualified 

disaster losses in any presidentially declared disaster 

area during 2008 and 2009.

X 1 

17. Five-year NOL 

carryback for 

aggregate amount 

of certain 

deductions

Individuals and corporations affected by certain disasters 

may have carried back NOLs, for a period of 5 years, of 

the sum of the aggregate amount of deductions from such 

disasters, including deductions for qualified casualty 

losses; certain moving expenses; certain temporary 

housing expenses; depreciation deductions with respect 

to qualified property in disaster areas for the taxable year 

the property was placed into service; and certain repair 

expenses resulting from applicable disasters.

X X X 3 

18. Five-year NOL 

carryback of 

certain timber 

losses

A NOL to a farming business may have been carried back 

for five years if such loss was attributable to any portion of 

qualified timber property which was located in the Katrina 

or Rita GO Zones.

X 1 
Appendix VI: Tax Provisions and Special Rules Available for Disaster Relief and Recovery in 

Specific Presidentially Declared Disaster Areas

Page 100 GAO-12-262 Community Development Tax Expenditures

Tax provision

or special rule Description

Tax packages supporting disaster relief and recovery

New York 

Liberty 

Zone

Katrina 

Emergency 

Act a

Gulf 

Opportunity 

Zone b

Kansas 

disaster 

relief c

Midwest 

disaster 

relief d

National 

disaster 

relief e

Number of 

packages 

where 

provision

is used f

19. Five-year NOL 

carryback of public 

utility casualty 

losses 

The provision provided an election for taxpayers who 

incurred casualty losses attributable to certain disasters 

with respect to public utility property located in applicable 

disaster zones. Under the election, such losses may be 

carried back 5 years immediately preceding the taxable 

year in which the loss occurred. If the application of this 

provision resulted in the creation or increase of a NOL for 

the year in which the casualty loss is taken into account,

the NOL may be carried back or carried over as under 

present law applicable to NOLs for such year.

X X 2 

20. Special rule for 

NOLs from public 

utility casualty 

losses

The provision provided an election for taxpayers to treat 

any GO Zone public utility casualty loss caused by 

Hurricane Katrina as a specified liability loss to which the 

present-law 10-year carryback period applies. The 

amount of the casualty loss is reduced by the amount of 

any gain recognized by the taxpayer from involuntary 

conversions of public utility property (e.g. physical 

destruction of such property) located in the GO Zone 

caused by Hurricane Katrina. Taxpayers who elect to use 

this provision are not eligible to treat the loss as part of 

the 5-year net operating loss carryback provided under 

another provision of the GO Zone Act (see 5-year NOL 

carryback of public utility casualty losses mentioned 

above).

X 1 
Appendix VI: Tax Provisions and Special Rules Available for Disaster Relief and Recovery in 

Specific Presidentially Declared Disaster Areas

Page 101 GAO-12-262 Community Development Tax Expenditures

Tax provision

or special rule Description

Tax packages supporting disaster relief and recovery

New York 

Liberty 

Zone

Katrina 

Emergency 

Act a

Gulf 

Opportunity 

Zone b

Kansas 

disaster 

relief c

Midwest 

disaster 

relief d

National 

disaster 

relief e

Number of 

packages 

where 

provision

is used f

Casualty loss tax provisions

21. Suspension of 

certain limitations 

on personal 

casualty losses

The provision suspended two limitations on personal 

casualty or theft losses to the extent those losses arise in 

certain disaster areas and are attributable to such 

disasters. First, personal casualty or theft losses meeting 

the above requirements needed not exceed $100 per 

casualty or theft; present law at the time contained a 

required threshold of $100. Second, such losses were 

deductible without regard to whether aggregate net losses 

exceed 10 percent of a taxpayer’s adjusted gross income, 

which was standard under present law at the time the 

disasters took place. The provision treats personal 

casualty or theft losses from the pertinent disaster as a 

deduction separate from other casualty losses.

X X X X 4 
Appendix VI: Tax Provisions and Special Rules Available for Disaster Relief and Recovery in 

Specific Presidentially Declared Disaster Areas

Page 102 GAO-12-262 Community Development Tax Expenditures

Tax provision

or special rule Description

Tax packages supporting disaster relief and recovery

New York 

Liberty 

Zone

Katrina 

Emergency 

Act a

Gulf 

Opportunity 

Zone b

Kansas 

disaster 

relief c

Midwest 

disaster 

relief d

National 

disaster 

relief e

Number of 

packages 

where 

provision

is used f

22. Casualty 

losses attributable 

to federally 

declared disasters

The provision removed one limitation on personal casualty 

or theft losses to the extent those losses arise in federally 

declared disaster areas during 2008 and 2009. More 

specifically, losses were deductible without regard to 

whether aggregate net losses exceed 10 percent of a 

taxpayer’s adjusted gross income, which was standard 

under present law at the time the disasters took place. 

The provision treats personal casualty or theft losses from 

federally declared disasters as a deduction separate from 

other casualty losses. However, present law at the time 

contained a required threshold of $100 for meeting 

requirements to claim losses, and this provision increases 

the threshold to $500. These rules are in effect for all 

federally declared disaster areas in 2008 and 2009 aside 

from those areas declared “Midwestern disaster areas” 

from flooding, tornadoes, and storms in 2008. The portion 

of the provision increasing the limitation per casualty to 

$500 only applies to 2009.

X 1 

Charitable contribution tax provisions

23. Charitable 

deduction for 

contributions of 

book inventories

Under present law, a taxpayer’s deduction for charitable 

contributions of inventory generally is limited to the 

taxpayer’s basis (typically cost) in the inventory, or if less, 

the fair market value of the inventory. Under this 

provision, a C Corporation was eligible to claim an 

enhanced deduction for qualified book donations. An 

enhanced deduction is equal to the lesser of (1) basis plus 

one-half of the item’s appreciation (basis plus one-half of 

fair market value in excess of basis) or (2) two times 

basis.

X 1 
Appendix VI: Tax Provisions and Special Rules Available for Disaster Relief and Recovery in 

Specific Presidentially Declared Disaster Areas

Page 103 GAO-12-262 Community Development Tax Expenditures

Tax provision

or special rule Description

Tax packages supporting disaster relief and recovery

New York 

Liberty 

Zone

Katrina 

Emergency 

Act a

Gulf 

Opportunity 

Zone b

Kansas 

disaster 

relief c

Midwest 

disaster 

relief d

National 

disaster 

relief e

Number of 

packages 

where 

provision

is used f

24. Charitable 

deduction for 

contributions of 

food inventories

Under present law, a taxpayer’s deduction for charitable 

contributions of inventory generally is limited to the 

taxpayer’s basis (typically cost) in the inventory, or if less, 

the fair market value of the inventory. Under this 

provision, any taxpayer, whether or not a C corporation, 

engaged in a trade or business was eligible to claim an 

enhanced deduction for donations of food inventory. An 

enhanced deduction is equal to the lesser of (1) basis plus 

one-half of the item’s appreciation (i.e., basis plus onehalf of fair market value in excess of basis) or (2) two 

times basis. For taxpayers other than C corporations, the 

total deduction for donations of food inventory in a taxable 

year generally may not exceed 10 percent of the 

taxpayer’s net income for such taxable year from which 

contributions of apparently wholesome food are made.

X 1 

25. Increase in 

standard mileage 

rate for charitable 

use of vehicles

The provision allowed a taxpayer using a vehicle while 

donating services to charity for the provision of relief 

related to certain disasters to compute charitable mileage 

deduction using a rate equal to 70 percent of the business 

mileage rate in effect on the date of the contribution, 

rather than the charitable standard mileage rate generally 

in effect under law.

X X 2 

26. Temporary 

suspension of 

limits on charitable 

contributions

The provision allowed for qualified contributions up to the 

amount by which an individual’s contribution base 

(adjusted gross income without regard to any NOL 

carryback) or corporation’s taxable income exceeds the 

deduction for other charitable contributions. Contributions 

in excess of this amount are carried over to succeeding 

taxable years subject to limitations under law.

X X X 3 
Appendix VI: Tax Provisions and Special Rules Available for Disaster Relief and Recovery in 

Specific Presidentially Declared Disaster Areas

Page 104 GAO-12-262 Community Development Tax Expenditures

Tax provision

or special rule Description

Tax packages supporting disaster relief and recovery

New York 

Liberty 

Zone

Katrina 

Emergency 

Act a

Gulf 

Opportunity 

Zone b

Kansas 

disaster 

relief c

Midwest 

disaster 

relief d

National 

disaster 

relief e

Number of 

packages 

where 

provision

is used f

Depreciation and expensingg

27. Additional firstyear depreciation 

for property

The provision allowed an additional first-year depreciation 

deduction equal to a percentage of the adjusted basis of 

qualified property; the percentage varies depending on 

the disaster area where the property is located, e.g., 30 

percent for New York Liberty Zone, 50 percent for GO 

Zones, Kansas Disaster Zone, and other areas in the U.S. 

declared disaster areas under national disaster relief. 

X X X X 4 

28. Expensing for 

certain demolition 

and clean-up costs

A taxpayer was permitted a deduction for 50 percent of 

qualified disaster clean-up costs, such as removal of 

debris or demolition of structures, paid or incurred for an 

established period of time following certain disasters.

X X X X 4 

29. Expensing of 

repair of businessrelated property

Under the provision, a taxpayer may have elected to treat 

any repair of business-related property affected by 

presidentially declared disasters, including repairs that are 

paid or incurred by the taxpayer, as a deduction for the 

taxable year in which paid or incurred.

X 1 
Appendix VI: Tax Provisions and Special Rules Available for Disaster Relief and Recovery in 

Specific Presidentially Declared Disaster Areas

Page 105 GAO-12-262 Community Development Tax Expenditures

Tax provision

or special rule Description

Tax packages supporting disaster relief and recovery

New York 

Liberty 

Zone

Katrina 

Emergency 

Act a

Gulf 

Opportunity 

Zone b

Kansas 

disaster 

relief c

Midwest 

disaster 

relief d

National 

disaster 

relief e

Number of 

packages 

where 

provision

is used f

30. Extension of 

expensing for 

environmental 

remediation costs

Taxpayers may typically elect to deduct (or “expense”) 

certain environmental remediation expenditures that 

would otherwise be chargeable to a capital account, in the 

year paid or incurred. The deduction applies for both 

regular and alternative minimum tax purposes. The 

expenditure must be incurred in connection with the 

abatement or control of hazardous substances at a 

qualified contaminated site. The provision was extended 

beyond present law for qualified contaminated sites 

located in the GO Zone and Midwestern disaster zones, 

as well as federally declared disaster areas in 2008 and 

2009. The length of such extensions depended on the 

applicable disaster zone.

X X X 3 

31. Five-year 

depreciation of 

qualified leasehold 

improvement 

property

Qualified improvements made on leasehold property in 

the New York Liberty Zone could have been depreciated 

over a 5-year period using the straight-line method of 

depreciation, instead of the 39-year period standard under 

present law. Qualified leasehold property improvements 

included improvements to nonresidential real property, 

such as additional walls and plumbing and electrical 

improvements made to an interior portion of a building.

X 1 
Appendix VI: Tax Provisions and Special Rules Available for Disaster Relief and Recovery in 

Specific Presidentially Declared Disaster Areas

Page 106 GAO-12-262 Community Development Tax Expenditures

Tax provision

or special rule Description

Tax packages supporting disaster relief and recovery

New York 

Liberty 

Zone

Katrina 

Emergency 

Act a

Gulf 

Opportunity 

Zone b

Kansas 

disaster 

relief c

Midwest 

disaster 

relief d

National 

disaster 

relief e

Number of 

packages 

where 

provision

is used f

32. Increased 

Section 179 

expensing

In lieu of depreciation, a taxpayer with a sufficiently small 

amount of annual investment may elect to expense 

qualified property placed in service for the taxable year 

under section 179 of the Internal Revenue Code. 

Taxpayers in certain disaster areas were eligible to 

increase the maximum dollar amount of Section 179 

expensing for qualified property, which is generally 

defined as depreciable tangible personal property that is 

purchased for use in the active conduct of a trade or 

business. Taxpayers in the New York Liberty Zone could 

deduct an additional amount up to the lesser of $35,000 

or the cost of the qualified Section 179 property put into 

service during the calendar year. Taxpayers in the GO 

Zone, Kansas Disaster Zone or disaster zones covered 

under “National Disaster Relief” could deduct an 

additional amount up to the lesser of $100,000 or the cost 

of the qualified Section 179 property put into service 

during the calendar year.

X X X X 4 

33. Increased 

expensing for 

reforestation 

expenditures of 

small timber 

producers

The provision doubled, for certain taxpayers, the presentlaw expensing limit of $10,000 for reforestation 

expenditures paid or incurred by such taxpayers for 

certain periods of time with respect to qualified timber 

property in the Katrina, Rita and Wilma GO Zones. For 

example, single taxpayers may have claimed $20,000 

instead of $10,000 for eligible reforestation expenditures.

X 1 
Appendix VI: Tax Provisions and Special Rules Available for Disaster Relief and Recovery in 

Specific Presidentially Declared Disaster Areas

Page 107 GAO-12-262 Community Development Tax Expenditures

Tax provision

or special rule Description

Tax packages supporting disaster relief and recovery

New York 

Liberty 

Zone

Katrina 

Emergency 

Act a

Gulf 

Opportunity 

Zone b

Kansas 

disaster 

relief c

Midwest 

disaster 

relief d

National 

disaster 

relief e

Number of 

packages 

where 

provision

is used f

34. Treasury 

authority to grant 

bonus 

depreciation 

placed-in-service 

date relief

The Internal Revenue Code allowed an additional firstyear depreciation deduction equal to 30 or 50 percent of 

the adjusted basis of qualified property, including (1) 

property to which the modified accelerated cost recovery 

system applies with an applicable recovery period of 20 

years or less, (2) water utility property, (3) certain 

computer software, or (4) qualified leasehold improvement 

property placed in service by December 31, 2005. Under 

this provision, the Secretary of Treasury had authority to 

further extend the placed-in-service date (beyond Dec. 31, 

2005), on a case-by-case basis, for up to 1 year for 

certain property eligible for the December 31, 2005 

placed-in-service date under present law. The authority 

extended only to property placed in service or 

manufactured in the Katrina, Rita or Wilma GO Zones. In 

addition, the authority extended only to circumstances in 

which the taxpayer was unable to meet the December 31, 

2005 deadline as a result of Hurricanes Katrina, Rita, 

and/or Wilma.

X 1 

Exemptions

35. Additional 

exemption for 

housing displaced

individuals

The provision provided an additional exemption of $500 

for each displaced individual of a taxpayer affected by 

certain disasters. The taxpayer may have claimed the 

additional exemption for no more than four individuals; 

thus the maximum additional exemption amount was 

$2,000.

X 1 
Appendix VI: Tax Provisions and Special Rules Available for Disaster Relief and Recovery in 

Specific Presidentially Declared Disaster Areas

Page 108 GAO-12-262 Community Development Tax Expenditures

Tax provision

or special rule Description

Tax packages supporting disaster relief and recovery

New York 

Liberty 

Zone

Katrina 

Emergency 

Act a

Gulf 

Opportunity 

Zone b

Kansas 

disaster 

relief c

Midwest 

disaster 

relief d

National 

disaster 

relief e

Number of 

packages 

where 

provision

is used f

Exclusions and deferrals

36. Exclusion of 

certain 

cancellations of 

indebtedness

Individuals whose principal residence was located in the 

Hurricane Katrina core disaster area or certain portions of 

the Midwestern disaster area on the date that a disaster 

was declared may generally exclude any nonbusiness 

debt from gross income, such as a mortgage, that is 

discharged by an applicable entity on or after the 

applicable disaster date for an established time period. If

the individual’s primary residence was located in the 

Hurricane Katrina disaster area (outside the core disaster 

area) or other portions of the Midwestern disaster area, 

the individual must also have had an economic loss 

because of the disaster.

X X 2 

37. Extension of 

replacement 

period for 

nonrecognition of 

gain

A taxpayer may have elected not to recognize gain with 

respect to property that was involuntarily converted, or 

destroyed, if the taxpayer acquired qualified replacement 

property within an applicable period, which is typically 2 

years. The replacement period for property that was 

involuntarily converted in certain disaster areas is 5 years 

after the end of the taxable year in which a gain is 

realized. Substantially all of the use of the replacement 

property must be within the affected area.

X X X X 4 
Appendix VI: Tax Provisions and Special Rules Available for Disaster Relief and Recovery in 

Specific Presidentially Declared Disaster Areas

Page 109 GAO-12-262 Community Development Tax Expenditures

Tax provision

or special rule Description

Tax packages supporting disaster relief and recovery

New York 

Liberty 

Zone

Katrina 

Emergency 

Act a

Gulf 

Opportunity 

Zone b

Kansas 

disaster 

relief c

Midwest 

disaster 

relief d

National 

disaster 

relief e

Number of 

packages 

where 

provision

is used f

38. Housing relief 

for individuals 

through employerprovided housing 

exclusion 

The provision provided a temporary income exclusion for 

the value of in-kind lodging provided for a month to a 

qualified employee (and the employee’s spouse or 

dependents) affected by certain disasters by or on behalf 

of a qualified employer. The amount of the exclusion for 

any month for which lodging is furnished could not have 

exceeded $600. The exclusion did not apply for purposes 

of Social Security and Medicare taxes or unemployment 

tax.

X X 2 

39. Mileage 

reimbursement to 

charitable 

volunteers 

excluded from 

gross income

Under the provision, reimbursement by charitable 

organizations to a volunteer for the costs of using a 

passenger automobile in providing donated services to 

charity for relief of certain disasters was excludable from 

the gross income of the volunteer. The reimbursement 

was allowed up to an amount that did not exceed the 

business standard mileage rate prescribed for business 

use.

X X 2 

Special rules for use of retirement funds

40. Tax-favored 

withdrawals from 

retirement plans

The provision provided an exception to the 10 percent 

early withdrawal tax in the case of a qualified distribution 

of up to $100,000 from a qualified retirement plan, such 

as a 401(k) plan), a 403(b) annuity, or an IRA. Income 

from a qualified distribution may have been included in 

income ratably over 3 years, and the amount of a qualified 

distribution may have been recontributed to an eligible 

retirement plan within 3 years.

X X X X 4 
Appendix VI: Tax Provisions and Special Rules Available for Disaster Relief and Recovery in 

Specific Presidentially Declared Disaster Areas

Page 110 GAO-12-262 Community Development Tax Expenditures

Tax provision

or special rule Description

Tax packages supporting disaster relief and recovery

New York 

Liberty 

Zone

Katrina 

Emergency 

Act a

Gulf 

Opportunity 

Zone b

Kansas 

disaster 

relief c

Midwest 

disaster 

relief d

National 

disaster 

relief e

Number of 

packages 

where 

provision

is used f

41. 

Recontributions of 

withdrawals for 

cancelled home 

purchases

In general, under the provision, a qualified distribution 

received from certain retirement plans in order to 

purchase a home in certain disaster areas may be 

recontributed to such plans in certain circumstances. The 

provision applies to an individual who receives a qualified 

distribution that was to be used to purchase or construct a 

principal residence in a disaster area, but the residence is 

not purchased or constructed on account of the disaster.

X X X X 4 

42. Loans from 

qualified plans to 

individuals 

sustaining an 

economic loss

Under this provision, residents whose principal residence 

was located in designated disaster areas and who 

suffered economic loss as a result of such disasters may 

borrow up to $100,000 from their employer plan. In 

addition to increasing the aggregate plan loan limit from 

the usual $50,000, the provision also relaxed other 

requirements relating to plan loans.

X X X X 4 

43. Plan 

amendments 

relating to disaster 

relief

The provision permits certain retirement plan 

amendments made pursuant to changes made under 

Section 1400Q of the Internal Revenue Code, or 

regulations issued there under, to be retroactively 

effective. In order for this treatment to apply, the plan 

amendment is required to be made on or before the last 

day of the first plan year beginning on or after January 1, 

2007, or such later date as provided by the Secretary of 

the Treasury. Governmental plans are given an additional 

2 years in which to make required plan amendments.

X X X X 4 
Appendix VI: Tax Provisions and Special Rules Available for Disaster Relief and Recovery in 

Specific Presidentially Declared Disaster Areas

Page 111 GAO-12-262 Community Development Tax Expenditures

Tax provision

or special rule Description

Tax packages supporting disaster relief and recovery

New York 

Liberty 

Zone

Katrina 

Emergency 

Act a

Gulf 

Opportunity 

Zone b

Kansas 

disaster 

relief c

Midwest 

disaster 

relief d

National 

disaster 

relief e

Number of 

packages 

where 

provision

is used f

Miscellaneous provisions

44. Required 

exercise of IRS 

administrative 

authority

The Secretary of the Treasury was required to provide 

certain administrative relief to taxpayers affected by 

certain presidentially declared disasters. Such relief 

allows for postponement of actions required by law, such 

as filing tax returns, paying taxes, or filing a claim for 

credit or refund of tax, for an applicable period of time 

following a disaster.

X X 2 

45. Secretarial 

authority to make 

adjustments 

regarding taxpayer 

and dependency 

status

The provision authorized the Secretary of the Treasury to 

make such adjustments in the application of federal tax 

laws to ensure that taxpayers did not lose any deduction 

or credit or experience a change of filing status by reason 

of temporary relocations caused by applicable disasters. 

Any adjustments made under this provision must insure 

that an individual is not taken into account by more than 

one taxpayer with respect to the same tax benefit.

X X X 3 

Total provisions by disaster relief packages 7 19 33 13 26 8 (h) 

Sources: GAO analysis based on IRS and JCT documentation; see appendix I for a more detailed explanation of our methodology and sources.

a

The New York Liberty Zone package of tax provisions was enacted by the Job Creation and Worker Assistance Act of 2002 (Pub. L. No. 107-147), and 

targeted areas of Lower Manhattan affected by terrorist attacks occurring on September 11, 2001. On enactment, CBO and JCT projected total revenue 

effects of $5,029 million for the disaster provisions for fiscal years 2002 through 2012.

b

The Katrina Emergency Act package was enacted by the Katrina Emergency Tax Relief Act of 2005 (Pub. L. No. 109-73), and targeted the Hurricane 

Katrina disaster area (consisting of the states of Alabama, Florida, Louisiana, and Mississippi), including core disaster areas determined by the 

President to warrant individual or individual and public assistance from the federal government following Hurricane Katrina in August 2005. On 

enactment, JCT projected total budget effects of $6,109 million for fiscal years 2006 through 2015.
Appendix VI: Tax Provisions and Special Rules Available for Disaster Relief and Recovery in 

Specific Presidentially Declared Disaster Areas

Page 112 GAO-12-262 Community Development Tax Expenditures

c

The Gulf Opportunity Zone package was enacted by the Gulf Opportunity (GO) Zone Act of 2005 (Pub. L. No. 109-135). Counties and parishes in 

Alabama, Florida, Louisiana, Mississippi and Texas that warranted additional, long-term federal assistance following Hurricanes Katrina, Rita and Wilma 

in 2005 were designated as Katrina, Rita and/or Wilma GO Zones. Portions of the Katrina and Rita GO Zones overlapped with counties and parishes 

eligible for relief under the Katrina Emergency Tax Relief Act. The Gulf Opportunity Zone tax package also included some nondisaster-related tax 

provisions: election to treat combat pay as earned income for purposes of the Earned Income Tax Credit; modifications of suspension of interest and 

penalties where IRS fails to contact taxpayer; authority for undercover operations; disclosure of tax information to facilitate combined employment tax 

reporting; disclosure of return information regarding terrorist activities; disclosure of return information to carry out contingent repayment of student 

loans; and various tax technical corrections. On enactment, JCT projected total budget effects of $8,715 million for the disaster provisions for fiscal years 

2006 through 2015.

d

The Kansas disaster relief package was enacted by the Food, Conservation, and Energy Act of 2008 (Pub. L. No. 110-246). The Kansas disaster relief 

package targeted 24 counties in Kansas affected by storms and tornadoes that began on May 4, 2007. On enactment, JCT projected total revenue 

effects of $63 million for the disaster provisions for fiscal years 2008 though 2018.

e

The Midwest disaster relief package was enacted by the Emergency Economic Stabilization Act of 2008, Energy Improvement and Extension Act of 

2008, and Tax Extenders and the Alternative Minimum Tax Relief Act of 2008 (Pub. L. No. 110-343). The Midwest disaster relief package targeted 

selected counties in 10 states affected by tornadoes, severe storms and flooding occurring from May 20-July 31, 2008. The listed components 

associated with the Midwest disaster relief package do not include rules outlining IRS reporting requirements for contributions to disaster relief; these 

rules apply for tax returns due after December 31, 2008. On enactment, JCT projected total revenue effects of $4,576 million for the Midwest disaster 

provisions for fiscal years 2009 through 2018.

f

The National disaster relief package was enacted by the Emergency Economic Stabilization Act of 2008, Energy Improvement and Extension Act of 

2008, and Tax Extenders and the Alternative Minimum Tax Relief Act of 2008 (Pub. L. No. 110-343). The National disaster relief package targeted 

individuals and businesses located in any geography declared a disaster area in the United States during tax years 2008 and 2009. Certain provisions of 

the National Disaster Relief Act of 2008 do not apply to the Midwest disaster areas because the Heartland and Hurricane Ike Disaster Relief Act, part of 

the same legislation that resulted in the National Disaster Relief Act, provides other tax benefits. On enactment, JCT projected total revenue effects of 

$8,091 million for fiscal years 2009 through 2018.

g

The provisions relating to additional first-year depreciation, increased expensing under section 179, and the 5-year carryback of net operating losses 

attributable to casualty losses, depreciation, or amortization did not apply with respect to certain property. Specifically, the provisions did not apply with 

respect to any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, or any store the principal business of 

which is the sale of alcoholic beverages for consumption off premises. The provisions also did not apply with respect to any gambling or animal racing 

property.

h

The numbers of provisions across the six disaster relief packages exceeds the total number of provisions because some tax provisions and special 

rules were part of more than one disaster package.
Appendix VII: Potential Duplication, Overlap, 

and Fragmentation among Economic 

Development Spending Programs

Page 113 GAO-12-262 Community Development Tax Expenditures

In March 2011 and more recently in May 2011, we reported on the 

potential for duplication among 80 federal economic development 

programs at four agencies—the Departments of Commerce (Commerce), 

Housing and Urban Development (HUD), and Agriculture (USDA) and the 

Small Business Administration (SBA).119

Our work as of May 2011 suggested that the design of each of these 80 

economic development programs appears to overlap with that of at least 

one other spending program in terms of the economic development 

activity that they are authorized to fund, as shown in table 12. For 

example, 35 programs can fund infrastructure, and 27 programs can fund 

commercial buildings. Some of the 80 economic development programs 

are targeted to economically distressed areas. 

According to the agencies, 

funding provided for these 80 programs in fiscal year 2010 amounted to 

$6.2 billion, of which about $2.9 billion was for economic development 

efforts, largely in the form of grants, loan guarantees, and direct loans. 

Some of these 80 programs can fund a variety of activities, including such 

noneconomic development activities as rehabilitating housing and 

building community parks.

Table 12: Economic Development Programs by Agency 

Activity 

Number of programs by agency

Commerce HUD SBA a USDA Total b

Entrepreneurial efforts 9 12 19 14 54

Infrastructure 4 12 1 18 35

Plans and strategies 7 13 13 7 40

Commercial buildings 4 12 4 7 27

New markets 6 10 6 6 28

Telecommunications 3 11 2 8 24

Business incubators 5 12 7 24

Industrial parks 5 11 5 21

Tourism 5 10 4 19

Source: GAO-11-477R. 

a

HUD did not identify Empowerment Zones among its economic development programs.

 

119 See GAO-11-318SP and GAO-11-477R. The latter provides additional details on each 

of the 80 economic development programs, including administering agency, funding 

received in fiscal year 2010, economic activities eligible for funding, area served based on 

population density, primary recipients targeted by program, and award type.

Appendix VII: Potential Duplication, Overlap, 

and Fragmentation among Economic 

Development Spending Programs
Appendix VII: Potential Duplication, Overlap, 

and Fragmentation among Economic 

Development Spending Programs

Page 114 GAO-12-262 Community Development Tax Expenditures

b

USDA identified Empowerment Zones among its economic development programs and supporting 

each of the nine economic development activities.

In February 2012, we reported our findings to date on overlap and 

fragmentation among 53 economic development programs that support 

entrepreneurial efforts.120 Based on a review of the missions and other 

related program information for these 53 programs, we determined that 

these programs overlap based not only on their shared purpose of 

serving entrepreneurs but also on the type of assistance they offer. Much 

of the overlap and fragmentation among these 53 programs is 

concentrated among programs that support economically distressed and 

disadvantaged businesses. In ongoing work that will be published as a 

separate report, we plan to examine the extent of potential duplication 

among the 53 programs.

 

120 See GAO-12-342SP. The number of programs administered by Commerce, HUD, 

SBA, and USDA that were identified in GAO-11-477R decreased from 54 to 53 because 

Commerce merged two minority business center programs.
Appendix VIII: Comments from the Department 

of the Treasury

Page 115 GAO-12-262 Community Development Tax Expenditures

Appendix VIII: Comments from the 

Department of the Treasury
Appendix VIII: Comments from the Department 

of the Treasury

Page 116 GAO-12-262 Community Development Tax Expenditures
Appendix VIII: Comments from the Department 

of the Treasury

Page 117 GAO-12-262 Community Development Tax Expenditures
Appendix IX: GAO Contact and Staff 

Acknowledgments

Page 118 GAO-12-262 Community Development Tax Expenditures

Michael Brostek, (202) 512-9110, or brostekm@gao.gov

In addition to the contact named above MaryLynn Sergent, Assistant 

Director; Elizabeth Curda; Jeffrey DeMarco; Edward Nannenhorn; 

Melanie Papasian; Mark Ryan; and Sabrina Streagle made key 

contributions to this report.

Appendix IX: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 
Bibliography

Page 119 GAO-12-262 Community Development Tax Expenditures

To determine what is known about the effectiveness of selected 

community development tax expenditures, we conducted a literature 

review of studies that addressed the following tax expenditure provisions: 

(1) the Empowerment Zone/Renewal Community tax programs; (2) the 

New Markets Tax Credit program; (3) tax expenditures available for 

certain disaster areas; and (4) rehabilitation tax credits, including the 20 

percent tax credit for preservation of historic structures and the 10 

percent tax credit for the rehabilitation of structures (other than historic). 

We searched databases, including Proquest, Google Scholar, and 

Econlit, for studies through May 2011. We focused on studies that 

attempted to measure the impact of the selected tax incentives on certain 

measures of community development, such as the poverty and 

unemployment rate.

Abravanel, Martin D., Nancy M. Pindus, and Brett Theodos. Evaluating 

Community and Economic Development Programs: A Literature Review 

to Inform Evaluation of the New Markets Tax Credit Program. Prepared 

for the Department of the Treasury Community Development Financial 

Institutions Fund. The Urban Institute. September 2010.

Aprill, Ellen P., and Richard Schmalbeck. “Post-Disaster Tax Legislation: 

A Series of Unfortunate Events.” Duke Law Journal, vol. 56, no. 1 (2006): 

51-100.

Bartik, Timothy J. “Bringing Jobs to People: How Federal Policy Can 

Target Job Creation for Economically Distressed Areas.” Discussion 

paper prepared for The Hamiltion Project (2010).

Busso, Matias, Jesse Gregory., and Patrick M Kline. “Assessing the 

Incidence and Efficiency of a Prominent Place Based Policy.” National 

Bureau of Economic Research Working paper no. 16096 (2010).

Chernick, Howard and Andrew F. Haughwout. “Tax Policy and the Fiscal 

Cost of Disasters: NY and 9/11.” National Tax Journal, vol. 59, no. 3 

(2006): 561-577.

Congressional Research Service. Empowerment Zones, Enterprise 

Communities, and Renewal Communities: Comparative Overview and 

Analysis. Washington, D.C.: 2011.

Gotham, Kevin F., and Miriam Greenberg. “From 9/11 to 8/29: PostDisaster Recovery and Rebuilding in New York and New Orleans.” Social 

Forces, vol. 87, no. 2 (2008): 1039-1062.

Bibliography
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Ham, John C., Charles Swenson, Ayse Imrohoroglu, and Heonjae Song. 

“Government Programs Can Improve Local Labor Markets: Evidence 

from State Enterprise Zones, Federal Empowerment Zones and Federal 

Enterprise Community. Journal of Public Economics, vol. 95, no. 7-8 

(August 2011): 779-797.

Hanson, Andrew. “Utilization of Employment Tax Credits: An Analysis of 

the Empowerment Zone Wage Tax Credit.” Public Budgeting & Finance, 

vol. 31, no. 1 (2011): 23-36.

Hanson, Andrew and Shawn Rohlin. “The Effect of Location-Based Tax 

Incentives on Establishment Location and Employment across Industry 

Sectors.” Public Finance Review, vol. 39, no. 2 (2011): 195-225.

Hebert, Scott, Avis Vidal, Greg Mills, Franklin James, and Debbie 

Gruenstein. Interim Assessment of the Empowerment Zones and 

Enterprise Communities (EZ/EC) Program: A Progress Report. A report 

prepared for the U.S. Department of Housing and Urban Development. 

November 2001.

Jennings, James. “The Empowerment Zone in Boston, Massachusetts, 

2000-2009.” Review of Black Political Economy, vol. 38, no. 1 (2011): 63-

81.

Joint Committee on Taxation. Incentives for Distressed Communities: 

Empowerment Zones and Renewal Communities (JCX-38-09), October 5, 

2009.

Kolko, Jed and David Neumark. “Do Some Enterprise Zones Create 

Jobs?” Journal of Policy Analysis and Management, vol. 29, no. 1 (2010): 

5-38.

Listokin, David, Michael L. Lahr, Charles Heydt, and David Stanek. 

Second Annual Report on the Economic Impact of the Federal Historic 

Tax Credit. A report prepared for the Historic Tax Credit Coalition. May 

2011.

Rich, Michael J., and Robert P. Stoker. “Rethinking Empowerment: 

Evidence from Local Empowerment Zone Programs.” Urban Affairs 

Review, vol 45, no. 6 (2010): 775-796.

Richardson, James A. “Katrina/Rita: The Ultimate Test for Tax Policy.” 

National Tax Journal, vol. 59, no. 3 (September 2006): 551-560.
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Schilling, James D., Kerry D. Vandell, Ruslan Koesman, and Zhenguo 

Lin. “How Tax Credits Have Affected the Rehabilitation of the Boston 

Office Market.” Journal of Real Estate Research, vol. 28, no. 4 (2006): 

321-348.

Stead, Meredith M. “Implementing Disaster Relief Through Tax 

Expenditures: An Assessment of the Katrina Emergency Tax Relief 

Measures.” New York University Law Review, vol. 81, no. 6 (2006): 2158-

2191.

Tolan, Patrick E, Jr. “The Flurry of Tax Law Changes Following the 2005 

Hurricanes: A Strategy for More Predictable and Equitable Tax Treatment 

of Victims.” Brooklyn Law Review, vol. 72, no. 3 (2007): 799-870.
Related GAO Products

Page 122 GAO-12-262 Community Development Tax Expenditures

2012 Annual Report: Opportunities to Reduce Duplication, Overlap, and 

Fragmentation, Achieve Savings, and Enhance Revenue. 

GAO-12-342SP. Washington, D.C.: February 28, 2012.

Follow-up on 2011 Report: Status of Actions Taken to Reduce 

Duplication, Overlap, and Fragmentation, Save Tax Dollars, and Enhance 

Revenue. GAO-12-453SP. Washington, D.C.: February 28, 2012.

Managing for Results: Opportunities for Congress to Address 

Government Performance Issues. GAO-12-215R. Washington, D.C.: 

December 9, 2011.

Economic Development: Efficiency and Effectiveness of Fragmented 

Programs Are Unclear. GAO-11-872T. Washington, D.C.: July 27, 2011.

Efficiency and Effectiveness of Fragmented Economic Development 

Programs Are Unclear. GAO-11-477R. Washington, D.C.: May 19, 2011.

Managing for Results: GPRA Modernization Act Implementation Provides 

Important Opportunities to Address Government Challenges. 

GAO-11-617T. Washington, D.C.: May 10, 2011.

Performance Measurement and Evaluation: Definitions and 

Relationships. GAO-11-646SP. Washington, D.C.: May 2, 2011.

Indian Issues: Observations on Some Unique Factors that May Affect 

Economic Activity on Tribal Lands. GAO-11-543T. Washington, D.C.: 

April 7, 2011.

Government Performance: GPRA Modernization Act Provides 

Opportunities to Help Address Fiscal, Performance, and Management 

Challenges. GAO-11-466T. Washington, D.C.: March 16, 2011.

Opportunities to Reduce Potential Duplication in Government Programs, 

Save Tax Dollars, and Enhance Revenue. GAO-11-318SP. Washington 

D.C.: March 1, 2011.

Recovery Act: Opportunities to Improve Management and Strengthen 

Accountability over States’ and Localities’ Uses of Funds. GAO-10-999. 

Washington, D.C.: September 20, 2010.

Related GAO Products
Related GAO Products

Page 123 GAO-12-262 Community Development Tax Expenditures

Community Development Block Grants: Entitlement Communities’ and 

States’ Methods of Distributing Funds Reflect Program Flexibility. 

GAO-10-1011. Washington, D.C.: September 15, 2010.

Revitalization Programs: Empowerment Zones, Enterprise Communities, 

and Renewal Communities. GAO-10-464R. Washington, D.C.: March 12,

2010.

New Markets Tax Credit: The Credit Helps Fund a Variety of Projects in 

Low-Income Communities, but Could Be Simplified. GAO-10-334. 

Washington, D.C.: January 29, 2010.

Disaster Recovery: Past Experiences Offer Insights for Recovering from 

Hurricanes Ike and Gustav and Other Recent Natural Disasters. 

GAO-08-1120. Washington, D.C.: September 26, 2008.

Gulf Opportunity Zone: States Are Allocating Federal Tax Incentives to 

Finance Low-Income Housing and a Wide Range of Private Facilities. 

GAO-08-913. Washington, D.C.: July 16, 2008.

Tax Expenditures: Available Data Are Insufficient to Determine the Use 

and Impact of Indian Reservation Depreciation. GAO-08-731. 

Washington, D.C.: June 26, 2008.

Tax Policy: Tax-Exempt Status of Certain Bonds Merits Reconsideration, 

and Apparent Noncompliance with Issuance Cost Limitations Should Be 

Addressed. GAO-08-364. Washington, D.C.: February 15, 2008.

HUD and Treasury Programs: More Information on Leverage Measures’ 

Accuracy and Linkage to Program Goals is Needed in Assessing 

Performance. GAO-08-136. Washington, D.C.: January 18, 2008.

21st Century Challenges: How Performance Budgeting Can Help. 

GAO-07-1194T. Washington, D.C.: September 20, 2007.

Leveraging Federal Funds for Housing, Community, and Economic 

Development. GAO-07-768R. Washington, D.C.: May 25, 2007.

Tax Policy: New Markets Tax Credit Appears to Increase Investment by 

Investors in Low-Income Communities, but Opportunities Exist to Better 

Monitor Compliance. GAO-07-296. Washington, D.C.: January 31, 2007.
Related GAO Products

Page 124 GAO-12-262 Community Development Tax Expenditures

Empowerment Zone and Enterprise Community Program: Improvements 

Occurred in Communities, but the Effect of the Program is Unclear. 

GAO-06-727. Washington, D.C.: September 22, 2006.

Federal Tax Policy: Information on Selected Capital Facilities Related to 

the Essential Governmental Function Test. GAO-06-1082. Washington, 

D.C.: September 13, 2006.

Rural Economic Development: More Assurance Is Needed That Grant 

Funding Information Is Accurately Reported. GAO-06-294. Washington 

D.C.: February 24, 2006.

Telecommunications: Challenges to Assessing and Improving 

Telecommunications for Native Americans on Tribal Lands. GAO-06-189. 

(Washington, D.C.: January, 11, 2006).

Results-Oriented Government: Practices That Can Help Enhance and 

Sustain Collaboration among Federal Agencies. GAO-06-15. Washington, 

D.C.: October 21, 2005.

Government Performance and Accountability: Tax Expenditures 

Represent a Substantial Federal Commitment and Need to Be 

Reexamined. GAO-05-690. Washington, D.C.: September 23, 2005.

A Glossary of Terms Used in the Federal Budget Process. 

GAO-05-734SP. Washington, D.C.: September 2005.

Community Development: Federal Revitalization Programs Are Being 

Implemented, but Data on the Use of Tax Benefits Are Limited. 

GAO-04-306. Washington, D.C.: March 5, 2004.

New Markets Tax Credit Program: Progress Made in Implementation, but 

Further Actions Needed to Monitor Compliance. GAO-04-326. 

Washington, D.C.: January 30, 2004.

September 11: Overview of Federal Disaster Assistance to the New York 

City Area. GAO-04-72. Washington, D.C.: October 31, 2003.

Tax Administration: Information Is Not Available to Determine Whether $5 

Billion in Liberty Zone Tax Benefits Will Be Realized. GAO-03-1102. 

Washington, D.C.: September 30, 2003.
Related GAO Products

Page 125 GAO-12-262 Community Development Tax Expenditures

Economic Development: Multiple Federal Programs Fund Similar 

Economic Development Activities. GAO/RCED/GGD-00-220. 

Washington, D.C.: September 29, 2000.

Tax Policy: Tax Expenditures Deserve More Scrutiny. 

GAO/GGD/AIMD-94-122. Washington, D.C.: June 3, 1994.

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