The IRS has issued two new significant revenue rulings impact New Markets Tax Credits impacting passive activity losses.

Revenue Ruling 2010-16

The Issue: Where the acquisition of the qualified equity investment in a qualified community development entity (CDE) is not in connection with the conduct of a trade or business (or in anticipation of a trade or business), is the new markets tax credit allowable under § 45D a passive activity credit under § 469?
RR 2010-16 finds that:

  1. Where an individual’s acquisition of a qualified equity investment in a CDE is not in connection with the conduct of the individual’s trade or business (or in anticipation of the individual’s trade or business), the new markets tax credit allowable to an individual under § 45D will not be a passive activity credit under § 469.
  2. Where a partnership’s acquisition of a qualified equity investment in a CDE is not in connection with the conduct of the partnership’s trade or business (or in anticipation of the partnership’s trade or business), the new markets tax credit allowable to the partnership under § 45D will not be a passive activity credit under § 469.

Revenue Ruling 2010-17

RR 2010-17 finds that for purposes of determining the new markets tax credit allowable under § 45D, the amount of the qualified equity investment made by an LLC classified as a partnership includes cash from a recourse loan to the LLC that the LLC invests as equity in a qualified community development entity.