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                                                New Markets Credit                                                       OMB No. 1545-1804
Form 8874
(Rev. October 2020)                                   ▶ Attach to your tax return.                                          Attachment   
Department of the Treasury              ▶ Go to www.irs.gov/Form8874 for the latest information.                            Sequence No. 127
Internal Revenue Service
Name(s) shown on return                                                                                            Identifying number 

                            (a)                            (b)              (c)                    (d)               (e)              (f) 
     Name and address of the qualified          Employer identification   Date of initial      Amount of qualified   Credit Credit ((d) × (e)) 
     community development entity (CDE)               number of CDE       investment           equity investment     rate
1 
                                                                                                                     % 

                                                                                                                     % 

                                                                                                                     % 

                                                                                                                     % 

                                                                                                                     % 

                                                                                                                     % 

2    New markets credit from partnerships and S corporations .      .   . . .   .    .     . . . . .   . .         . 2 
3    Add lines 1 and 2. Partnerships and S corporations, report this amount on Schedule K. All others, 
     report this amount on Form 3800, Part III, line 1i  . .   . .  .   . . .   .    .     . . . . .   . .         . 3 
For Paperwork Reduction Act Notice, see instructions.                     Cat. No. 31663N                            Form  8874 (Rev. 10-2020)

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Form 8874 (Rev. 10-2020) Page 2
General Instructions Exceptions. An equity investment in an entity that otherwise
qualifies as a qualified equity investment or a non-real estate
Section references are to the Internal Revenue Code unless qualified equity investment is eligible to be designated as a
otherwise noted. qualified equity investment if made prior to an allocation
agreement, but only if the following applies.
Future Developments
• The equity investment was made on or after the date the CDFI
For the latest information about developments related to Form Fund publishes a Notice of Allocation Availability (NOAA) in the
8874 and its instructions, such as legislation enacted after they Federal Register, and the designation of the equity investment
were published, go to www.irs.gov/Form8874. as a qualified equity investment is made for a credit allocation
received under an allocation application submitted to the CDFI
What’s New Fund under that NOAA. If the entity in which the equity
The new markets credit allocation has been extended for investment is made does not receive an allocation under that
calendar years through 2020. To find out if the allocation is NOAA, the equity investment will not be eligible to be
extended beyond 2020, go to www.irs.gov/Form8874. 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).
Purpose of Form The maximum amount of equity investments so designated by
Use Form 8874 to claim the new markets credit for qualified the qualified CDE cannot exceed the amount of the allocation it
equity investments made in qualified community development received from the CDFI Fund. The names and addresses of
entities (CDEs). This credit is part of the general business credit. qualified CDEs that have received an allocation for each
Taxpayers that are not partnerships or S corporations, and allocation round and the amount of that allocation are listed on
whose only source of this credit is from those pass-through the CDFI Fund website at www.cdfifund.gov.
entities, are not required to complete or file this form. Instead, Non-Real Estate Qualified Equity Investment
they can report this credit directly on Form 3800, Part III, line 1i.
If a qualified equity investment is designated as a non-real
Definitions estate qualified equity investment, then the qualified equity
investment may only satisfy the substantially-all requirement if
Qualified CDE the CDE makes qualified low-income community investments
A qualified CDE is a domestic corporation or partnership that that are directly traceable (including investments made through
meets the following requirements. one or more CDEs) to non-real estate qualified active low-
income community businesses. The proceeds of a non-real
• Its primary mission is serving, or providing investment capital estate qualified equity investment cannot be used for
for, low-income communities or persons. transactions involving a qualified active low-income community
• It maintains accountability to residents of low-income business that is not a non-real estate qualified active low-
communities through their representation on any governing income community business. See Regulations section
board or advisory board of the entity. 1.45D-1(d) for details about qualified low-income community
• It is certified as a qualified CDE by the Community investments.
Development Financial Institutions (CDFI) Fund of the
Department of the Treasury. How To Figure the Credit
Qualified CDEs also include specialized small business A credit is generally allowed to the holder of the qualified equity
investment companies and community development financial investment on each of 7 credit allowance dates. The credit
institutions. See section 45D(c)(2). allowance dates are the date you make the initial investment
and each of the next 6 anniversary dates. The credit is equal to
Qualified Equity Investment the qualified equity investment multiplied by 5% (6% for the
A qualified equity investment is an interest in a qualified CDE in fourth through seventh years). However, the credit is not
the form of stock (other than nonqualified preferred stock) in a allowed for a credit allowance date if the investment is not a
corporation or a capital interest in a partnership that meets all of qualified equity investment on that date.
the following requirements.
Recapture of the Credit
• You acquired the investment solely for cash at its original
issue (or from a taxpayer for whom the investment was a You may have to increase your tax by a credit recapture
qualified equity investment). The cash may be from borrowed amount if at any time within 7 years from the date of the original
funds, including a nonrecourse loan. For details, see Rev. Rul. issuance of the qualified equity investment:
2003-20 and Rev. Rul. 2010-17. • The entity ceases to be a qualified CDE,
• Substantially all (at least 85%) of the cash is used to make • Substantially all of the proceeds of the investment cease to
qualified low-income community investments. The 85% be used to make qualified low-income community investments,
requirement is reduced to 75% for the seventh year of the or
7-year credit period. • The investment is redeemed or otherwise cashed out by the
• The investment was designated as a qualified equity entity.
investment or a non-real estate qualified equity investment by Exception. If a CDE fails to use substantially all of the proceeds
the CDE on its books and records for purposes of the new of a qualified equity investment to make qualified low-income
markets credit. community investments, the CDE may avoid recapture of the
Generally, a qualified CDE can designate an equity investment credit if it corrects the failure within 6 months after the date it
as a qualified equity investment or a non-real estate qualified becomes aware (or reasonably should have become aware) of
equity investment only if it applied for and received a new markets the failure. Only one correction is permitted for each qualified
credit allocation and entered into an allocation agreement with the equity investment during the 7-year credit period.
CDFI Fund before the equity investment was made. See section 45D(g) and Regulations section 1.45D-1(e) for
Qualified CDEs must provide taxpayers holding a details, including how to figure the credit recapture amount.
qualified equity investment with a completed Form Generally, include the credit recapture amount on the line for
TIP 8874-A when a qualified equity investment is recapture taxes on your income tax return for the year in which
acquired. the recapture event occurs. For example, the credit recapture

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Form 8874 (Rev. 10-2020) Page 3
amount on a 2020 Form 1040 is reported on Schedule 2 (Form If you need more space, attach a statement showing all the
1040), line 8, box c, and the amount on a 2020 Form 1120 is information requested for each qualified equity investment. On
reported on Schedule J, line 9g (Other taxes). the last row on line 1, write “See attached” in column (a) and
You are not subject to recapture of the credit solely because enter the total of the credit amounts from the attached
you sell or otherwise dispose of your investment. However, you statement in column (f).
cannot claim the credit for any credit allowance date after the
disposition. Paperwork Reduction Act Notice. We ask for the information
on this form to carry out the Internal Revenue laws of the
Qualified CDEs must provide taxpayers holding a United States. You are required to give us the information. We
qualified equity investment with a completed Form need it to ensure that you are complying with these laws and to
TIP 8874-B when a recapture event occurs. allow us to figure and collect the right amount of tax.
You are not required to provide the information requested on
Basis Reduction a form that is subject to the Paperwork Reduction Act unless the
You must reduce your basis in your qualified equity investment form displays a valid OMB control number. Books or records
by the amount of the new markets credits allowed (even if part relating to a form or its instructions must be retained as long as
or all of the credit is not allowed for the current year and is their contents may become material in the administration of any
carried forward). However, do not reduce your basis for Internal Revenue law. Generally, returns and return information
purposes of figuring the exclusion of gain for: are confidential, as required by section 6103.
• Qualified small business stock under section 1202, The time needed to complete and file this form will vary
depending on individual circumstances. The estimated burden
• Certain DC zone assets under section 1400B (as in effect for individual and business taxpayers filing this form is approved
before its repeal on March 23, 2018), or under OMB control number 1545-0074 and 1545-0123 and is
• Certain qualified community assets under section 1400F (as in included in the estimates shown in the instructions for their
effect before its repeal on March 23, 2018). individual and business income tax return. The estimated
burden for all other taxpayers who file this form is shown below.
Additional Information Recordkeeping . . . . . . . . . . . 6 hr., 13 min.
For more details, see section 45D, Regulations section 1.45D-1, Learning about the
or www.cdfifund.gov. law or the form . . . . . . . . . . . 1 hr., 12 min.
Preparing and sending
Specific Instructions the form to the IRS . . . . . . . . . . 1 hr., 20 min.
Line 1 If you have comments concerning the accuracy of these time
Enter the information requested for each qualified equity estimates or suggestions for making this form simpler, we would
investment held directly by you on a credit allowance date in be happy to hear from you. See the instructions of the tax return
the current tax year. In column (e), enter the credit rate. For the with which this form is filed.
first, second, or third year of the 7-year credit period, enter “5.”
For any later year, enter “6.”

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