Community Development Investment Tax Credit Act of 2023
This bill allows investors a business-related tax credit for investment in a Community Development Financial Institution (CDFI). The applicable percentage of such credit is 3% for the first 10 years of investment in a CDFI with a 1% increase after the initial credit allowance date and for investments without a fixed term or duration.
The tax credit is available to investors who invest in various CDFIs to provide financial support for increasing wealth in low- and moderate-income communities. The national limitation on the credit is $1 billion for 2022, $1.5 billion for 2023, and $2 billion for 2024 and each year thereafter, with adjustments for inflation.
[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[H.R. 6650 Introduced in House (IH)]
<DOC>
118th CONGRESS
1st Session
H. R. 6650
To amend the Internal Revenue Code of 1986 to provide a credit for
investment in Community Development Financial Institutions.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
December 6, 2023
Mr. Thanedar introduced the following bill; which was referred to the
Committee on Ways and Means, and in addition to the Committee on
Financial Services, for a period to be subsequently determined by the
Speaker, in each case for consideration of such provisions as fall
within the jurisdiction of the committee concerned
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide a credit for
investment in Community Development Financial Institutions.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Community Development Investment Tax
Credit Act of 2023''.
SEC. 2. COMMUNITY DEVELOPMENT FINANCIAL INSTITUTION INVESTMENT TAX
CREDIT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
of the Internal Revenue Code of 1986 is amended by adding at the end
the following new section:
``SEC. 45BB. COMMUNITY DEVELOPMENT FINANCIAL INSTITUTION INVESTMENT TAX
CREDIT.
``(a) Allowance of Credit.--
``(1) In general.--For purposes of section 38, in the case
of a taxpayer who holds a qualified CDFI investment on a credit
allowance date of such investment which occurs during the
taxable year, the CDFI investment credit determined under this
section for such taxable year is an amount equal to the
applicable percentage of the amount paid to the qualified
community development financial institution for such investment
at its original issue.
``(2) Applicable percentage.--For purposes of paragraph
(1)--
``(A) In general.--The applicable percentage is--
``(i) 3 percent with respect to the first
10 credit allowance dates, and
``(ii) 4 percent with respect to the 10
credit allowance dates following the last
credit allowance date to which clause (i)
applies.
``(B) Increased amount for certain investments.--In
the case of a qualified CDFI investment which does not
have a fixed term or duration, the applicable
percentage for any credit allowance date shall be
increased by one percentage point.
``(3) Credit allowance date.--
``(A) In general.--For purposes of paragraph (1),
the term `credit allowance date' means, with respect to
any qualified CDFI investment--
``(i) the date which is one year after the
date on which such investment is initially
made, and
``(ii) each of the 19 anniversary dates of
such date thereafter.
``(B) Limitation.--Notwithstanding subparagraph
(A), a date shall not be treated as a credit allowance
date with respect to any qualified CDFI investment if
such date occurs after any date on which--
``(i) the financial institution in which
such CDFI investment is made ceases to be a
qualified community development financial
institution, or
``(ii) such investment is redeemed,
repurchased, or otherwise repaid by the
qualified community development financial
institution which issued such investment.
``(b) Qualified CDFI Investment.--For purposes of this section--
``(1) In general.--The term `qualified CDFI investment'
means any investment in a qualified community development
financial institution if--
``(A) such investment is acquired by the taxpayer
at its original issue (directly or through an
underwriter) solely in exchange for cash,
``(B) such investment is in the form of--
``(i) non-voting stock or an equity
equivalent investment,
``(ii) an interest in an entity which is a
partnership, or
``(iii) an obligation described in section
279(b)(2) which has a term of 10 years or
longer,
``(C) such investment has not been designated as a
qualified equity investment for purposes of section
45D, and
``(D) such investment is designated for purposes of
this section by the qualified community development
financial institution.
Such term shall not include any investment issued by a
qualified community development financial institution more than
5 years after the date that such financial institution receives
an allocation under subsection (d)(3). Any allocation not used
within such 5-year period may be reallocated by the Secretary
under subsection (d).
``(2) Limitation.--The maximum amount of investments issued
by a qualified community development financial institution
which may be designated under paragraph (1)(D) by such
financial institution shall not exceed the portion of the
limitation amount allocated under subsection (d) to such
financial institution.
``(3) Treatment of subsequent purchasers.--The term
`qualified CDFI investment' includes any investment which would
(but for paragraph (1)(A)) be a qualified CDFI investment in
the hands of the taxpayer if such investment was a qualified
CDFI investment in the hands of a prior holder.
``(4) Redemptions.--A rule similar to the rule of section
1202(c)(3) shall apply for purposes of this subsection.
``(5) Equity equivalent investment.--For purposes of this
paragraph, the term `equity equivalent investment' means an
obligation of a qualified community development financial
institution which--
``(A) is carried as an investment on the investor's
balance sheet in accordance with Generally Accepted
Accounting Principles,
``(B) is not secured by any of the assets of the
qualified community development financial institution,
``(C) is fully subordinated to the right of
repayment of all of the other creditors of the
qualified community development financial institution,
``(D) does not give the investor the right to
accelerate payment unless the qualified community
development financial institution ceases its normal
operations,
``(E) carries an interest rate or dividend that is
not tied to any income received by the qualified
community development financial institution, and
``(F) has an indeterminate maturity.
``(c) Qualified Community Development Financial Institution.--For
purposes of this section, the term `qualified community development
financial institution' means--
``(1) any community development financial institution (as
defined in section 103 of the Community Development Banking and
Financial Institutions Act of 1994 (12 U.S.C. 4702)), or
``(2) any partnership that is controlled, for purposes of
section 482, or any investment vehicle the investment
activities of which are otherwise substantially entirely
managed and directed, by one or more community development
financial institutions (as so defined).
``(d) National Limitation on Amount of Investments Designated.--
``(1) In general.--There is an investment tax credit
limitation for each calendar year. Such a limitation is--
``(A) $1,000,000,000 for 2023,
``(B) $1,500,000,000 for 2024, and
``(C) $2,000,000,000 for each year thereafter.
``(2) Inflation adjustment.--
``(A) In general.--In the case of any calendar year
after 2025, the $2,000,000,000 in paragraph (1)(C)
shall be increased by an amount equal to--
``(i) such dollar amount, multiplied by
``(ii) the cost-of-living adjustment
determined under section 1(f)(3) for the
calendar year in which the taxable year begins,
determined by substituting `calendar year 2024'
for `calendar year 2016' in subparagraph
(A)(ii) thereof.
``(B) Rounding.--If any increase determined under
subparagraph (A) is not a multiple of $1,000,000, such
increase shall be rounded to the nearest multiple of
$1,000,000.
``(3) Allocation of limitation.--
``(A) In general.--The limitation under paragraph
(1) shall be allocated by the Secretary among qualified
community development financial institutions selected
by the Secretary based on the following criteria:
``(i) Financial and compliance performance.
``(ii) Demonstrated ability to attract
private capital.
``(iii) The diversity of business model
types.
``(iv) The diversity of population density
served.
``(v) Impact generation capacity.
``(vi) The information contained in the
investment plan described in subparagraph (B).
``(vii) Whether the investment term will
exceed 10 years.
``(viii) Such other criteria as determined
appropriate by the Secretary.
``(B) Requirement to provide an investment plan.--
An application submitted to the Secretary under
subparagraph (A) shall include a plan that--
``(i) describes how the qualified community
development financial institution will expand
or maintain its lending and investing activity
in its target market as a result of qualified
CDFI investments, and
``(ii) includes such other information as
required by the Secretary.
``(4) Carryover of unused limitation.--If the new
investment tax credit limitation for any calendar year exceeds
the aggregate amount allocated under paragraph (2) for such
year, such limitation for the succeeding calendar year shall be
increased by the amount of such excess.
``(5) Authorization of user fees.--
``(A) In general.--The Secretary may charge a user
fee for a request for an allocation of the limitation
under paragraph (3).
``(B) Use of fees.--Any fees collected by the
Secretary pursuant to subparagraph (A) may be used to
contract with third parties to verify information
relating to the qualification of an entity as a
qualified community development financial institution.
``(C) Limitation.--The fee charged under
subparagraph (A) shall not exceed 0.05 percent of the
amount of the allocation requested.
``(e) Regulations.--The Secretary shall prescribe such regulations
as may be appropriate to carry out this section, including
regulations--
``(1) which limit the credit under this section for
investments which directly or indirectly receive a Federal tax
benefit (including a credit under section 42 or an exclusion
from gross income under section 103),
``(2) which prevent the abuse of the purposes of this
section,
``(3) which impose appropriate reporting requirements, and
``(4) which provide rules for allocations under subsection
(d)(3) to persons that have been certified as emerging
community development financial institutions under section 105
of the Community Development Banking and Financial Institutions
Act of 1994.''.
(b) Part of General Business Credit.--Section 38(b) of such Code is
amended by striking ``plus'' at the end of paragraph (40), by striking
the period at the end of paragraph (41) and inserting ``, plus'', and
by adding at the end the following new paragraph:
``(42) the CDFI investment credit determined under section
45BB(a).''.
(c) Conforming Amendments.--
(1) Section 45D(b)(1) of the Internal Revenue Code of 1986
is amended by striking ``and'' at the end of subparagraph (B),
by striking the period at the end of subparagraph (C) and
inserting ``, and'', and by adding at the end the following new
subparagraph:
``(D) such investment has not been designated as a
qualified CDFI investment for purposes of section
45BB.''.
(2) The table of sections for subpart D of part IV of
subchapter A of chapter 1 of such Code is amended by adding at
the end the following new item:
``45BB. Community development financial institution investment tax
credit.''.
(d) Effective Date.--The amendments made by this section shall
apply to investments made after the date of the enactment of this Act.
SEC. 3. COMMUNITY DEVELOPMENT EQUITY FUNDS.
Section 105 of the Community Development Banking and Financial
Institutions Act of 1994 (12 U.S.C. 4704) is amended by adding at the
end the following:
``(d) Community Development Equity Funds.--
``(1) Definition.--In this subsection, the term `community
development equity fund' means a community development
financial institution with a management entity that manages 1
or more investment funds where a majority of both the number
and dollar volume of financial products are equity or near
equity investments in small businesses located in an investment
area or small businesses majority owned by a targeted
population.
``(2) Qualifications.--In an application for assistance
under this subtitle, an applicant that is a community
development equity fund shall demonstrate, to the satisfaction
of the Secretary, that the current or proposed management team
of the fund is qualified and has the knowledge, experience, and
capability necessary for investing in the types of businesses
contemplated by this Act, regulations implementing this Act,
and the business plan of the fund.
``(3) Treatment.--The management entity of the community
development equity fund and all of its current and future
managed investment funds shall be treated as one community
development financial institution, regardless of the separation
of the corporate structures, if the management entity maintains
control over the investment decisions of the managed funds and
has not made changes to its management team without approval of
the Secretary.''.
SEC. 4. EMERGING CDFIS.
Section 105 of the Community Development Banking and Financial
Institutions Act of 1994 (12 U.S.C. 4704), as amended by section 3 of
this Act, is amended by adding at the end the following:
``(e) Emerging Community Development Financial Institutions.--
``(1) In general.--An entity may submit to the Fund an
application to be certified as an emerging community
development financial institution.
``(2) Business plan.--The application described in
paragraph (1) shall include a business plan that demonstrates
that, during the 18-month period beginning on the date on which
the business plan is approved, the entity will meet the
requirements of subparagraph (A) of section 103(5) or
subsection (d) of this section.''.
<all>
Introduced in House
Introduced in House
Referred to the Committee on Ways and Means, and in addition to the Committee on Financial Services, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
Referred to the Committee on Ways and Means, and in addition to the Committee on Financial Services, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
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