65806 Federal Register / Vol. 66, No. 245 / Thursday, December 20, 2001 / Notices

DEPARTMENT OF THE TREASURY

Community Development Financial

Institutions Fund

Guidance for Certification of

Community Development Entities, New

Markets Tax Credit Program

AGENCY: Community Development

Financial Institutions Fund, Department

of the Treasury.

ACTION: Guidance for Certification of

Community Development Entities, New

Markets Tax Credit Program.

SUMMARY: Title I, subtitle C, section 121

of the Community Renewal Tax Relief

Act of 2000 (the Act), as enacted by

section 1(a)(7) of the Consolidated

Appropriations Act, 2001 (Public Law

106–554, December 21, 2000), amended

the Internal Revenue Code (IRC) by

adding IRC section 45D, New Markets

Tax Credit. Section 45D requires the

Secretary of the Treasury (Treasury) to

establish a program that will provide an

incentive to investors in the form of a

tax credit over seven years, which is

expected to stimulate investment in new

private capital that, in turn, will

facilitate economic and community

development in distressed communities.

Section 121(f) of the Act, among other

things, requires the Secretary to issue

guidance on how entities may apply to

receive allocations of New Markets Tax

Credits (NMTCs), the competitive

procedure through which such

allocations will be made, and the

actions that will be taken to ensure that

proper allocations are made to

appropriate entities. The Secretary

delegated such authority to the Under

Secretary (Domestic Finance), who in

turn delegated such authority to the

Director of the Community

Development Financial Institutions

Fund (the Fund).

On April 20, 2001, the Fund issued

guidance (which was published in the

Federal Register on May 1, 2001 at 66

FR 21846) (the General Guidance) that

provided general information on how an

entity may apply to become certified as

a ‘‘qualified community development

entity’’ (CDE), how a CDE may apply to

receive an allocation of NMTCs, the

competitive procedure through which

such allocations will be made, and the

actions that will be taken to ensure that

proper allocations are made to

appropriate entities. In addition,

through the General Guidance, the Fund

sought written comments from the

public as to certain application and

allocation issues.

This document (i) summarizes written

public comments submitted to the Fund

pursuant to the General Guidance,

specifically with respect to the Fund’s

certification of entities as CDEs, and (ii)

provides, in accordance with IRC

section 45D(c)(1)(C), specific guidance

on how an entity may apply to become

certified as a CDE. Effective

immediately, this Guidance encourages

entities to apply for CDE certification.

This Guidance does not solicit

applications for allocations of NMTCs.

As provided by IRC section 45D(i),

Treasury is authorized to prescribe

regulations relating to the NMTC

Program. Treasury and the Internal

Revenue Service (IRS) will promulgate

regulations related to tax aspects of the

NMTC Program. Following the

promulgation of said IRS regulations,

the Fund will publish a Notice of

Allocation Availability (NOAA) that

will provide additional, specific

guidance on how a CDE may apply to

receive an allocation of NMTCs, the

competitive procedure through which

such allocations will be made, and the

actions that will be taken to ensure that

proper allocations are made to

appropriate entities. As part of the

NOAA, the Fund also will summarize

written comments submitted by the

public with respect to application and

allocation issues presented in the

General Guidance. The Fund anticipates

that, pursuant to the NOAA, it will

allocate to CDEs in calendar year 2002

the authority to issue to their investors

up to the aggregate amount of $2.5

billion in equity as to which NMTCs

may be claimed (the authority will

include the aggregated amounts of $1

billion for calendar year 2001 and $1.5

billion for calendar year 2002, as

permitted under IRC sections 45D(f)(1)

and 45D(f)(3)).

DATES: Effective immediately, the Fund

will accept applications from entities

seeking to be certified as CDEs. There is

no deadline for the submission of CDE

Certification Applications. The Fund

will review CDE Certification

Applications on an ongoing basis.

However, for an Applicant CDE that also

expects to submit a NMTC allocation

application, please refer below to Part

IV, CDE Certification, Section A, for

further information.

ADDRESSES: CDE Certification

Applications should be sent by mail or

courier to: CDFI Fund Awards Manager,

Bureau of Public Debt—Franchising,

200 Third Street, Room 211,

Parkersburg, WV 26101. Applications

will not be accepted at the Fund’s

offices. CDE Certification Applications

and other NMTC Program information

may be downloaded from the Fund’s

web site at http://www.cdfifund.gov. If

you would like CDE Certification

Application materials to be sent to you,

contact the Fund by telephone at (202)

622–8662; by e-mail to

cdfihelp@cdfi.treas.gov; or by facsimile

at (202) 622–8244. These are not toll

free numbers.

FOR FURTHER INFORMATION: Information

regarding the Fund and its programs

may be downloaded from the Fund’s

web site at http://www.cdfifund.gov.

I. Definitions

(a) Affiliate: means any legal entity

that Controls, is Controlled by, or is

under common Control with the

Applicant CDE.

(b) Applicant CDE: means any legal

entity that is applying to the Fund to be

certified as a CDE, either for itself or on

behalf of its Subsidiaries.

(c) CDE Certification Application:

means the application form, issued by

the Fund, to be completed and

submitted by an Applicant CDE in order

to be certified as a CDE.

(d) Community Development Entity or

CDE: see Qualified Community

Development Entity, below.

(e) Community Development

Financial Institution or CDFI: means an

entity that has been certified by the

Fund as meeting the criteria set forth in

section 103 of the Community

Development Banking and Financial

Institutions Act of 1994 (12 U.S.C.

4702). For further details, refer to the

CDFI Program regulations set forth at 12

CFR 1805.201.

(f) Control: means (i) Ownership,

control, or power to vote more than 50

percent of the outstanding shares of any

class of voting securities of any entity,

directly or indirectly or acting through

one or more other persons; (ii) control

in any manner over the election of a

majority of the directors, trustees, or

general partners (or individuals

exercising similar functions) of any

other entity; or (iii) the power to

exercise, directly or indirectly, a

controlling influence over the

management policies or investment

decisions of another entity, as

determined by the Fund.

(g) Low-Income Community: means,

under IRC section 45D(e)(1), any

population census tract if (A) the

poverty rate for such tract is at least 20

percent, or (B)(i) in the case of a tract

not located within a Metropolitan Area

(as hereinafter defined), the median

family income for such tract does not

exceed 80 percent of statewide median

family income, or (ii) in the case of a

tract located within a Metropolitan

Area, the median family income for

such tract does not exceed 80 percent of

the greater of statewide median family

Federal Register / Vol. 66, No. 245 / Thursday, December 20, 2001 / Notices 65807

income or the Metropolitan Area

median family income. With respect to

IRC section 45D(e)(1)(B), possessionwide median family income shall be

used (in lieu of statewide income) in

assessing the status of census tracts

located within a possession of the

United States. Upon application by an

entity for certification as a CDE, the

Fund may designate under IRC section

45D(e)(2) an area within a census tract

as a Low-Income Community if (A) the

boundary of the area is continuous; (B)

the area would otherwise meet the

definition of a Low-Income Community

under IRC section 45D(e)(1) if it were a

census tract; and (C) there is inadequate

access to investment capital in the area

(as demonstrated by studies, surveys, or

other analyses provided by the

applicant). Under IRC section 45D(e)(3),

in the case of an area that is not tracted

for population census tracts, the

equivalent county divisions (as defined

by the Bureau of the Census for

purposes of determining poverty areas)

shall be used for purposes of defining

poverty rates and median family

incomes.

(h) Low-Income Persons: means

individuals having an income, adjusted

for family size, of not more than (A) for

non-Metropolitan Areas, 80 percent of

the statewide median family income;

and (B)(i) for Metropolitan Areas, the

greater of (A) 80 percent of the statewide

median family income or (ii) 80 percent

of the Metropolitan Area median family

income.

(i) Metropolitan Area: means an area

designated as such by the Office of

Management and Budget pursuant to 44

U.S.C. 3504(e) and 31 U.S.C. 1104(d)

and Executive Order 10253 (3 CFR

1949–1953 Comp., p. 758), as amended.

(j) Qualified Community Development

Entity or CDE: means, under IRC section

45D(c)(1), any domestic corporation or

partnership if (A) the primary mission

of the entity is serving, or providing

investment capital for, Low-Income

Communities or Low-Income Persons;

(B) the entity maintains accountability

to residents of Low-Income

Communities through their

representation on any governing board

of the entity or on any advisory board

to the entity; and (C) the entity is

certified by the Fund as a CDE. SSBICs,

as hereinafter defined, and CDFIs will

be deemed to be CDEs in the manner

hereinafter set forth.

(k) Qualified Equity Investment:

means, under IRC section 45D(b)(1), any

equity investment in a CDE if (A) such

investment is acquired by the investor at

its original issue (directly or through an

underwriter) solely in exchange for

cash; (B) substantially all of such cash

is used by the CDE to make Qualified

Low-Income Community Investments;

and (C) the investment is designated by

the CDE as a Qualified Equity

Investment. Qualified Equity Investment

also includes an equity investment

purchased from a prior holder, to the

extent provided in IRC section

45D(b)(4). Qualified Equity Investment

does not include any equity investment

issued by a CDE more than five years

after the date the CDE receives a NMTC

allocation. Under IRC section 45D(b)(6),

‘‘equity investment’’ means (A) any

stock (other than nonqualified preferred

stock as defined in IRC section

351(g)(2)) in a corporation and (B) any

capital interest in a partnership.

(l) Qualified Low-Income Community

Investment: means, under IRC section

45D(d)(1), (A) any capital or equity

investment in, or loan to, any qualified

active low-income community business

(as defined in IRC section 45D(d)(2)); (B)

the purchase from a CDE of any loan

made by such entity that is a Qualified

Low-Income Community Investment;

(C) financial counseling and other

services to businesses located in, and

residents of, Low-Income Communities;

and (D) any equity investment in, or

loan to, any CDE.

(m) Specialized Small Business

Investment Company or SSBIC: is

defined in IRC section 1044(c)(3).

(n) Subsidiary: means a legal entity

that is owned or Controlled directly or

indirectly by the Applicant CDE.

II. The NMTC Program: Background

By providing an incentive in the form

of a tax credit over seven years, NMTCs

are intended to stimulate the investment

of $15 billion in new private capital in

CDEs that, in turn, will make

investments in eligible businesses in

distressed urban, rural, Native American

and Native Hawaiian communities, thus

facilitating economic and community

development.

Through the NMTC Program, an

entity may apply to the Fund to be

certified as a CDE. Nonprofit entities

and for-profit entities may be certified

as CDEs by the Fund. Only CDEs that

are for-profit entities are eligible to issue

Qualified Equity Investments with

respect to which investors will be

entitled to claim NMTCs. A taxpayer

(including, for example, individuals,

corporations, partnerships, and

investment funds) that makes a

Qualified Equity Investment in a CDE

that has received a NMTC allocation

from the Fund may claim a five percent

tax credit on the investment amount for

each of the first three years after the date

of the investment and a six percent tax

credit for each of the next four years.

In the NOAA, the Fund will address

specifically how a CDE may apply to

receive an allocation of NMTCs, the

competitive procedure through which

such allocations will be made, and the

actions that will be taken to ensure that

proper allocations are made to

appropriate entities.

III. Comments Submitted by the Public

on the General Guidance

On April 20, 2001, the Fund issued

the General Guidance, which described,

in general terms, certain aspects of the

NMTC Program. The Fund has received

numerous comments from organizations

and individuals. The following is a

discussion of the significant and most

frequently commented upon issues

related to CDE certification. In the

NOAA or in guidance to be issued at a

later date, the Fund will summarize

written and electronic comments

submitted by the public with respect to

other application and allocation issues

presented in the General Guidance.

A. General CDE Eligibility Issues: IRC

section 45D(c)(1) defines a CDE as any

domestic corporation or partnership if:

(A) the primary mission of the entity is

serving, or providing investment capital

for, Low-Income Communities or LowIncome Persons (Primary Mission Test);

(B) the entity maintains accountability

to residents of Low-Income

Communities through their

representation on any governing board

of the entity or on any advisory board

to the entity (Accountability Test); and

(C) the entity is certified by the

Secretary as a CDE.

(1) One commenter suggested that the

Fund clarify that an entity may apply

for CDE certification even if the entity

does not intend to apply for a NMTC

allocation. IRC sections 45D(d)(1)(B)

and 45D(d)(1)(D) permit CDEs receiving

NMTC allocations to make Qualified

Low-Income Community Investments by

purchasing a qualifying loan from

another CDE or by investing in another

CDE. Therefore, an entity may apply for

CDE certification regardless of whether

such entity intends to apply for a NMTC

allocation.

(2) Another commenter recommended

that an organization certified as a CDE

be allowed to transfer its CDE

certification to its Subsidiary or

Subsidiaries. IRC section 45D(c)(1)

requires that, in order to be certified as

a CDE, an entity must meet two tests:

the Primary Mission Test and the

Accountability Test. Each entity that

applies for certification as a CDE must

meet both tests regardless of its

affiliation with other organizations. In

order to make the CDE certification

process as efficient as possible, the

65808 Federal Register / Vol. 66, No. 245 / Thursday, December 20, 2001 / Notices

Fund will permit an Applicant CDE to

submit a single CDE Certification

Application for itself and on behalf of

its Subsidiaries. Each of the entities

must satisfy the Primary Mission Test

and the Accountability Test. The CDE

Certification Application contains the

specific requirements for such

consolidated submissions.

(3) Another commenter suggested that

the Fund should not require entities to

be duly organized prior to submission of

a CDE Certification Application. While

the Fund recognizes that Applicant

CDEs will have to expend resources in

order to form a legal entity that is

eligible to apply for CDE certification,

the Fund is requiring that a CDE be a

duly organized entity. Therefore, the

Fund will not confer CDE certification

to an entity that has not yet been legally

established.

(4) One commenter stated that

community development banks should

receive automatic CDE certification. The

Fund recognizes the important role that

community development banks play in

providing access to credit for LowIncome Persons and Low-Income

Communities. However, IRC section

45D(c)(2) only allows for the automatic

certification of SSBICs certified by the

Small Business Administration, and

CDFIs certified by the Fund. A

community development bank applying

for certification as a CDE will be

required to meet the CDE certification

criteria set forth in IRC section 45D, this

Guidance, and the CDE Certification

Application. A community development

bank that is certified as a CDFI,

however, will be deemed to meet the

requirements for CDE certification.

(5) Two commenters requested

clarification as to whether an entity

organized as a business trust would be

eligible for certification as a CDE if such

an entity is taxable as a partnership. An

entity may apply for certification as a

CDE if it is treated either as a domestic

corporation or a partnership for Federal

income tax purposes.

(6) Several commenters suggested that

an applicant whose business structure

consists of an entity with a series of

funds be deemed eligible for CDE

certification as a single entity. The Fund

has considered these comments, and has

determined that, if an Applicant CDE

represents that it is properly classified

for Federal income tax purposes as a

single partnership or corporation, it may

apply for CDE certification as a single

entity. If the Applicant CDE represents

that it is properly classified for Federal

income tax purposes as multiple

partnerships or corporations, it may

submit a single application on behalf of

the entire series of funds, and each fund

must meet the Primary Mission Test and

the Accountability Test.

(7) Two commenters requested that

the Fund permit organizations that are

governmentally controlled entities to

qualify for CDE certification. Since the

Act does not exclude governmentally

controlled entities from being eligible

for CDE certification, the Fund will

permit governmentally controlled

entities that are properly classified as

domestic corporations or partnerships

for Federal income tax purposes to

apply for CDE certification.

B. Primary Mission Test: Pursuant to

IRC section 45D(c)(1)(A), a CDE must

have a primary mission of serving, or

providing investment capital for, LowIncome Communities or Low-Income

Persons.

(1) Several commenters suggested that

Applicant CDEs be allowed to meet the

Primary Mission Test by either

indirectly or directly serving, or

providing investment capital for, LowIncome Communities or Low-Income

Persons. The Fund recognizes the merits

of these comments and will permit

Applicant CDEs to meet the Primary

Mission Test either by directly serving

Low-Income Communities or LowIncome Persons (e.g., by providing loans

to Low-Income Persons or to individuals

or businesses located in Low-Income

Communities), or by indirectly serving

Low-Income Communities or LowIncome Persons (e.g., by providing loans

to or investments in other entities that

will in turn provide assistance in LowIncome Communities or assistance to

Low-Income Persons).

(2) One commenter requested that the

Fund deem an Applicant CDE to have

met the Primary Mission Test if the

Applicant CDE is a nonprofit

organization exempt from federal

income tax under IRC § 501(c) or any

other IRC provision, and the exempt

purpose relates to serving Low-Income

Communities or Low-Income Persons.

However, the exempt purpose test

required for tax-exempt status under the

IRC is based on different underlying

policies than the Primary Mission Test

set forth in IRC section 45D(c)(1)(A).

Therefore, all Applicant CDEs will be

required to provide the documentation

required to meet the Primary Mission

Test.

(3) One commenter expressed concern

about the basis for the Fund’s

requirement that an Applicant CDE

demonstrate that at least 60 percent of

its activities are dedicated to serving, or

providing investment capital for, LowIncome Communities or Low-Income

Persons. The Fund has determined that

the 60 percent threshold is an

appropriate standard: it is the standard

currently used by the Fund in certifying

CDFIs and it provides the Fund with

evidence that a significant portion of the

Applicant CDE’s activities are targeted

to Low-Income Communities or LowIncome Persons.

C. Accountability Test: Pursuant to

IRC section 45D(c)(1)(B), a CDE must

maintain accountability to residents of

Low-Income Communities through their

representation on any governing board

of the entity or on any advisory board

to the entity.

(1) One commenter recommended

that the definition of Low-Income

Community be expanded to include

census tracts in which the median

family income does not exceed 80

percent of the national median family

income. Because IRC section 45D(e)

clearly defines Low-Income

Community, the Fund will adhere to

such definition, without modification.

(2) Several commenters recommended

that the Fund permit Applicant CDEs

greater flexibility to meet the

Accountability Test. Specifically, the

commenters suggested that an Applicant

CDE be allowed to meet the

Accountability Test by demonstrating

that it maintains accountability to

residents of Low-Income Communities

or Low-Income Persons through the

residents’ representation not only on

governing boards or advisory boards,

but alternatively in focus groups and

community meetings. The Fund has not

accepted this comment because IRC

section 45D(c)(1)(B) clearly requires

CDEs to maintain ‘‘accountability to

residents of low-income communities

through their representation on any

governing board of the entity or on any

advisory board to the entity.’’

(3) One commenter suggested that

when evaluating a CDE Certification

Application, the Fund should assess the

extent to which representatives of LowIncome Communities exert meaningful

influence over the policies and

procedures of the Applicant CDE. The

Fund is mindful of the need to create a

mechanism for meaningful and

substantive participation and influence

in CDEs by representatives of LowIncome Communities and has

developed evaluation criteria that will

provide the Fund with information on

the level of participation and influence

held by representatives of Low-Income

Communities who serve on advisory or

governing boards of a CDE. This

criterion is further described in the CDE

Certification Application.

(4) Several commenters suggested that

the Fund allow Applicant CDEs to

demonstrate accountability to LowIncome Communities by representatives

other than residents of such LowVerDate 11<MAY>2000 19:27 Dec 19, 2001 Jkt 197001 PO 00000 Frm 00004 Fmt 4701 Sfmt 4703 E:\FR\FM\20DEN4.SGM pfrm02 PsN: 20DEN4
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Income Communities (e.g., a clergy

member, a small business owner, or a

director of a community development

corporation). The Fund recognizes that

a person may be representative of a

Low-Income Community because of the

type of work that he or she performs in

the Low-Income Community. The Fund

provides specific guidance in the CDE

Certification Application on the various

ways in which an Applicant CDE can

meet the Accountability Test through

persons who are residents of LowIncome Communities or whose work or

community development activities

makes them accountable to such

residents. However, the Fund seeks to

encourage, as much as possible,

Applicant CDEs to appoint some LowIncome Persons from Low-Income

Communities to advisory and/or

governing boards.

(5) Several commenters recommended

that a CDE be permitted to meet the

Accountability Test if it demonstrates

that a majority of its governing or

advisory board is accountable to

residents of Low-Income Communities.

The Fund has considered these

comments and has determined that, for

a CDE wishing to meet the

Accountability Test through its

governing board, the Fund will require

that a minimum of 20 percent of the

members of the governing board be

representative of the Low-Income

Community. For a CDE wishing to meet

the Accountability Test through an

advisory board or boards, a minimum of

20 percent of the members of each

advisory board must be representative of

a Low-Income Community.

(6) One commenter proposed that the

Fund allow a CDE that serves multiple

geographic areas to satisfy the

Accountability Test by establishing

local advisory boards that are

representative of Low-Income

Communities. As proposed, these

advisory boards would in turn report to

a CDE with a regional or national

service area. The Fund agrees with this

comment, and provides specific

guidance in the CDE Certification

Application with respect to establishing

multiple advisory boards.

D. Consolidated Applications for

Related Entities: Several commenters

suggested that the Fund allow a CDE

that receives a NMTC allocation to

transfer its allocation to its Affiliates or

Subsidiaries. One commenter also

suggested that the Fund develop a

consolidated CDE Certification

Application for multiple legal entities

that are commonly controlled (i.e.,

parent and affiliated entities or entities

under common control). The Fund has

considered these comments and will

permit an entity and its Subsidiaries to

apply for CDE certification in a single

CDE Certification Application. A forprofit CDE that receives a NMTC

allocation may transfer such NMTC

allocation to its for-profit Subsidiary or

Subsidiaries, provided that said

transferees have been certified as CDEs

and such transfer is pre-approved in

writing by the Fund, in its sole

discretion. A nonprofit CDE may apply

for and receive a NMTC allocation but

must transfer such NMTC allocation to

its for-profit Subsidiary or Subsidiaries;

said transferees must be certified as

CDEs and such a transfer must be preapproved in writing by the Fund, in its

sole discretion.

IV. CDE Certification

A. Applications

As stated above, the Fund is currently

accepting applications from entities

wishing to be certified as CDEs. CDE

Certification Applications will be

reviewed on a rolling basis. However,

any Applicant CDE interested in

applying for a NMTC allocation must

submit a CDE Certification Application

prior to the deadline for the submission

of an application for a NMTC allocation.

The Fund anticipates that this deadline

for submitting CDE Certification

Applications will be 30 days prior to the

deadline for submission of applications

for NMTC allocations. Both deadlines

will be published in the NOAA.

An Applicant CDE may be a for-profit

or a nonprofit entity. An Applicant CDE

may apply for certification for itself, or

it may apply for itself and on behalf of

one or more Subsidiaries under a single

CDE Certification Application. The CDE

Certification Application requires that

the Applicant CDE provide, among

other items, specific information

relating to how it (and, if appropriate,

each of its Subsidiaries ) meets the

Primary Mission Test and the

Accountability Test. These requirements

are discussed under Section B,

Eligibility, below, and in the CDE

Certification Application.

Entities that have been certified by the

Fund as CDFIs and entities that have

been designated by the SBA as SSBICs

are deemed to meet the requirements for

CDE certification and do not need to

complete the CDE Certification

Application. Each CDFI and SSBIC

desiring CDE certification must indicate

to the Fund its desire either (i) by

registering on-line with the Fund

through the Fund’s website at http://

www.cdfifund.gov, or (ii) by contacting

the Fund (see ADDRESSES, above) to have

registration documents sent to it.

Notwithstanding the preceding

paragraph, Subsidiaries and Affiliates of

CDFIs and SSBICs will not be deemed

to meet the requirements of CDE

certification without completing a CDE

Certification Application. A CDFI or

SSBIC wishing to apply for certification

on behalf of one or more of its

Subsidiaries must complete a CDE

Certification Application for itself and

all Subsidiaries it would like certified,

and each Subsidiary must meet the

Primary Mission Test and the

Accountability Test.

B. Eligibility

(1) Legal Entity Requirements: IRC

section 45D(c)(1) specifies the eligibility

requirements that each entity must meet

in order to be certified by the Fund as

a CDE. The Fund will not confer CDE

certification to an Applicant CDE unless

the entity is a duly organized and

validly existing legal entity under the

laws of the jurisdiction in which it is

incorporated or otherwise established.

As described above, a CDE is any entity

treated as a domestic corporation or

partnership, for federal income tax

purposes, if: (A) The primary mission of

the entity is serving, or providing

investment capital for, Low-Income

Communities or Low-Income Persons;

(B) the entity maintains accountability

to residents of Low-Income

Communities through their

representation on any governing board

of the entity or on any advisory board

to the entity; and (C) the entity is

certified by the Fund as a CDE. CDFIs

certified by the Fund and SSBICs

certified by the SBA will be deemed to

be CDEs. An applicant whose business

structure consists of an entity with a

series of funds may apply for CDE

certification as a single entity, or as

multiple entities, in accordance with

this paragraph. If such an applicant

represents that it is properly classified

for Federal income tax purposes as a

single partnership or corporation, it may

apply for CDE certification as a single

entity. If the applicant represents that it

is properly classified for Federal income

tax purposes as multiple partnerships or

corporations, then (1) it may submit a

single application on behalf of the entire

series of funds, and each fund must

meet the Primary Mission Test and the

Accountability Test; and (2) it may

transfer any NMTC allocation it receives

to one or more of its funds if the transfer

is pre-approved by the Fund. Applicants

should note, however, that receipt of

CDE certification as a single entity or as

multiple entities is not a determination

that the applicant and its related funds

are properly classified as a single entity

65810 Federal Register / Vol. 66, No. 245 / Thursday, December 20, 2001 / Notices

or as multiple entities for Federal

income tax purposes.

(2) Primary Mission Test: To comply

with the Primary Mission Test, an entity

(a) must provide organizational

documents that, in the opinion of the

Fund, clearly evidence a mission of

serving or providing investment capital

for Low-Income Communities or LowIncome Persons; and (b) must be able to

demonstrate that at least 60 percent of

its activities are dedicated to serving

Low-Income Communities or LowIncome Persons. An Applicant CDE may

meet the Primary Mission Test either by

directly serving Low-Income

Communities or Low-Income Persons

(e.g., by providing loans to Low-Income

Persons or to individuals or businesses

located in Low-Income Communities),

or by indirectly serving Low-Income

Communities or Low-Income Persons

(e.g., by providing loans or investments

to other entities that will in turn provide

assistance in Low-Income Communities

or assistance to Low-Income Persons).

The Fund reserves the right to modify

or revise the requirements of the

Primary Mission Test if it determines, in

its sole discretion, that an Applicant

CDE has demonstrated that it meets the

Primary Mission Test in a manner other

than set forth herein, but that meets the

intent and purpose of IRC section

45D(c)(1)(A).

(3) Accountability Test: To comply

with the Accountability Test, an entity

must demonstrate that it maintains

accountability to residents of LowIncome Communities through their

representation on any governing board

of the entity or on any advisory board

to the entity. The Fund seeks to

encourage, as much as possible,

Applicant CDEs to appoint some LowIncome Persons from Low-Income

Communities to advisory and/or

governing boards. In the case of a

limited partnership, the Accountability

Test may be met if residents of LowIncome Communities are represented on

the governing or advisory board of the

entity’s managing general partner or

other controlling entity (such as a

nonprofit CDFI). For an entity wishing

to meet the Accountability Test through

its governing board, a minimum of 20

percent of the members of the governing

board must be representative of the

Low-Income Community. For an entity

wishing to meet the Accountability Test

through an advisory board or boards, a

minimum of 20 percent of the members

of each advisory board must be

representative of the Low-Income

Community. A CDE is not limited in the

number of Low-Income Communities

that it may serve or propose to serve. A

CDE that serves multiple geographic

areas will need to demonstrate that it is

accountable to the various geographic

areas that it serves. The Fund reserves

the right to modify or revise the

requirements of the Accountability Test

if it determines, in its sole discretion,

that an Applicant CDE has

demonstrated that it meets the

Accountability Test in a manner other

than set forth herein, but that meets the

intent and purpose of IRC section

45D(c)(1)(B).

V. Evaluation of CDE Certification

Applications

The Fund will evaluate each CDE

Certification Application to determine

whether the Applicant CDE (and, if

appropriate, each of its Subsidiaries)

meets the eligibility requirements

outlined above. Those entities that, in

the sole determination of the Fund,

satisfy the certification requirements

shall be certified by the Fund as CDEs.

VI. Certification Monitoring

A CDE certification will continue

until it is revoked or terminated by the

Fund. To maintain its CDE certification,

a CDE must attest annually (or so often

as the Fund may deem necessary) that

the CDE (and, if appropriate, each of its

Subsidiaries) continues to meet the

Primary Mission Test and the

Accountability Test. The Fund reserves

the right to review and verify said

attestation and will revoke or terminate

the CDE certification if the Fund, in its

sole discretion, determines that the

entity no longer meets CDE certification

requirements. The Fund may revoke or

terminate the CDE certification of any

entity that receives designation as a CDE

based on its status as a CDFI or SSBIC

if it ceases to be designated as a CDFI

or SSBIC.

A CDE that is awarded a NMTC

allocation and/or is a recipient of a

Qualified Low-Income Community

Investment from another CDE that has

been awarded a NMTC allocation will

also be required to demonstrate, on an

annual basis (or so often as the Fund

may deem necessary), that at least 60

percent of its activities are directed to

Low-Income Communities or LowIncome Persons. This is in addition to

any other reporting requirements

imposed by the IRS or the Fund. Such

other reporting requirements will be

described more fully in IRS regulations

and/or in the NOAA or subsequent

guidance to be issued by the Fund.

Authority: Consolidated Appropriations

Act of 2001, Pub. L. 106–554; 31 U.S.C. 321.

Dated: December 17, 2001.

Tony T. Brown,

Director, Community Development Financial

Institutions Fund.

[FR Doc. 01–31391 Filed 12–19–01; 8:45 am]

BILLING CODE 4810–70–P