IRS Form 8874-A Guide: Notice of Qualified Equity Investment

Introduction: What is IRS Form 8874-A?

IRS Form 8874-A, titled Notice of Qualified Equity Investment for New Markets Credit, is an official compliance and notification form governed by the Internal Revenue Service (IRS) and the Community Development Financial Institutions (CDFI) Fund. It is issued under Section 45D of the Internal Revenue Code and Treasury Regulation § 1.45D-1(g)(2).

Unlike Form 8874, which investors use on their tax returns to calculate and claim the New Markets Tax Credit (NMTC), Form 8874-A is issued by a Community Development Entity (CDE). It serves as the official legal certificate notifying an investor that their cash contribution has been certified as a Qualified Equity Investment (QEI), entitling them to claim federal tax credits over a seven-year schedule.

Purpose of the Form

The New Markets Tax Credit program is designed to stimulate economic growth and capital investment in low-income communities. However, for an investor to legally claim the 39% federal tax credit, the underlying investment must satisfy rigorous statutory criteria and be formally allocated against the CDE’s award from the U.S. Treasury.

Form 8874-A solves the verification challenge between the CDE, the investor, and the IRS. By completing Form 8874-A, the CDE officially certifies the investment date, the exact dollar amount of the qualified equity investment, and the precise credit amounts allowable for each of the seven credit allowance years.

Who Needs to File Form 8874-A?

Form 8874-A must be issued and filed by certified Community Development Entities (CDEs) that meet the following criteria:

• Received an NMTC Allocation: The CDE holds an active allocation agreement awarded by the CDFI Fund.
• Issued a Qualified Equity Investment: The CDE received a cash investment from an individual, corporate, or institutional taxpayer in exchange for stock or a capital interest.
• Designated the Investment as a QEI: The CDE designated the cash investment as a Qualified Equity Investment on its official books and records.

Filing Obligation: The CDE must provide a copy of Form 8874-A directly to the investor and mail a separate copy directly to the IRS.

Who Is Exempt / Not Required to File?

Form 8874-A is not applicable under the following circumstances:

• Individual and Corporate Investors: Investors do not prepare or file Form 8874-A. Investors receive Form 8874-A from the CDE and use its information to file Form 8874 with their annual tax returns.
• Uncertified Community Investments: Direct loans or equity investments made into businesses without a certified CDE intermediary.
• Secondary Market Purchases: Transfers or sales of existing equity investments among third parties that were not acquired at original issue directly from the CDE.
• Opportunity Zone Funds: Qualified Opportunity Funds (QOFs) use Form 8996 and do not issue Form 8874-A.

When to File

Form 8874-A is an event-driven notification with a strict regulatory deadline:

• 60-Day Notification Window: Under Treasury Regulation § 1.45D-1(g)(2)(i)(A), the CDE must provide Form 8874-A to the investor and submit a copy to the IRS within 60 days after the date the qualified equity investment is made.
• Separate Form for Each Investment: If an investor makes multiple equity investments on different dates, a separate Form 8874-A must be executed for each distinct investment transaction.

Where and How to File

Form 8874-A is a standalone informational notice that is submitted separately from standard annual corporate tax returns.

• Providing to the Investor: The CDE furnishes the original signed Form 8874-A directly to the taxpayer making the investment within 60 days of the closing date.
• Submitting to the IRS: The CDE must mail a copy of Form 8874-A directly to the IRS address as per official form instructions (specifically the Internal Revenue Service Center in Ogden, Utah).

Step-by-Step Instructions to Fill Form 8874-A

Form 8874-A is a single-page document divided into specific numbered sections detailing the CDE, the investor, and the seven-year credit calculation.

Section / Field	Required Information	Instructions & Verification Rules
Sections 1 & 2	CDE Name and EIN	Enter the legal name and Employer Identification Number (EIN) of the qualified CDE issuing the equity investment.
Sections 3 & 4	Parent Taxpayer Info	If the CDE is part of a consolidated tax return, enter the legal name and EIN of the parent corporate taxpayer.
Sections 5 & 6	Investor Name and TIN	Enter the legal name and Taxpayer Identification Number (SSN or EIN) of the taxpayer making the investment.
Section 7	Date of Investment	Enter the exact date the qualified equity investment was fully funded in cash (MM/DD/YYYY).
Section 8	Amount of Investment	Report the exact dollar amount of the cash equity investment paid to the CDE.
Section 9	Total Allowable Credit	Multiply the Section 8 amount by 39% (0.39) to determine the total 7-year tax credit.
Sections 10a–10g	Annual Credit Schedule	Enter 5% of the investment for Years 1–3 (Sections 10a–10c), and 6% for Years 4–7 (Sections 10d–10g).
Signature Block	CDE Officer Authorization	Must be signed, dated, and certified by an authorized officer of the Community Development Entity.

Required Documents and Information Needed Before Filling

Before completing Form 8874-A, the CDE must assemble the following records:

• CDFI Fund Allocation Agreement: Documentation verifying the CDE’s certified status and authorized allocation threshold.
• Investment Closing Agreements: Operating agreements, stock purchase agreements, or subscription contracts confirming the equity interest.
• Proof of Cash Payment: Bank wire confirmations proving the investor transferred cash to the CDE on the effective date.
• Investor Identification: Verified legal name, address, and Taxpayer Identification Number (SSN/EIN) for the investor.

Common Mistakes to Avoid

• Missing the 60-Day Window: Failing to deliver Form 8874-A to the investor and IRS within 60 days of the investment date, which can jeopardize the investor’s credit claim.
• Miscalculating the 7-Year Schedule: Applying incorrect percentages across Sections 10a through 10g. The statutory schedule strictly requires 5% in Years 1–3 and 6% in Years 4–7.
• Failing to Send a Copy to the IRS: Providing the notice only to the investor while forgetting to mail a duplicate copy to the IRS Service Center.
• Non-Cash Investments: Issuing Form 8874-A for contributed property, services, or promissory notes. A QEI must be acquired solely for cash at original issue.

Penalties for Non-Filing or Errors

Failing to issue Form 8874-A or submitting inaccurate information creates severe compliance and tax liabilities:

• Disallowance of Investor Tax Credits: If the IRS does not have a matching Form 8874-A on file from the CDE, the investor’s Form 8874 credit claim will be rejected during automated tax return matching.
• Breach of CDFI Allocation Agreement: Failure to provide required notifications can result in the CDFI Fund revoking the CDE’s allocation authority.
• Investor Litigation & Indemnification: If a CDE’s administrative failure causes an investor to lose their tax credits, the CDE may face contractual damages under investor indemnification agreements.

Related Forms and Schedules

• Form 8874: New Markets Credit (the form filed by the investor to claim the annual tax credit).
• Form 8874-B: Notice of Recapture Event for New Markets Credit (used if a recapture event occurs).
• Form 3800: General Business Credit.
• Form 1065 / Form 1120: Business tax returns to which the investor attaches Form 8874.

Frequently Asked Questions (FAQs)

1. Who is responsible for filling out Form 8874-A?

The Community Development Entity (CDE) that received the investment is solely responsible for completing, signing, and distributing Form 8874-A.

2. Does the investor attach Form 8874-A to their tax return?

No. The investor retains Form 8874-A in their permanent tax records as proof of eligibility and uses the numbers from the form to complete Form 8874 on their annual tax return.

3. How long does the CDE have to issue Form 8874-A?

The CDE must issue Form 8874-A to the investor and submit a copy to the IRS within 60 days of the date the qualified equity investment was made.

4. What total percentage credit is certified on Form 8874-A?

Form 8874-A certifies a total credit equal to 39% of the qualified equity investment, distributed as 5% per year for the first three years and 6% per year for the remaining four years.

5. Can Form 8874-A cover multiple investors at once?

No. A separate Form 8874-A must be completed for each individual taxpayer who makes a qualified equity investment in the CDE.

Conclusion: Key Takeaways

IRS Form 8874-A is the foundational document that validates every New Markets Tax Credit transaction. By accurately detailing the qualified equity investment, calculating the 39% multi-year credit schedule, and delivering the notice within the mandatory 60-day window, CDEs ensure full compliance with Treasury regulations and enable investors to capture their valuable federal tax credits with confidence.