Form 8874

(Rev. September 2016)

Department of the Treasury 

Internal Revenue Service

New Markets Credit

▶ Attach to your tax return.

▶ Information about Form 8874 and its instructions is at www.irs.gov/form8874.

OMB No. 1545-1804

Attachment 

Sequence No. 127

Name(s) shown on return Identifying number 

(a) 

Name and address of the qualified 

community development entity (CDE)

(b) 

Employer identification 

number of CDE 

(c) 

Date of initial 

investment 

(d) 

Amount of qualified 

equity investment 

(e) 

Credit 

rate

(f) 

Credit ((d) × (e)) 

1

% 

% 

% 

% 

% 

% 

2 New markets credit from partnerships and S corporations . . . . . . . . . . . . . 2 

3 Add lines 1 and 2. Partnerships and S corporations, report this amount on Schedule K; all others, 

report this amount on Form 3800, Part III, line 1i . . . . . . . . . . . . . . . . . 3 

For Paperwork Reduction Act Notice, see instructions. Cat. No. 31663N Form 8874 (Rev. 9-2016) 
Form 8874 (Rev. 9-2016) Page 2 

General Instructions 

Section references are to the Internal Revenue Code unless 

otherwise noted. 

Future Developments

For the latest information about developments related to Form 

8874 and its instructions, such as legislation enacted after they 

were published, go to www.irs.gov/form8874.

What’s New 

The new markets tax credit allocation has been extended for 

calendar years through 2019. To find out if the allocation is 

extended beyond 2019, go to www.irs.gov/form8874.

Purpose of Form 

Use Form 8874 to claim the new markets credit for qualified 

equity investments made in qualified community development 

entities (CDEs). This credit is part of the general business credit. 

Taxpayers that are not partnerships or S corporations, and 

whose only source of this credit is from those pass-through 

entities, are not required to complete or file this form. Instead, 

they can report this credit directly on Form 3800, Part III, line 

1i.

Definitions 

Qualified CDE 

A qualified CDE is a domestic corporation or partnership that 

meets the following requirements. 

• Its primary mission is serving, or providing investment capital 

for, low-income communities or persons. 

• It maintains accountability to residents of low-income 

communities through their representation on any governing 

board or advisory board of the entity. 

• It is certified as a qualified CDE by the Community 

Development Financial Institutions (CDFI) Fund of the 

Department of the Treasury. 

Qualified CDEs also include specialized small business 

investment companies and community development financial 

institutions. See section 45D(c)(2). 

Qualified Equity Investment 

A qualified equity investment is an interest in a qualified CDE in 

the form of stock (other than nonqualified preferred stock) in a 

corporation or a capital interest in a partnership that meets all of 

the following requirements. 

• You acquired the investment solely for cash at its original 

issue (or from a taxpayer for whom the investment was a 

qualified equity investment). The cash may be from borrowed 

funds, including a nonrecourse loan. 

• Substantially all (at least 85%) of the cash is used to make 

qualified low-income community investments. The 85% 

requirement is reduced to 75% for the seventh year of the 

7-year credit period. 

• The investment was designated as a qualified equity 

investment or a non-real estate qualified equity investment by 

the CDE on its books and records for purposes of the new 

markets credit. 

Generally, a qualified CDE can designate an equity 

investment as a qualified equity investment or a non-real estate 

qualified equity investment only if it applied for and received a 

new markets credit allocation and entered into an allocation 

agreement with the CDFI Fund before the equity investment 

was made. 

TIP

Qualified CDEs must provide taxpayers holding a 

qualified equity investment with a completed Form 

8874-A when a qualified equity investment is 

acquired. 

Exceptions. An equity investment in an entity that otherwise 

qualifies as a qualified equity investment or a non-real estate 

qualified equity investment is eligible to be designated as a 

qualified equity investment if made prior to an allocation 

agreement only if either of the following applies. 

• The equity investment was made on or after April 20, 2001, 

and the designation of the equity investment as a qualified 

equity investment is made for a credit allocation received under 

an allocation application submitted to the CDFI Fund no later 

than August 29, 2002. If the entity in which the equity 

investment is made does not receive an allocation under an 

allocation application submitted no later than August 29, 2002, 

the equity investment will not be eligible to be designated as a 

qualified equity investment. For details, see Regulations 

sections 1.45D-1(c)(3)(ii)(A) and 1.45D-1(c)(3)(iii). 

• The equity investment was made on or after the date the CDFI 

Fund publishes a Notice of Allocation Availability (NOAA) in the 

Federal Register, and the designation of the equity investment 

as a qualified equity investment is made for a credit allocation 

received under an allocation application submitted to the CDFI 

Fund under that NOAA. If the entity in which the equity 

investment is made does not receive an allocation under that 

NOAA, the equity investment will not be eligible to be 

designated as a qualified equity investment. For details, see 

Regulations sections 1.45D-1(c)(3)(ii)(B) and 1.45D-1(c)(3)(iii). 

The maximum amount of equity investments so designated by 

the qualified CDE cannot exceed the amount of the allocation it 

received from the CDFI Fund. The names and addresses of 

qualified CDEs that have received an allocation for each 

allocation round and the amount of that allocation are listed on 

the CDFI Fund website at www.cdfifund.gov. 

Non-Real Estate Qualified Equity Investment

If a qualified equity investment is designated as a non-real 

estate qualified equity investment, then the qualified equity 

investment may only satisfy the substantially-all requirement if 

the CDE makes qualified low-income community investments 

that are directly traceable (including investments made through 

one or more CDEs) to non-real estate qualified active lowincome community businesses. The proceeds of a non-real 

estate qualified equity investment cannot be used for 

transactions involving a qualified active low-income community 

business that is not a non-real estate qualified active lowincome community business. See Regulations section 

1.45D-1(d) for details about qualified low-income community 

investments.

How To Figure the Credit 

A credit generally is allowed to the holder of the qualified equity 

investment on each of 7 credit allowance dates. The credit 

allowance dates are the date you make the initial investment 

and each of the next 6 anniversary dates. The credit is equal to 

the qualified equity investment multiplied by 5% (6% for the 4th 

through 7th years). However, the credit is not allowed for a 

credit allowance date if the investment is not a qualified equity 

investment on that date. 

Recapture of the Credit 

You may have to increase your tax by a credit recapture 

amount if at any time within 7 years from the date of the original 

issuance of the qualified equity investment: 

• The entity ceases to be a qualified CDE, 

• Substantially all of the proceeds of the investment cease to 

be used to make qualified low-income community investments, 

or 

• The investment is redeemed or otherwise cashed out by the 

entity. 
Form 8874 (Rev. 9-2016) Page 3 

Exception. If a CDE fails to use substantially all of the proceeds 

of a qualified equity investment to make qualified low-income 

community investments, the CDE may avoid recapture of the 

credit if it corrects the failure within 6 months after the date it 

becomes aware (or reasonably should have become aware) of 

the failure. Only one correction is permitted for each qualified 

equity investment during the 7-year credit period. 

See section 45D(g) and Regulations section 1.45D-1(e) for 

details, including how to figure the credit recapture amount. 

Generally, include the credit recapture amount on the line for 

recapture taxes on your income tax return for the year in which 

the recapture event occurs. For example, the credit recapture 

amount on a 2016 Form 1040 is reported on line 62 (Other 

taxes) and the amount on a 2016 Form 1120 is reported on 

Schedule J, line 9f (Other taxes). 

You are not subject to recapture of the credit solely because 

you sell or otherwise dispose of your investment. However, you 

cannot claim the credit for any credit allowance date after the 

disposition. 

TIP

Qualified CDEs must provide taxpayers holding a 

qualified equity investment with a completed Form 

8874-B when a recapture event occurs. 

Basis Reduction 

You must reduce your basis in your qualified equity investment 

by the amount of the new markets credits allowed (even if part 

or all of the credit is not allowed for the current year and is 

carried forward). However, do not reduce your basis for 

purposes of figuring the exclusion of gain for: 

• Qualified small business stock under section 1202, 

• Certain DC zone assets under section 1400B, or 

• Certain qualified community assets under section 1400F. 

Additional Information 

For more details, see section 45D, Regulations section 1.45D-1, 

or www.cdfifund.gov. 

Specific Instructions 

Line 1 

Enter the information requested for each qualified equity 

investment held directly by you on a credit allowance date in 

the current tax year. In column (e), enter the credit rate. For the 

first, second, or third year of the 7-year credit period, enter “5.” 

For any later year, enter “6.” 

If you need more space, attach a statement showing all the 

information requested for each qualified equity investment. On 

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

enter the total of the credit amounts from the attached 

statement in column (f). 

Paperwork Reduction Act Notice. We ask for the information 

on this form to carry out the Internal Revenue laws of the 

United States. You are required to give us the information. We 

need it to ensure that you are complying with these laws and to 

allow us to figure and collect the right amount of tax. 

You are not required to provide the information requested on 

a form that is subject to the Paperwork Reduction Act unless 

the form displays a valid OMB control number. Books or 

records relating to a form or its instructions must be retained as 

long as their contents may become material in the 

administration of any Internal Revenue law. Generally, returns 

and return information are confidential, as required by section 

6103. 

The time needed to complete and file this form will vary 

depending on individual circumstances. The estimated burden 

for individual taxpayers filing this form is approved under OMB 

control number 1545-0074 and is included in the estimates 

shown in the instructions for their individual income tax return. 

The estimated burden for all other taxpayers who file this form 

is shown below. 

Recordkeeping . . . . . . . . . . . 6 hr., 13 min. 

Learning about the 

law or the form . . . . . . . . . . . 1 hr., 12 min.

Preparing and sending 

the form to the IRS . . . . . . . . . . 1 hr., 20 min.

If you have comments concerning the accuracy of these time 

estimates or suggestions for making this form simpler, we would 

be happy to hear from you. See the instructions of the tax return 

with which this form is filed.