Monthly Archives:' June 2014

Extension for New Markets Tax Credit Program a Bipartisan Effort

A bipartisan effort was shown as fifty U.S. Representatives last week sent a joint letter to Ways and Means Chairman Dave Camp, R-Mich., and Ranking Member Sander Levin, D-Mich., urging them to support an extension of the new markets tax credit program (NMTC). Circulated by Reps. Mike Turner, R-Ohio, and Chaka Fattah, D-Pa., the sign-on letter noted that businesses and jobs financed by the NMTC produce enough income tax revenue to offset the cost of the program. They strongly urged the extension, “as communities across America will lose a tool that has created jobs, revitalized neighborhoods, and helped to jump start local economies. Since 2003, the New Markets Tax Credit program has created over 550,000 jobs and generated 60 billion in capital investment for credit starved businesses and revitalization projects in underserved communities.

Agencies Announce Areas for CRA Consideration

Federal Agencies today announced the availability of the 2014 list of distressed or underserved nonmetropolitan middle-income geographies, where revitalization or stabilization activities will receive Community Reinvestment Act (CRA) consideration as “community development.” “Distressed nonmetropolitan middle-income geographies” and “underserved nonmetropolitan middle-income geographies” are designated by the agencies in accordance with their CRA regulations. The criteria for designating these areas are available on the Federal Financial Institutions Examination Council (FFIEC) website. The designations continue to reflect local economic conditions, including triggers such as unemployment, poverty, and population changes. As with past releases, the agencies incorporate a one-year lag period for geographies that are no longer designated as distressed or underserved in the current release. Geographies subject to this one-year lag period are eligible to receive consideration for community development activities for 12 months after publication of the current list. The current and previous years’ lists can be found on the FFIEC website, along with information about the data sources used to generate those lists.”

Kennedy Sutherland Attorney Joins Business & Community Lenders of Texas Board

Kennedy Sutherland LLP is proud to announce that William D. Sutherland VI has been selected to serve on the Business & Community Lenders of Texas Board of Directors. The mission of Business and Community Lenders (BCL) of Texas is to further the economic development of Texas by promoting and assisting in the growth and development of small business concerns. BCL of Texas seeks to support in the diversification and stabilization of the local economy within its program charter boundaries and will assist in fostering job creation, and assists in the development of affordable housing to low and moderate income families.

BCL of Texas (formally CEN-TEX Certified Development Corporation) was formed in 1990 at the invitation of the SBA San Antonio District office to make commercial real estate loans for established central Texas businesses. Since then, BCL of Texas has grown to provide their services statewide, and have incorporated asset-building and home buyer education. Now with two locations open full-time to serve the needs of Texans, they are able to continue to develop new services and solutions for their customers.

BCL of Texas by the Numbers:

  • Created 5,255 jobs for Texans
  • Provided 18,131 hours of free business development services
  • Loaned $14,930,041 in business capital to growing businesses
  • Administered 86,709,000 in business development capital for growth firms
  • Underwritten $338,479,489 in business loans to growing businesses
  • Assisted 5,137 families to achieve homeownership
  • Invested $5,790,000 in income-producing real estate assets


S Corporation Tax Extenders Legislation Moves Forward

On June 6th, House Majority Leader Eric Cantor, R-Va., laid out a busy legislative agenda for the remainder of June in a memo to House Republicans. In the memo, Cantor stated that as they return from their summer stretch into the swampy heat of Washington D.C., they will continue to work on an agenda that builds upon their work from the beginning of the year, including everything they accomplished in May.

Cantor noted that during the first part of the year, Chairman Dave Camp put forth a bold tax reform proposal, the Tax Reform Act of 2014, which aimed to address a broken tax code that penalized hard work and innovation, stifles American competiveness, and economic growth. As the Committee continues to receive feedback on the draft, Cantor scheduled floor consideration, for the week of June 9th, on three targeted tax extender bills. Of the three scheduled, two of the bills that were addressed were HR 4453 (permanent S Corporation Built in Gains Recognition Period Act of 2014) and HR 4454 (Permanent S Corporation Charitable Contributions Act of 2014).

As mentioned in our previous email alert, HR 4453, authored by Representative Dave Reichert, would make permanent currently expired provisions that reduces for businesses who are organized as S Corps the built-in gains tax holding period from 10 to 5 years. The Subchapter S Bank Association has long believed that this change will allow banks easier access to their capital to grow and create new jobs. HR 4454, which also is authored by Reichert, would make permanent temporary tax provisions regarding the basis adjustment rules for charitable giving by S Corps.

On June 12th, the House adopted the reforms by a count of 263 to 155. The provisions received strong bipartisan support, with all but two Republicans supporting the measure and forty-two Democrats parted with their leadership and the Administration and voted yes as well. Ways and Means Committee Chairman Dave Camp kicked off the day by offering these remarks on the House floor:

“The bill we have before us today is the right step forward to level the playing field between the small businesses on Main Street and big businesses. If a small business chooses to operate as an S corporation for tax purposes, we should ensure that they have the ability to access certain capital without tax penalties.

…This is a bipartisan, commonsense bill that will give small businesses some much needed relief from the burdens of the tax code, and allow them to make new investments and create new jobs.”

Washington State Congressman Dave Reichert had this to say:

“The BIG tax is a double tax on S corporations who want to sell their assets after converting from C corporation status.

…As we’ve heard from Jim Redpath…who testified before one of our Ways and Means hearings…the BIG tax causes S corporations to hold onto unproductive or old assets that should be replaced. He gave the example of a road contractor which is holding onto old equipment that is sitting in the junkyard…because if he sold them, they would be subject to the BIG, double tax. Instead of selling the assets and using the proceeds to hire new workers or invest in new equipment, the business owners sit on the sidelines. This is a perfect example of the tax code influencing business decisions and needs to stop.”

The measures now will be sent to the Senate side, where new Finance Committee Chair Ron Wyden (D-OR) and Majority Leader Harry Reid (D-NV) will work on how to move the extenders package forward, which includes two year extensions of these to S corporation provisions. Most likely, we will have to wait on the outcome of the November election before we see movement on these bills. However, the passage in the House is a big step and we will continue to press and move the issue forward as it is taken up on the Senate side.

Guidance on Income Tax Allocation Agreements

Federal banking regulators issued final supplemental guidance on income tax allocation agreements involving holding companies and insured depository institutions. An aim of the guidance is to reduce confusion regarding ownership of tax refunds.

The guidance supplements a 1998 regulators issued interagency policy statement on income tax allocation. The previous statement stated that a holding company that receives a tax refund from a taxing authority obtains these funds as agent for its subsidiary insured depository institutions and other affiliates. The guidance supplements the policy statement by instructing insured depository institutions and their holding companies to review their tax allocation agreements to ensure the agreements expressly acknowledge that the holding company receives any tax refunds as an agent. In addition, all banking organizations are asked to insert specific language in their tax allocation agreements to further clarify tax refund ownership.

The guidance also clarifies how sections 23A and 23B of the Federal Reserve Act, which establish certain restrictions on and requirements for transactions between depository institutions and their affiliates, apply to tax allocation agreements.

Identical to a proposal issued late last year, The federal banking regulators are issuing the guidance in response to disputes between holding companies in bankruptcy and failed depository institutions regarding ownership of tax refunds. Courts have come to differing conclusions regarding the ownership of tax refunds between holding companies and depository institutions based on their interpretation of language in tax allocation agreements.

Institutions and holding companies should implement the guidance as soon as reasonably possible, which the regulators expect would not be later than October 31, 2014.

Interagency Guidance on Income Tax Allocation Agreements

Request for Information on Mobile Payments

The Consumer Financial Protection Bureau (“CFPB”) released a request for information (“RFI”) concerning the use of mobile financial services, specifically among unbanked and underbanked consumers. In the RFI, the CFPB expresses its interest in exploring the ways mobile devices can give access to consumers who do not have easy means to obtain or use current financial products and services. In addition the CFPB wants to know how mobile devices can offer everyone opportunities for real-time money management.

CFPB director Richard Corday stated, “Ensuring access to financial products and services is a key focus for us at the Consumer Bureau. We have learned from the FDIC’s research into the difficulties experienced by those who are either unbanked or under-banked. Tens of millions of Americans fall into these two categories. They face costly challenges to complete day-to-day transactions that those in the mainstream financial system take for granted. Our inquiry here will focus on an even broader category of consumers who are ‘underserved.’ They are hard-working people living from paycheck to paycheck and waging a constant struggle to make ends meet. They often are younger. And they may also face particular accessibility issues – such as consumers who are disabled or who live in certain areas.”

He futher stated, “A recent FDIC study found that the ‘anytime, anyplace’ nature of mobile financial services offers the potential to help more people gain easier access to the banking system and grow their financial capability. Mobile phones are quite prevalent among many of these consumers, who may use these devices in lieu of computers. For example, in households earning less than $25,000 a year, 74 percent of adults have a mobile phone of some type and 44 percent have a smartphone. Mobile financial services can help provide access to a myriad of products and services that these consumers may not be able to access due to location or other barriers such as cost. The cost issue is important because mobile has the potential to be significantly cheaper than traditional banking. One industry report calculated that the average cost of an in-branch transaction was $4.25, whereas the average cost of a mobile transaction was just ten cents. These are significant cost savings, much of which can and should be passed on to consumers.”

Kennedy Sutherland to Present at Texas Rural Challenge

Kennedy Sutherland is excited to announce that one of its attorneys, William D. Sutherland, will be presenting at the Fifth Annual Texas Rural Challenge conference on June 19-20 in Waco, Texas. The Texas Rural Challenge is the largest state-wide conference to focus on the challenges and opportunities facing rural Texas. Hosted by the Office of the Governor, UTSA’s Institute for Economic Development-SBDC Rural Business Program, Texas Economic Development Council, Texas Department of Agriculture, USDA-Rural Development, Texas Association of Regional Councils the conference features engaging and accomplished leaders in business and government, and a large number of state and federal agencies along with private sector partners host and participate in this event.

Mr. Sutherland will be joined on the panel by Joe Morin from the Governor’s Office and Sedef Doganer, Ph.D. from UTSA ‘s College of Architecture. Together, they will discuss “Best Practices for Financing Expansion.” Other topics included in the conference are: business and economic best practices, community growth, energy, cultural tourism, and other rural statewide issues like healthcare access.

Register Now 

2014 New Market Tax Credit Progress Report

The New Markets Tax Credit (NMTC) Coalition today released its 2014 NMTC Progress Report. The report outlines how the new market tax credit  was used and describes the impact it had on economically distressed communities during calendar year 2013, which includes creating more than 54,000 jobs and nearly 2,500 housing units. The report also provides updated investment and transaction information from NMTC allocatee survey respondents for calendar year 2013 and examples of successful projects, among other things.

Background: Every year, the NMTC coalition sends a survey to all the CDEs who have recieved a NMTC allocation. This year 64 CDEs representing $17.1 billion in total allocation (2003-2013) responded to the survey reporting on their NMTC activity in calendar year 2013.

New Market Tax Credit Awards Annouced

The U.S. Department of the Treasury’s Community Development Financial Institutions Fund (CDFI Fund) announced that 87 community development entities (CDEs) have been selected to receive $3.5 billion in tax credits under the under the calendar year 2013 round of the New Markets Tax Credit (NMTC) program. The 87 CDEs receiving awards were selected from a pool of 310 applicants that requested more than $25.9 billion. The 2013 allocatees are headquartered in 32 different states and the District of Columbia, and they have identified principal service areas that will cover nearly every state in the country and the District of Columbia. A list of the organizations selected and additional information about today’s announcement can be found on the CDFI Fund’s web site.

The New Markets Tax Credit Program, established by Congress in December 2000, permits individual and corporate taxpayers to receive a credit against federal income taxes for making equity investments in vehicles known as Community Development Entities. The credit provided to the investor totals 39 percent of the cost of the investment and is claimed over a seven-year period. The Community Development Entities in turn use the capital raised to make investments in low-income communities. Community Development Entities must apply annually to the CDFI Fund to compete for New Markets Tax Credit Program allocation authority.

“Over $31.1 billion of New Markets Tax Credit transactions have been reported from the program’s inception through the end of fiscal year 2012, and over 74 percent of these were made in severely distressed communities, surpassing even the program’s requirements,” said Dennis Nolan, Acting Director of the Community Development Financial Institutions Fund. “

Agencies Seek Comment to Reduce Burdensome Regulations

On June 4, the Fed, FDIC and OCC (“The Agencies”) published the first of several requests for comments to identify “outdated, unnecessary or unduly burdensome regulations imposed on insured depository institutions.”

The Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) requires the federal banking regulators to review regulations issued by the agencies at least every 10 years. It also requires the regulators to break down the regulations by category, present each category for comment and identify areas of regulations that are outdated, unnecessary or unduly burdensome.

The first notice seeks comment on regulations from three categories: Applications and Reporting; Powers and Activities, and International Operations. The public will have until September 2, 2014, to review and comment on this first set of categories.

The agencies plan to schedule roundtable discussions with bankers and interested parties and will publish details about these sessions on the EGRPRA website as they are finalized.

Federal Register Notice (PDF)