DOR Issues Draft Regulations for CITC Program

The Massachusetts Department of Revenue has issued draft regulations for the Community Investment Tax Credit program (proposed regulations at 830 CMR 62.6M.1. Assuming the regs when adopted stay the same as the draft, they create some important incentives to taxpayers and donors who want to invest in their communities. For example:

  • You do not need to be a resident of Massachusetts to make a donation and obtain a credit. In fact, you do not even need to have Massachusetts taxable income. [Section 830 CMR 62.6M.1(13)]. Since the credit is refundable, if someone wants to make a donation to a community development corporation that has been allocated credits, he may do so, file a return, and receive 50% of the credit back as a refund from the state. The total donation is treated as a charitable donation for federal tax purposes. However, be aware that the refund will likely be treated as income for federal tax purposes when filing in the following tax year.
  • The clear winner is a donor who has Massachusetts income and whose donation approximates her tax liability. If Donor A has tax liability of $2,500 and makes a donation of $5,000, she will receive a credit of $2,500 eliminating her state tax liability and, as noted above, may claim the total donation as a charitable gift on her federal return. Since her tax credit offsets her Massachusetts income, the credit is not treated as income for federal tax purposes.
  • Corporations, partnerships and limited liability companies are also eligible to claim the credit. If the entity is a “pass through” entity and not taxed at the entity level, the credit is passed along to the owners pro rata or based on an executed agreement documenting an alternative distribution method. [Section 830 CMR 62.6M.1(10)(a)].
  • Nonprofit organizations that are tax exempt under IRC 501(c)(3) may contribute to a community development corporation and receive either a tax credit (eg. if the organization has unrelated business income), or the refund.

A word of caution to businesses that wish to donate and have a business relationship with the community development corporation: the contribution will only qualify if it “is not in any way an element of or contingent upon such contractual relationship [with the CDC] or upon its continuation.” [Section 830 CMR 62.6M.1(15)(b)]. If there is a business relationship between the donor and the donee, the donor must disclose that when it applies for the tax credit.

For more information, check out the Massachusetts Association of CDCs website at http://www.macdc.org/community-investment-tax-credit. You can access the list of qualified community development corporations at http://www.macdc.org/2014-citc-allocations.

Felicity Hardee is an attorney in Springfield, Massachusetts who represents affordable housing developers and lenders in the development and financing of housing for low and moderate income individuals, families and seniors. She assists clients with closings involving multiple financing sources, including Low Income Housing Tax Credits and HOME, HSF and HIF financing.  She serves as the President of Valley CDC and the Treasurer of Community Legal Aid.