New Markets Tax Credit: Status of Implementation and Issues	 
Related to GAO's Mandated Reports (06-DEC-02, GAO-03-223R).	 
                                                                 
This report describes the status of our work toward developing a 
methodology for evaluating the New Markets Tax Credit (NMTC)	 
Program. Our objectives are to provide information about (1) the 
NMTC Program, including its goals, its design, and progress in	 
implementing the program, and (2)our mandated review of the	 
program, including the potential scope of the review and how the 
program may be evaluated for effectiveness and compliance.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-223R					        
    ACCNO:   A05671						        
  TITLE:     New Markets Tax Credit: Status of Implementation and     
Issues Related to GAO's Mandated Reports			 
     DATE:   12/06/2002 
  SUBJECT:   Community development programs			 
	     Program evaluation 				 
	     Tax credit 					 
	     Investments					 
	     Economically depressed areas			 
	     New Markets Tax Credit Program			 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-03-223R

GAO- 03- 223R Implementation Status and Issues Related to Mandated Reports

United States General Accounting Office Washington, DC 20548

December 6, 2002 Congressional Committees

Subject: New Markets Tax Credit: Status of Implementation and Issues
Related to GAO*s Mandated Reports

The New Markets Tax Credit (NMTC) Program provides a credit against
federal taxes for up to $15 billion of investments made in low- income
communities. The NMTC Program is part of a federal initiative that
includes such programs as the Renewal Communities Program that are
designed to provide tax and regulatory relief to economically distressed
communities. The Community Renewal Tax Relief Act of 2000 that authorized
the tax credit also mandated that we audit and report on the NMTC Program
in January 2004, 2007, and 2010. 1 This report describes the status of our
work toward developing a methodology for evaluating the NMTC Program. Our
objectives are to provide information about (1) the NMTC Program,
including its goals, its design, and progress in implementing the program,
and (2) our mandated review of the program, including the potential scope
of the review and how the program may be evaluated for effectiveness and
compliance.

To meet these objectives, we reviewed congressional and relevant executive
branch documents to determine the goals and design of the NMTC Program and
interviewed congressional staff to determine the scope of our
legislatively mandated review. We also cosponsored with the Treasury
Department*s Community Development Financial Institutions (CDFI) Fund a
conference of experts to review methods for evaluating the program*s
effectiveness and compliance on the part of program participants. We
conducted our work from January 2001 through July 2002 in accordance with
generally accepted government auditing standards.

From August 29 through November 4, 2002 we briefed your offices on the
results of our work. This report transmits the material from those
briefings. 2

Results

The goals of the NMTC Program are not stated explicitly in the legislation
that authorizes the program. However, according to congressional
supporters of the legislation, the program*s goals are to direct new
business capital to low- income communities, facilitate economic
development in these communities, and encourage investment in high- risk
areas. Although the legislation authorizing the NMTC Program requires that
the investments be made in businesses and communities that meet certain
eligibility standards, it does not specify that the investment be new
capital, that performance measures be established to show that

1 P. L. 106- 554 2 See the enclosure for details.

Page 2 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports investment leads to economic development, or that the investment
be in high- risk areas

within eligible communities. Although not required by the legislation, the
CDFI Fund includes some criteria, among those that it uses in its
application process for allocating credits, which reflect these program
goals. 3

The NMTC Program is structured as follows. The CDFI Fund, which
administers the application and allocation procedures of the NMTC Program
under authority delegated by the Secretary of the Treasury, allocates
shares of the total available tax credit to *community development
entities* (CDEs) through a competitive application process. 4 In return
for the tax credit, investors supply capital to the CDEs, which, in turn,
invest the capital in qualified businesses operating in low- income
communities. The tax credit, which may be claimed over 7 years, equals
about 30 percent in present value terms of the amount invested.

The NMTC Program is in the initial stages of its implementation. The CDFI
Fund has not yet made its first credit allocations, but it has provided
guidance for CDEs applying for the credit allocations and set up a process
for reviewing the applications. The $15 billion of investment qualifying
for the credit will be made available over 7 years, in annual increments
that range from $1.5 billion to $3.5 billion. Towards the end of 2002 or
the beginning of 2003, the CDFI Fund plans to announce its decisions for
the 2002 allocation round concerning which CDEs receive allocations and
how much they receive. The CDFI Fund is also working on plans to monitor
the CDEs* compliance with agreements that the CDEs reach with the CDFI
Fund concerning how the allocations of qualified investment will be used
and to evaluate the program*s effectiveness in promoting investment and
economic development. 5

The legislation mandating that we audit and report on the NMTC program did
not specify the scope of our review. After consulting with congressional
staff, we concluded that potential topics for our review could include an
evaluation of the program*s effectiveness in promoting investment and
economic development in low- income communities and an evaluation of
compliance with the program*s requirements in terms of its vulnerability
to waste, fraud, and abuse.

3 The applicants, who receive scores based on information that they supply
in a competitive application process, can score up to 25 points in a
category called *community impact* where the reviewer considers, among
other things, the extent to which the applicant (1) targets particularly
economically distressed communities; (2) has the active participation of
community representatives in designing and implementing its business plan;
and (3) can show a demonstrable community development and economic impact.
They can also score up to 25 points in the following categories: *business
strategy* where the reviewer considers factors like prior performance
providing similar kinds of products and services; *capitalization
strategy* where the reviewer considers factors like whether the applicant
has secured investor commitments; and *management capacity* where the
reviewer considers factors like management*s prior experience investing in
low- income communities. Under the business strategy category, applicants
may score an additional 5 points by demonstrating a record of successful
investment in disadvantaged communities or businesses and an additional 5
points by intending to invest in businesses unrelated to the applicant. 4
The CDEs, which must be certified by the CDFI Fund, are domestic
corporations or partnerships with

a primary mission of serving or providing capital to low- income
communities or individuals. Eligible CDEs could include, for example,
community development banks or venture funds, community development
corporations, and New Markets Venture Capital companies among others. 5
The NMTC allocation agreements, which contain the terms and conditions of
the NMTC allocation,

may specify the amount of the allocation, the approved uses of the
allocation, the approved areas in which the proceeds of the investment may
be used, the CDE*s schedule for obtaining capital from investors, and the
CDE*s reporting requirements.

Page 3 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports An evaluation of the program*s effectiveness presents some
significant difficulties. A criterion

for judging the program*s effectiveness is the extent to which NMTC
investment and economic development in the communities receiving the
investment would not have occurred if the tax credit program did not
exist. The impact, if any, of the credit on investment and development is
difficult to determine because it is difficult to know what program
participants and others who invest in low- income communities would have
done if the program did not exist. A further difficulty for an
effectiveness evaluation is that the NMTC Program is very small relative
to economic activity within the total geographic area eligible for the
credit. The $15 billion of potential new investment * over 7 years * may
be too small to have a measurable impact in a target area that the CDFI
Fund estimates could include 35 percent of the U. S. population and 40
percent of the land area.

Several methods have been developed that address some of the difficulties
present in effectiveness evaluations. For example, statistical methods use
control or comparison groups in an effort to determine what program
participants would have done if the program did not exist. However, all of
these methods have significant limitations. Because of these limitations,
definitive conclusions about the effectiveness of the NMTC Program may not
be possible. Nevertheless, it may be possible to provide evidence that is
consistent or inconsistent with the program*s effectiveness, such as data
on whether or not investors receiving the credit had made similar
investments in low- income communities in the past. In our future reports
on the NMTC program, we will provide detailed descriptions of the
methodology, or combinations of methodologies, that we determine are most
appropriate for our audit objectives.

The evaluation of program compliance requires determining the extent to
which (1) the investors are claiming only the credits that they are
entitled to, (2) the CDEs are conforming to statutory requirements
relating to the timing of their investments, (3) the businesses receiving
investment are qualified to participate in the program, and (4) the CDEs
are conforming to the terms of the agreements reached with the CDFI Fund
concerning how the allocations of qualified investment will be used. The
evaluation of compliance will be complicated by the fact that different
types of participants (investors, CDEs, and businesses) are involved at
different levels of the program, and two agencies within Treasury (the
Internal Revenue Service and the CDFI Fund) will have responsibility for
administering, monitoring and enforcing compliance. Namely, the Internal
Revenue Service is responsible for monitoring compliance with provisions
of the tax code concerning the timing of investment and the businesses
qualified to receive investment. The CDFI Fund is responsible for
administering the application and allocation procedures of the NMTC
Program (including both CDE certification and competitive NMTC
allocations), and monitoring compliance with the terms of the NMTC
allocation agreements.

Factors that affect the difficulty of evaluating compliance will include
whether coordination between the Internal Revenue Service and the CDFI
Fund is sufficient to detect ineligible credit claimants and whether
sufficient data will be developed for the CDFI Fund to properly monitor
the CDEs and for the CDEs to monitor the businesses that receive the
investment. A further complication is that the requirement for compliance
data from participants will need to be balanced with the possible
disincentives for participation that might arise from increased record
keeping. The CDFI Fund is currently working on plans to monitor compliance
with allocation agreements and to evaluate the effectiveness of the
program in promoting investment and economic development.

Page 4 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports At this time, we expect our report in January 2004 likely will
cover the status of the NMTC

Program, but will not evaluate overall program effectiveness and
compliance. At the time of this first mandated report, the NMTC Program
will be only partially implemented and will not have been in operation
long enough to permit such an evaluation. The report will likely provide
descriptive information on the program*s implementation, such as how much
has been invested, where it has been invested, and the types of businesses
that received the investment. The report will also likely identify any
significant issues that have arisen concerning compliance, administration,
or the design of the credit.

Agency Comments and Our Evaluation

In a memorandum dated December 2, 2002, the Director of the CDFI Fund
provided comments on our draft correspondence. The Director suggested that
we add certain additional details regarding how the NMTC program should be
evaluated and regarding difficulties that may arise when applying the
methodologies that we discussed in the correspondence. He also made
suggestions for clarifying the respective roles and responsibilities of
the CDFI Fund and the Internal Revenue Service in administering the
program, and monitoring and enforcing compliance. We modified the
correspondence as appropriate.

The Director also suggested that the NMTC Program should be evaluated in
comparison with other federal programs with similar goals, such as the
Empowerment Zone and Renewal Communities Programs. We expect that our
future reports will deal chiefly with the NMTC Program because it is
sufficiently different in structure and scope from these other programs to
make comparison difficult. However, we are also mandated by the Community
Renewal Tax Relief Act of 2000 to audit and report on the Empowerment Zone
and Renewal Communities Programs in the same timeframes as our NMTC
reports.

We are sending copies of this report to the Secretary of the Treasury; the
Director, Community Development Financial Institutions Fund; and other
interested parties. We will also make copies available to others on
request. The report is also available on GAO*s homepage at http// www.
gao. gov.

This report was prepared under the direction of Jim Wozny. Other major
contributors were Kevin Daly and Larry Korb. If you have any questions
about this report, please contact Jim Wozny or me on (202) 512- 9110.

Michael Brostek Director, Tax Issues

Enclosure

Page 5 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Congressional Committees

The Honorable Max Baucus Chairman The Honorable Charles E. Grassley
Ranking Minority Member Senate Committee on Finance

The Honorable John F. Kerry Chairman The Honorable Christopher S. Bond
Ranking Minority Member Senate Committee on Small Business and
Entrepreneurship

The Honorable Paul S. Sarbanes Chairman The Honorable Phil Gramm Ranking
Minority Member Senate Committee on Banking, Housing, and Urban Affairs

The Honorable William M. Thomas Chairman The Honorable Charles B. Rangel
Ranking Minority Member House Committee on Ways and Means

The Honorable Donald A. Manzullo Chairman The Honorable Nydia M. Velazquez
Ranking Minority Member House Committee on Small Business

The Honorable Michael G. Oxley Chairman The Honorable John J. LaFalce
Ranking Minority Member House Committee on Financial Services

The Honorable Richard H. Baker Chairman The Honorable Paul E. Kanjorski
Ranking Minority Member Subcommittee on Capital Markets, Insurance and
Government Sponsored Enterprises House Committee on Financial Services

Page 6 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

New Markets Tax Credit Status of Implementation and Issues Related

to GAO*s Mandated Reports Briefing to the Staff of the Committees of
Jurisdiction

August 29 through November 21, 2002

Page 7 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Objectives, Scope, and Methodology

Objectives

* To provide information on the New Markets Tax Credit (NMTC) Program,
including

 the goals and design of the program and  the progress in implementing
the program.  To provide information on our legislatively mandated review
of the

program, including  the potential scope of the review,  how the NMTC
Program may be evaluated for effectiveness,  how the program may be
evaluated for compliance,  the likely objectives of our report in 2004.

Page 8 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Objectives, Scope, and Methodology

Scope and Methodology

 We reviewed congressional and relevant executive branch documents to
determine the goals and design of the NMTC Program.

 We interviewed congressional staff members to determine the scope of our
legislatively mandated review of the program.

 We co- sponsored with the Treasury Department*s Community Development
Financial Institutions (CDFI) Fund a conference of experts to review
methods for evaluating the program*s effectiveness and for ensuring
compliance on the part of program participants.

Page 9 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

NMTC Program Goals  According to congressional supporters of the NMTC,
the program

goals are to  direct new business capital to low- income communities, 
encourage investment in high- risk areas, and  facilitate economic
development in low- income communities.  The NMTC requires that
qualifying investments be stock or similar

equity interest in, or loans to, businesses in low- income communities, or
financial services provided to businesses and residents in low- income
communities.

 The NMTC does not specifically require that the investment be new
capital, that the investment be in high- risk areas within eligible
communities, or that performance measures be established to show that the
investment leads to economic development.

Page 10 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Design of the Credit  The NMTC Program provides a credit against federal
taxes

for investments in low- income communities.  The credit is taken over 7
years at the rate of 5 percent of the

investment in each of the first 3 years and 6 percent of the investment in
each of the final 4 years.

 The maximum amount of investment that qualifies for the credit is $15
billion, distributed over 7 years with annual caps that range from $1. 5
billion to $3. 5 billion.

 According to administration projections made in 2000, the $15 billion in
private investment will have a tax revenue cost of $4. 5 billion over 10
years.

Page 11 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Design of the Credit  Community development entities (CDEs) that have
been certified by the

Treasury Department*s CDFI Fund compete to receive shares of the total
amount of credit that the CDFI Fund has to distribute.

 The CDEs that succeed in gaining allocations of tax credits can offer
them to the taxpayers who provide the CDEs with capital.

 The CDEs use the capital to make investments in businesses in lowincome
communities.

 The credit can be recaptured from the taxpayer by the Internal Revenue
Service if

 the CDE ceases to be certified,  the taxpayer*s equity interest in the
CDE is redeemed, or  substantially all of the funds received by the CDE
for tax credits are

not used to make qualified investments during the 7 year period.

Page 12 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Design of the Credit

NMTC investor CDE Qualifying businesses

Tax credits Investment

capital Loans,

investment capital, services

Internal Revenue Service CDFI Fund (Dept. of Treasury) Non

compliance reporting

Tax return (with Form 8874) Certification

of CDE Allocation of NMTC credits

Page 13 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Credit Program Implementation  The CDFI Fund has provided guidance for
CDEs applying for credit allocations and has set up a process for
reviewing these applications.  The Internal Revenue Service has also
issued temporary

regulations that include guidance on what investments qualify for the
credit and what events will trigger a recapture of the credit.

 The $15 billion in investment that qualifies for the credit will be made
available in the following increments: Year Amount 2001 * 02 $2. 5 billion
2003 $1. 5 billion 2004 * 05 $2. 0 billion per year 2006 * 07 $3. 5
billion per year

Page 14 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Credit Program Implementation  The CDFI Fund plans to announce 2001- 2002
allocation decisions towards the end of 2002 or the beginning of 2003. 
The CDFI Fund is working on plans to monitor compliance with agreements
that the CDEs reach with the CDFI Fund concerning how the allocations will
be used and to evaluate the effectiveness of the program in promoting
investment and economic development.

 The Internal Revenue Service has responsibility for monitoring
compliance with provisions of the tax code concerning the timing of
investment and whether businesses that receive the investment are
qualified.

Page 15 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Scope of the Mandated Study  The legislative mandate for our periodic
reviews of the NMTC

Program did not specify the scope of the review.  The mandate requires
that we audit and report on the

NMTC program by January 2004, 2007, and 2010.  According to the
congressional staff that we consulted,

potential topics for the review include an evaluation of  the
effectiveness of the program in promoting new

investment and economic development in low- income communities and

 compliance with the program*s requirements, that is, the extent to which
the program may be subject to waste, fraud, and abuse.

Page 16 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Effectiveness Evaluation

Criteria for Determining Effectiveness

We found no guidance in the legislation for establishing criteria for
evaluating the effectiveness of the credit. According to a conference of
experts that we cosponsored with the CDFI Fund, potential criteria could
include:

 The extent to which investment in NMTC assets is new investment.

 New investment means investment that would not have occurred in low-
income communities without the tax credit and investment that is not
simply shifted from other low- income communities.

Page 17 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Effectiveness Evaluation

Criteria for Determining Effectiveness (continued)

 The extent to which the investment produced economic development in the
low- income communities.

 Economic development includes the direct effect of growth in businesses
receiving investment and indirect *multiplier* effects on economic growth
in the low- income communities.

Page 18 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Effectiveness Evaluation

Factors Affecting the Evaluation

 The effectiveness of economic development programs is usually difficult
to determine because it is difficult to know what program participants and
others who invest in low- income communities would have done if the
program did not exist.

 In the case of the NMTC, it is difficult to determine:  What investors
would have done with their capital if the program

did not exist.  Whether NMTC investment recipients would have been able
to

obtain capital from other sources.  Whether the recipients* businesses
would have grown more slowly

if they had not been able to obtain capital from other sources.  Whether
the communities would have had less economic

development due to slower business growth.

Page 19 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Effectiveness Evaluation

Factors Affecting the Evaluation (continued)

 The effectiveness of economic development programs may also be difficult
to measure when the program is small relative to total economic activity
within the geographic area of interest.

 The CDFI Fund estimates that eligible communities include 32 percent of
the U. S. population and nearly 40 percent of the land area.

 The $15 billion in potential new investment is likely to be too small
relative to this target area to have an effect on economic development
that is large enough to be measured accurately.

Page 20 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Effectiveness Evaluation

Factors Affecting the Evaluation (continued)

 Even if the evaluation is limited to low- income communities receiving
NMTC investment, the amount of investment is likely to vary across these
communities and may be too small to have a measurable effect.

 The program*s effect on economic development may have to be evaluated
through its effect on such factors as sales or employment growth in
businesses receiving investment.

Page 21 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Effectiveness Evaluation

Methods for Determining Effectiveness

Methods for determining the effect of the tax credit on investment and
economic growth include:

 Statistical methods that compare investors, businesses, and low- income
communities that participate in the program with a comparison or *control*
group of nonparticipants.

 Survey methods that directly question a sample of investors and
businesses that participate in the program about the effect of the credit
on their investment and business decisions.

 Case study methods that examine in detail information about a few
investors and businesses that participate in the program.

Page 22 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Effectiveness Evaluation

Statistical Methods

 The advantages of statistical methods are that  they can provide
precise, quantifiable estimates of the credit*s effect

on the amount of new investment and the rate of economic growth of
businesses and communities receiving the investment and

 the estimates can be generalized to all program participants.  The
disadvantage of the statistical methods is that they may be difficult to

apply because  randomly selecting control groups would require excluding
investors,

businesses, or communities from the credit program, and  identifying
appropriate comparison groups would require a great deal

of information about individual investors, businesses, and communities.

Page 23 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Effectiveness Evaluation

Statistical Methods (continued)

Statistical methods may be difficult to apply because:  There is likely
to be little or no data available from standard

research databases on  the investments and other characteristics of NMTC
and

non- NMTC investors;  employment, sales, and other economic
characteristics of

businesses that receive NMTC investment and those that do not;

 total investment in low- income communities that receive the NMTC
investment and those that do not.

Page 24 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Effectiveness Evaluation

Statistical Methods (continued)

Statistical methods may also be difficult to apply because:  non- NMTC
investors and businesses have little incentive

to provide the information in response to surveys and reporting
requirements, and

 record keeping requirements would reduce the incentive to participate in
the program.

Page 25 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Effectiveness Evaluation

Survey Methods

 The advantages of survey methods are that  the survey responses can be
generalized to the population of

all program participants and  surveys require information from only a
sample of program

participants.  The disadvantages of survey methods are that

 the information from the survey may not be reliable because  survey
respondents may have an incentive not to respond

truthfully and  survey respondents may not be able to give accurate

answers to all questions.  the method does not provide precise,
quantifiable estimates of

the credit*s effect.

Page 26 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Effectiveness Evaluation

Case Study Methods

 The advantages of the case study methods are that  information is
required from only a few program

participants,  the information can be checked for its reliability, and 
a considerable amount of detailed information could be

collected.  The disadvantages of the case study methods are that

 findings cannot be generalized to the population of all program
participants and

 the method does not provide precise, quantifiable estimates of the
credit*s effect.

Page 27 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Effectiveness Evaluation

Limitations of an Effectiveness Evaluation

 Because each method for assessing effectiveness has significant
disadvantages, definitive conclusions about the effectiveness of the NMTC
program may not be possible.

 The methods may not establish that the NMTC causes new investment or
economic development.

 However, the methods may provide evidence that is consistent or
inconsistent with the program being effective in attracting new capital or
promoting economic growth. For example,

 evidence consistent with attracting new capital would be finding that
investors receiving tax credits had not made similar investments in low-
income communities in the past, while

 evidence inconsistent with attracting new capital would be finding that
they had made such investments.

Page 28 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Compliance Evaluation

Criteria for Determining Compliance

According to the experts that we consulted, potential compliance criteria
could include  the extent to which the investors are claiming only the
credits that they are

entitled to;  the extent to which the CDEs are conforming to the
statutory requirements

concerning the amount and timing of their investments in low- income
communities;  the CDEs must invest substantially all of the funds in
qualifying lowincome community investments within 1 year.

 The extent to which businesses receiving investment from the CDEs
qualify for the credit.

 Qualifying businesses must have at least 50 percent of gross income, 40
percent of tangible property, and 40 percent of services in lowincome
communities.  The extent to which the CDEs are conforming to allocation
agreements reached with the CDFI Fund.

Page 29 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Compliance Evaluation

Factors Affecting the Evaluation

Factors that affect the difficulty of evaluating compliance include: 
Multiple responsible agencies:

 Whether coordination between IRS and the CDFI Fund will be sufficient to
detect ineligible claimants.

 Record keeping costs:  The need for compliance data will have to be
balanced with the

disincentives from increased record keeping burden.  Multiple levels of
monitoring:

 Whether sufficient data will be collected, maintained, and reported by 
the CDEs to the CDFI Fund to properly monitor the CDEs*

compliance with investment requirements and  the businesses* to the CDEs
for the CDEs to monitor businesses*

compliance with eligibility standards.

Page 30 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports

Compliance Evaluation

Plans for Monitoring Compliance

The CDFI Fund*s planned approach to monitoring compliance may include

 using electronic reporting tools,  relying on self- certifications from
CDEs with appropriate

level of background documentation,  providing CDEs guidance on monitoring
compliance and

developing standards for data collection and retention, and

 using some on- site auditing.

Page 31 GAO- 03- 223R Implementation Status and Issues Related to Mandated
Reports (440023)

Likely Objectives of our 2004 Report Because the NMTC Program will be only
partially implemented

in 2004, our report will not evaluate overall program effectiveness and
compliance. The report likely will cover the status of the NMTC Program,
including

 any significant issues that have arisen concerning compliance,
administration, or the design of the credit and

 information on  who is investing in NMTC assets,  how much is
invested,  where the investment occurs, and  what types of businesses
receive the investment.
*** End of document. ***