Form 8874-B – NMTC Recapture Notice Guide

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A New Markets Tax Credit deal can run fine for years, then a single event resets everything. Form 8874-B is the recapture notice a community development entity sends when one of three statutory recapture events occurs during the seven-year credit period: the CDE ceased to be a CDE, the proceeds stopped satisfying the substantially-all requirement, or the investment was redeemed. Line 9 records which one.

The clock is the detail that trips teams up. The original signed notice must reach every current and prior holder within 60 days of the date the CDE becomes aware of the event, and a copy goes to the IRS at Philadelphia, PA 19255-0549. File a separate Form 8874-B for each qualified equity investment subject to recapture, and report the aggregate decrease in credit on Lines 10a through 10g.

Key Takeaways

• Form 8874-B, Notice of Recapture Event for New Markets Credit, is the notice a community development entity (CDE) issues when a recapture event occurs during the seven-year New Markets Credit period. The current revision is December 2011.
• The CDE must provide the original signed form to the taxpayer holder no later than 60 days after the date the CDE becomes aware of the recapture event. The 60-day clock starts on the awareness date, not the date the event occurred.
• Line 9 captures the reason for recapture, with three options: the CDE ceased to be a CDE; the proceeds ceased to be used in a manner that satisfies the substantially-all requirement; or the investment was redeemed or otherwise cashed out by the CDE.
• File a separate Form 8874-B for each qualified equity investment (QEI) subject to recapture. Lines 1-8 identify the CDE, the taxpayer holder, the QEI, and the recapture event.
• Lines 10a through 10g report the aggregate decrease in credit for each of the seven years of the credit period under IRC section 45D.
• Send a copy of the form to the IRS at the Internal Revenue Service Center, Philadelphia, PA 19255-0549, and retain a copy for your records.

What Form 8874-B is, and who must send it

Plain-English definition

Form 8874-B, Notice of Recapture Event for New Markets Credit, is the official notice you issue to holders when a recapture event occurs during the seven year compliance period. The IRS describes it exactly that way on the form’s “About” page.

Who completes and who receives it

• The CDE completes and signs the form.
• You send the original to each current holder and each prior holder of the QEI that is subject to recapture.
• You send a copy to the IRS at the address shown on the PDF, then you retain a copy for your records.

Why it matters to investors

Holders need your notice to report the recapture tax in the right year and to reconcile previously claimed credits. The Code spells out the calculation and makes the taxpayer increase tax by the credit recapture amount in the year of the event.

When NMTC recapture is triggered

You face a recapture event with respect to an equity investment in a CDE if, at any time during the seven year period beginning on the original issue date, one of these three occurs: the entity ceases to be a CDE, proceeds cease to meet the substantially all requirement, or the investment is redeemed or cashed out. A default or bankruptcy of the underlying QALICB is not a separate fourth trigger, it gets reported under the substantially all category when proceeds stop being deployed properly. The regulation details what “redemption” and “cashed out” mean for C and S corporations.

The six month cure that can save you once

There is a limited cure for substantially all. If a QEI fails the substantially all requirement, it is not a recapture event if the CDE corrects the failure within six months after becoming aware, and you only get one correction per QEI. Industry guidance summarizes this cure and points back to the regulation. Use it wisely, and document the date you became aware.

Who reports the tax increase and how it is labeled

When an event occurs, the investor includes the credit recapture amount on its federal return for that tax year. The regulation instructs taxpayers to put the recapture on the line for recapture taxes, or on total tax if there is not a specific line, and write NMCR next to the entry.

Filing mechanics and the 60 day rule

• The form itself tells you when and where to file. Provide the signed original to each holder no later than 60 days after the date your CDE becomes aware of the event. Send a copy to the IRS at the address printed on the PDF. Keep a copy.
• The IRS “About” page confirms the purpose and links to the current revision. Page last reviewed January 29, 2025. Check that page each time you file in case the Service updates the package.

Field-tested tip, add a same day legal review before you sign. Use the regulation’s language in your description of the reason for recapture so your notice lines up cleanly with 1.45D-1.

How this connects to delivery discipline

If you run a CPA or tax practice that supports CDEs and investors, the fastest way to miss the 60 day clock is scattered workpapers and unclear ownership of reviews. This is where structure pays off. Standardized workpapers, a single checklist for recapture fact patterns, and a named owner for the 60 day counter keep you out of trouble. If you operate with offshore support, treat it like operations, not resume farming. Trained teams working inside your system, documented SOPs, and a pre-set escalation path make it much easier to identify a trigger, calculate the amount, and send complete notices on time.

Accountably supports firms that need that level of control in production. The aim is simple, predictable turnaround, clean documentation, and review protection when compliance events hit your queue.

Step by step, how to complete Form 8874-B without missing anything

You do not need a giant binder to get this right. You need a clean checklist, a few key facts, and a signed notice that matches the regulation language. Here is the workflow I use when a recapture trigger shows up in a review.

Prep checklist before you touch the form

• Confirm the exact event, ceased to be a CDE, substantially all failure, or a redemption or cash out.
• Pin down the event date and the date you became aware. These two dates drive your timeline.
• Identify all holders and any prior holders for the affected QEI. Pull names, EINs, and addresses.
• Gather the original allocation number, certification number if applicable, and deal identifiers used on Form 8874 and Form 8874-A.
• Assemble the facts that explain the event in plain language that mirrors the regulation, for example, distribution treated as a redemption.
• Create a one page workpaper that connects the event date, holder list, and investor reporting year.

Pro tip, assign one owner for the holder list. In many files, the investor changed during the seven year period, and the prior holder needs a notice too.

Fill the identification section with matchable data

• Enter the CDE’s legal name, EIN, and address exactly as it appears on prior filings.
• Add the allocation or certification number so the IRS and investors can tie the notice back to the deal.
• Identify the QEI with the original issue date and amount. If only part of the QEI is affected, describe the portion. If a single recapture event affects more than one QEI for the same taxpayer, file a separate Form 8874-B for each QEI, do not combine them onto one notice.

Describe the recapture event clearly

• Name the trigger in the form’s language, then add a one or two sentence description that states what happened and when.
• If the issue involves substantially all, include the date you became aware and whether a cure was attempted.
• If there was a redemption, explain the transaction that caused it, for example, non pro rata distribution treated as a redemption.

Keep it short, precise, and aligned with your workpapers. The notice is not the place for a long memo. Keep the longer analysis in your file and reference it by title and date.

Coordinate the investor’s reporting year

You are not calculating the investor’s tax on this form, but you should confirm which tax year includes the event date. That is the year the investor will include the increase in tax on its return. Add a sentence in your cover email noting that year so the investor’s tax team can plan.

Attach supporting documents, not a data dump

• Attach a one or two page calculation schedule that shows the investor how you determined the event date and the affected QEI amount.
• Include a copy of the allocation agreement page with the allocation number.
• Add any board resolutions or closing statements that prove the event.
• Keep sensitive internal emails out of the packet. They belong in your file, not in the notice to holders.

Signature, copies, and proof of delivery

• Have an authorized officer sign and date the form.
• Send the original to each current holder and each prior holder.
• Mail the IRS copy to the address on the current PDF. Use certified mail or a trackable courier.
• Save the signed PDF, the tracking numbers, and a short transmittal summary in your records.

A quick mini case, how a 30 minute huddle saved a week

We helped a team that discovered a potential redemption in a midyear transaction. A 30 minute huddle with legal, accounting, and the investor team clarified that a cash distribution would be treated as a redemption. Because the facts were documented the same day, the CDE issued a precise, signed Form 8874-B within the window, and the investor adjusted its return timeline without drama. The lesson is simple. Clear facts first, then paper it promptly.

What, how, wow, the framework that keeps you on track

• What, Form 8874-B is your official recapture event notice.
• How, identify the trigger, prepare a clean holder list, describe the event in regulation language, sign, deliver, and keep proof.
• Wow, add a same day fact memo and a cross check against your prior Form 8874 and 8874-A files. That single step prevents name and number mismatches that slow investors and raise avoidable questions.

Table, the data points you should have at your fingertips

Data point	Why it matters	Where it usually lives
CDE legal name and EIN	Ensures the IRS and holders match the notice to the right entity	Prior year returns, allocation file
Allocation or certification number	Ties the notice to the deal	Allocation agreement, closing binder
QEI original issue date and amount	Confirms the seven year window and scope	Form 8874-A file, closing binder
Event date and awareness date	Drives holder notice timing and investor reporting year	Internal memo, board notes
Holder and prior holder list	Ensures complete delivery and clean investor reporting	Cap table, transfer records
Short description of the trigger	Gives investors a usable summary that aligns with the regulation	Legal memo, transaction summary

Keep this table in your workpaper template so your team can pull the facts in minutes, not hours.

How to compute the credit recapture amount, plus an example you can reuse

Let’s clear up a common misconception. NMTC recapture is not a sliding percentage haircut. The tax increase equals the total allowed credits from prior years that would not have been allowed if recapture applied from the start, plus interest at the underpayment rate. In practice, the investor’s return shows an increase in tax for the year that includes the event date. Your notice does not compute the investor’s tax, but your schedule should help the investor see which years were affected.

Start with the original QEI and the credit timeline

• List the original QEI amount and the annual credits that were claimed across the seven year period.
• Mark the year in which the event occurred. That year becomes the reporting year on the investor’s return.
• Identify any prior transfers of the QEI because each holder you identify must receive a notice.

Build a simple recapture schedule for the investor’s team

Create a table that shows each year’s credit that was previously claimed. Add a column that flags credits subject to recapture. Your schedule does not need to carry interest, the investor’s tax team will do that, but you should indicate the affected years so they can calculate the underpayment interest correctly.

Example, if the event occurs in year 4, the investor will typically reverse credits previously allowed in years 1 through 3. Your schedule highlights those lines and states the event date. Keep the numbers sourced to original returns to avoid rounding issues.

Partial dispositions and proration

Sometimes only part of the QEI is implicated. In those cases, prorate the exposure. State the fraction of the QEI affected and apply that fraction to the previously allowed credits in the impacted years. Your schedule should explain the basis for the fraction, for example, the percentage of the QEI tied to a particular QLICI that failed substantially all.

The six month cure for substantially all, how to document it

If you face a substantially all failure, check whether the cure applies. You must document two dates, the date the CDE became aware, and the date the failure was corrected. Add a one page memo to your file that states both dates, the corrective steps, and the calculation that shows you are back in compliance. If you cure within the window, you do not have a recapture event for that failure. Keep that memo because investors and auditors will ask for it.

State tax coordination and K‑1 communication

Federal recapture drives the investor’s federal return. You still need to think about how the change flows to state returns and to any pass through owners. Coordinate with the investor to confirm who updates state filings and who communicates changes to upper tier entities. Add that plan to your transmittal so no one loses time guessing.

Small touch that pays off, include a short investor cover note with the event date, the impacted federal years, and a reminder that K‑1 recipients may need updates. That single paragraph often prevents follow up meetings.

Quality control, a short review list for partners and reviewers

• Does the description of the event use the same terms the regulation uses.
• Do the holder names, EINs, and addresses match prior filing records.
• Does the schedule tie to the credits actually claimed on prior returns, dollar for dollar.
• Is the awareness date documented, and does it fall before your 60 day notice date.
• Are the signature, date, and mail proofs saved in one folder with a clear name.

These are small checks, but they save hours later.

Records to keep and how to be audit ready

You want a file that tells the story in five minutes. Keep a signed copy of Form 8874-B, your holder list, the transmittal summary, and all delivery proofs. Add the one page fact memo that states the event date and the awareness date. Keep the schedule that ties prior credits to the affected years. Store the allocation agreement page that shows the allocation number and the QEI details.

Workpaper structure that makes reviews faster

• 00 Index, a one page contents list with dates.
• 01 Trigger memo, facts, event date, awareness date, and a short conclusion.
• 02 Holder list, current and prior, with addresses and EINs.
• 03 Form 8874-B, final signed PDF.
• 04 Schedule, prior credits by year with notes for partial exposure.
• 05 Proofs, certified mail receipts and courier tracking.
• 06 References, allocation agreement page, closing documents, and any board resolutions.

Common mistakes and fast fixes

• Vague descriptions. Fix by quoting the regulation term, for example, redemption, then state the simple fact pattern.
• Missing prior holders. Fix by checking transfer records and 8874-A notices.
• Mismatched names or EINs. Fix by tracing to the original allocation and last filed return.
• Late awareness date. Fix by documenting when your team first had enough facts to identify the trigger, not when the rumor reached your inbox.
• Long attachments. Fix by moving analysis to your file and sending investors a short schedule and a clean notice.

Where and how to file, the quick sanity check

• Use the current Form 8874-B PDF for the address printed on the form, which directs filings to the Department of the Treasury, Internal Revenue Service Center, Philadelphia, PA 19255-0549. Do not mail the form to the Washington, DC Tax Products Coordinating Committee address, that address is for comments about the form only, not for filings. Treat paper as the default for the IRS copy unless the instructions say otherwise.
• Include a plain cover note for investors that lists the event date, impacted years, and a contact for questions.
• Save a PDF set that includes the signed notice, the schedule, and the tracking proofs. Name it with the allocation number and the event date so your team can find it later.

If a state or local program piggybacks on your NMTC deal, check those rules too. Some programs want separate notifications when a federal recapture event occurs.

Capacity, quality, and delivery discipline when you rely on offshore help

If you use offshore support to prepare schedules and notices, structure is what keeps you safe. Treat offshore as operations, not resume farming. Give the team your templates, have them work in your systems, and run work through a simple three step review, preparer, senior, and final. Agree on turnarounds for the first draft and the final. Put escalation paths in writing, for example, if a recapture trigger is found, who is alerted within one business day, and who owns the 60 day countdown.

When your practice needs that structure handled with care, Accountably can integrate trained offshore teams into your workflow, with SOPs, standardized workpapers, and review layers that protect partner time. Use it when a compliance notice like Form 8874-B needs to move through your queue with speed and control.

Common Mistakes We See Every Season

These are the patterns we see in 8874-B files when we pick up a CDE engagement mid recapture cycle. None of them are exotic, all of them cost time and create exposure for both the CDE and the holder.

Reusable Checklists

Paste these into the CDE compliance binder. Each item maps to a specific Line or rule on Form 8874-B (Rev. December 2011), so the steps survive a staff handoff without losing precision.

Keep 8874-B Season From Stalling

Recapture events do not follow a tax season. They surface when a CDE loses its certification, when proceeds stop meeting the substantially all requirement, or when an investment is redeemed or cashed out (per Internal Revenue Code section 45D and Treasury Regulations section 1.45D-1). Across the seven year New Markets Tax Credit period, which runs 5 percent each year for the first three years and 6 percent each year for the next four, every active qualified equity investment carries a latent 60 day notice obligation the moment any one of those three triggers fires.

The fix is to treat recapture notification as a queued workflow, not a fire drill. Once the CDE is aware of an event, the team should know exactly which Lines to populate, which holders to notify, and which envelope goes to the Philadelphia Service Center, with no ad hoc decisions made under the 60 day clock.

• Maintain a standing intake template that captures the Line 5 QEI date and the Line 7 event date alongside the awareness date, so the seven Line 10 sub-parts (10a through 10g) reconcile cleanly across the credit period.
• Hold a holder roster off the QEI master file, refreshed at every transfer, so prior holders never get dropped from the Line 3 and Line 4 distribution.
• Build a two reviewer sign off on the Line 8 recapture amount before the authorized CDE official signs under penalties of perjury.
• Use a separate envelope and mailing log for each qualified equity investment, since one Form 8874-B per QEI is required even when one event affects multiple positions.
• Lock the IRS copy address to the Philadelphia Service Center, and block the Washington DC comments address from the notice template so it cannot be picked by mistake.

When NMTC recapture notices need to move through the queue without losing the 60 day clock or the per investment discipline, our U.S. tax compliance team integrates the SOPs, mailing logs, and review layers into the existing workflow.

FAQs

Who signs Form 8874-B, and who gets it

An authorized officer of the CDE signs. You send the original to each current holder and each prior holder that owned the affected QEI during the compliance period. You also mail a copy to the IRS at the address on the current form.

What date goes on the form, the event date or awareness date

Use the actual event date in your description. Your 60 day clock for sending the notice starts when your CDE becomes aware of the event, so document both in your file and mention the event date in your cover note.

Can I email the investor a scanned copy

Yes for investor communication, but still send the signed original as your official notice. Use a traceable method and keep proof of delivery. Follow the form’s instructions for the IRS copy.

What if I discover the event after the investor filed its return

Send the notice immediately. Call the investor and align on amended return timing if needed. Include your schedule so the investor can compute the tax increase and any interest.

Does the six month cure apply to every failure

No. It only applies to substantially all, and only once per QEI. You must correct the failure within six months after you become aware. Document both dates and the corrective steps in a short memo.

We have multiple holders across tiers. Do I send to everyone

Send to each holder of the QEI and any prior holders. For upper tier entities, coordinate with the investor on K‑1 updates and state filings, but the notice obligation focuses on the holders of the QEI.

Can I retract a Form 8874-B if the facts change

If you issued a notice based on facts that later proved wrong, issue a supplemental letter that explains the updated facts and your conclusion. Keep both in your file. Call the investor so the return reflects the final position.