The challenge of attracting investment capital to underserved areas continues and even has intensified recently. One way of trying to address that problem is the New Markets Tax Credit (NMTC), which was designed to provide a modest tax incentive to increase the flow of private-sector capital to those areas in need.

Under the NMTC, this is done through Community Development Entities (CDE).

During the AICPA Not-For-Profit Financial Executive Forum, representatives of the New Markets Tax Credit Coalition said that demand for NMTCs remains strong but that there are four key factors when looking at the NMTC investment environment.

The NMTC provides a modest subsidy when compared to other targeted federal tax credits. Taxpayers investing in the NMTC are looking for solid business deals that will yield economic return beyond the tax subsidy.

Since the inception of the program, regulated financial institutions have been the principal source of investment capital for the NMTC.

NMTC investments are not exempt from the Alternative Minimum Tax (AMT), which restricts the size of the investor market and puts NMTC at a competitive disadvantage with other similar federal tax credits that are exempt from AMT.

As a federal tax credit, the NMTC is attractive only to investors with federal income tax liability they can offset. It is not attractive to entities such as local and state government agencies, nonprofit pension funds or private foundations.