OMB No. 1545-1804 New Markets Credit

Form 8874

Department of the Treasury

Internal Revenue Service  Attach to your tax return.

Name(s) shown on return

Cat. No. 31663N Form 8874 (2003)

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

4 Regular tax before credits:

4

5

Attachment

Sequence No. 127

5 Alternative minimum tax:

6

Identifying number

Part I Current Year Credit

Part II

(e)

Credit

rate

(d)

Amount of qualified

equity investment

(c)

Date of initial

investment

(b)

Employer identification

number of CDE

(a)

Name and address of the qualified

community development entity (CDE)

1

(f)

Credit ((d)  (e))

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

S corporations, see instructions

3

● Individuals. Enter the amount from Form 1040, line 41

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

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

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

Schedule G, lines 1a and 1b

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

%

%

%

3

● Corporations. Enter the amount from Form 4626, line 14

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

6 Add lines 4 and 5





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b

c

d

e

f

g

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j

k

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m

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Foreign tax credit

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

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

Education credits (Form 8863, line 18)

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

Child tax credit (Form 1040, line 49)

Mortgage interest credit (Form 8396, line 11)

Adoption credit (Form 8839, line 18)

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

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

Credit for fuel from a nonconventional source

Qualified electric vehicle credit (Form 8834, line 20)

Add lines 7a through 7l

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

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

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

Tentative minimum tax (see instructions):

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

● Corporations. Enter the amount from Form 4626, line 12

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

Schedule I, line 54

Enter the greater of line 10 or line 11

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

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

line 52; Form 1120, Schedule J, line 6d; Form 1120-A, Part I, line 2a; Form 1041, Schedule G, line

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

7a

7b

7c

7d

7e

7f

7g

7h

7i

7j

7k

7l

7m

8

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For Paperwork Reduction Act Notice, see instructions.

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

If you are a—

a Shareholder

b Partner

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

Schedule K-1 (Form 1065), line 13

Then enter the total of the current year credits from—

EIN of pass-through entity

2

2003
Form 8874 (2003) Page 2

General Instructions

Use Form 8874 to claim the new markets credit for qualified

equity investments made in qualified community

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

business credit.

How To Figure the Credit

A credit generally is allowed to the holder of the qualified

equity investment on each of 7 credit allowance dates. The

credit allowance dates are the date the qualified equity

investment is initially made in a qualified CDE, and that date

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

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

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

credit allowance date if the investment is not a qualified

equity investment on that date.

Recapture of the Credit

You may have to increase your tax by a credit recapture

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

original issuance of the qualified equity investment:

● The entity ceases to be a qualified CDE,

● Substantially all of the proceeds of the investment cease

to be used to make qualified low-income community

investments, or

● The investment is redeemed by the entity.

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

credit recapture amount. Generally, include the credit

recapture amount on the line for recapture taxes (e.g., the

“other taxes” or “total tax” line) on your income tax return for

the year in which the recapture event occurs 

(e.g., line 60 of the 2003 Form 1040 or line 10 of the 2003

Form 1120, Schedule J).

Basis Reduction

You must reduce your basis in your qualified equity

investment by the amount of the new markets credits

allowed (even if part or all of the credit is not allowed for the

current year and is carried forward). However, do not reduce

your basis for purposes of figuring the exclusion of gain for:

Section references are to the Internal Revenue Code unless

otherwise noted.

Purpose of Form

A qualified CDE is a domestic corporation or partnership:

● The primary mission of which is serving, or providing

investment capital for, low-income communities or persons;

Generally, a qualified CDE can designate an equity

investment as a qualified equity investment only if it applied

for and received a new markets credit allocation and entered

into an allocation agreement with the CDFI Fund before the

equity investment was made.

● That maintains accountability to residents of low-income

communities through their representation on any governing

board or advisory board of the entity; and

● That has been certified as a qualified CDE by the

Community Development Financial Institutions (CDFI) Fund of

the Department of the Treasury.

Qualified CDEs also include specialized small business

investment companies and community development financial

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

You are not subject to recapture of the credit solely

because you sell or otherwise dispose of your investment.

However, you cannot claim the credit for any credit

allowance date after the disposition.

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 is

listed on the CDFI Fund website at

www.cdfifund.gov/awardees.

Exceptions. An equity investment in an entity that otherwise

qualifies as a 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 after April 19, 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. For details, see Notice 2003-9. You

can find Notice 2003-9 on page 369 of Internal Revenue

Bulletin (I.R.B.) 2003-5 at

www.irs.gov/pub/irs-irbs/irb03-05.pdf.

● The equity investment was made after July 17, 2003, 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 a

Qualified CDE

● Qualified small business stock under section 1202,

● Certain DC zone assets under section 1400B, or

● Certain qualified community assets under section 1400F.

Definitions

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 by the CDE on its books and records for

purposes of the new markets credit.

Additional Information

For more details, see Pub. 954, Tax Incentives for Distressed

Communities, section 45D, Temporary Regulations section

1.45D-1T, or www.cdfifund.gov/programs/nmtc.

Notice of Allocation Availability (NOAA) published by the

CDFI Fund in the Federal Register on or before the date the

equity investment was made. If the entity in which the equity

investment is made does not receive an allocation under that

NOAA, the equity investment is not eligible to be designated

as a qualified equity investment under future NOAAs. For

details, see Notice 2003-56 on page 396 of I.R.B. 2003-34 at

www.irs.gov/pub/irs-irbs/irb03-34.pdf.
Form 8874 (2003) Page 3

Line 10

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

couples filing separate returns and controlled corporate

groups.

Line 11

Although you may not owe the alternative minimum tax

(AMT), you generally must still compute the tentative

minimum tax (TMT) to figure your allowable credit. For a

small corporation exempt from the AMT under section 55(e),

enter zero. Otherwise, complete and attach the applicable

AMT form or schedule and enter the TMT on line 11.

Line 14

If you cannot use all of your credit because of the tax liability

limit (line 13 is smaller than line 3), carry the unused credit

back 1 year and then forward up to 20 years. See the

instructions for Form 3800 for details.

Paperwork Reduction Act Notice. We ask for the

information on this form to carry out the Internal Revenue

laws of the United States. You are required to give us the

information. We need it to ensure that you are complying

with these laws and to allow us to figure and collect the right

amount of tax.

You are not required to provide the information requested

on a form that is subject to the Paperwork Reduction Act

unless the form displays a valid OMB control number. Books

or records relating to a form or its instruction must be

retained as long as their contents may become material in

the administration of any Internal Revenue law. Generally,

returns and return information are confidential, as required by

section 6103.

The time needed to complete and file this form will vary

depending on individual circumstances. The estimated

average time is:

Recordkeeping 8 hr., 7 min.

Learning about the

law or the form 53 min.

Preparing and sending

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

If you have comments concerning the accuracy of these

time estimates or suggestions for making this form simpler,

we would be happy to hear from you. See the instructions of

the tax return with which this form is filed.

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.”

Line 2

If you have a new markets credit from more than one

pass-through entity, attach a statement showing the

employer identification number (EIN) and credit amount for

each pass-through entity, write “See attached” in the entry

space for the EIN, and enter the total of the credit amounts

on line 2.

Line 3

S corporations and partnerships complete lines 1 and 2 and

allocate the credit on line 3 to their shareholders or partners

on Schedule K-1. Electing large partnerships must include

this credit in “general credits.”

Part II—Allowable Credit

The credit allowed for the current year may be limited based

on your tax liability. Use Part II to figure the allowable credit

unless you must file Form 3800, General Business Credit.

Who must file Form 3800. You must file Form 3800 if you

have:

● Another credit included in the general business credit

(other than a credit from Form 8844 or 8884) or

● A carryback or carryforward of any of those credits.

See the instructions for Form 3800 to find out which

credits are included in the general business credit.

Specific Instructions

Part I—Current Year Credit

Figure the credit for qualified equity investments in a

qualified CDE you own on line 1. Complete line 2 (instead of

line 1) for a credit that was allocated to you by an S

corporation or a partnership from a qualified equity

investment it made in a qualified CDE, either directly or

through another pass-through entity.

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).