Form 8874 – Fill Out and Use This PDF

●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 is listed on the CDFI Fund website at www.cdfifund.gov.

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.

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 2006 Form 1040 is reported on line 63 (total tax) and the amount on a 2006 Form 1120 is reported on Schedule J, line 9 (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.

Qualified CDEs must provide taxpayers holding a

TIP 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 Pub. 954, Tax Incentives for Distressed Communities, 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.