We had to move fast, confirm facts, and get a signed Form 8874-B out the door within the window. You know the feeling, the clock is louder than usual, and everyone wants a clean, defensible record.
Here is the part that brings the heart rate down. Form 8874-B has one job. You, as the CDE, use it to notify every taxpayer holder, including prior holders, that a New Markets Tax Credit recapture event occurred, and you send a copy to the IRS. The official IRS page states this clearly, and the current revision still points to the two page PDF. Page last reviewed, January 29, 2025.
Key takeaways
- You, the CDE, must send a signed Form 8874-B to each holder no later than 60 days after you become aware of a recapture event, and you must send a copy to the IRS. Keep proof of delivery.
- Recapture is triggered if the entity ceases to be a CDE, substantially all is not met, or the investment is redeemed or cashed out. The regulation also explains how to report the recapture on the investor’s return, including writing “NMCR” next to the entry.
- Form 8874 claims the credit. Form 8874-A notifies a newly issued QEI. Form 8874-B is the recapture event notice. Do not mix the three.
- The recapture amount is not a percentage schedule. It equals the aggregate decrease in credits that would have applied if no credit had been allowed in prior years, plus interest at the underpayment rate under section 6621. Investors report that increase in tax in the year of the event.
- As of today, the IRS still publishes the December 2011 PDF. It instructs paper mailing of the IRS copy to the Service Center address printed on the form. Verify the address on the current PDF before you send.
Practical rule of thumb, start your 60 day countdown the day your CDE becomes aware of the event. Build that trigger into your workflow, not your memory.
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 occurs: the entity ceases to be a CDE, proceeds cease to meet the substantially all requirement, or the investment is redeemed or cashed out. 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 staffing. 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.
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. 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 staffing. 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.
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.