Par. 2. Section 1.45D-1 is amended by: 1. Redesignating the paragraph (a) entries for paragraphs (e)(4), (e)(5), (e)(6), and (e)(7) as paragraphs (e)(5), (e)(6), (e)(7), and (e)(8), respectively, adding a new entry for paragraph (e)(4), and revising the entry for paragraph (h)(2). 3. Revising paragraph (d)(6)(i). 4. Revising paragraph (e)(3)(iii) introductory text. 5. Redesignating paragraphs (e)(3)(iii)(B), (e)(3)(iii)(C), (e)(3)(iii)(D), and (e)(3)(iii)(E) as paragraphs (e)(3)(iii)(C), (e)(3)(iii)(D), (e)(3)(iii)(E), and (e)(3)(iii)(F), respectively, and adding new paragraph (e)(3)(iii)(B). 6. Revising newly-designated paragraph (e)(3)(iii)(D). 7. Redesignating paragraphs (e)(4), (e)(5), (e)(6), and (e)(7) as paragraphs (e)(5), (e)(6), (e)(7), and (e)(8), respectively, and adding new paragraph (e)(4). 8. Revising the heading for paragraph (h)(2) and adding a sentence at the end of the paragraph. The additions and revisions read as follows:
(a) * * *
(e) * * *
(4) Section 708(b)(1)(B) termination.
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(h) * * *
(2) Exception for certain provisions.
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(d) * * *
(6) * * *
(i) * * * Except as provided in paragraph (d)(6)(ii) of this section, an entity is treated as a qualified active low-income community business for the duration of the qualified community development entity's (CDE's) investment in the entity if the CDE reasonably expects, at the time the CDE makes the capital or equity investment in, or loan to, the entity, that the entity will satisfy the requirements to be a qualified active low-income community business under paragraphs (d)(4)(i) and (d)(5) of this section (including, if applicable, portions of business under paragraph (d)(4)(iii) of this section) throughout the entire period of the investment or loan. A CDE may rely on this paragraph (d)(6)(i) to treat an entity as a qualified active low-income community business even if the CDE's investment in or loan to the entity is made through other CDEs under paragraph (d)(1)(iv)(A) of this section.
(e) * * *
(3) * * *
(iii) Capital interest in a partnership . In the case of an equity investment that is a capital interest in a CDE that is a partnership for Federal tax purposes, a pro rata cash distribution by the CDE to its partners based on each partner's capital interest in the CDE during the taxable year will not be treated as a redemption for purposes of paragraph (e)(2)(iii) of this section if the distribution does not exceed the sum of the CDE's “operating income” for the taxable year and the CDE's undistributed “operating income” (if any) for the prior taxable year. For purposes of this paragraph (e)(3)(iii), § 1.704-1(b)(1)(vii) applies to treat an allocation to a partner of its share of partnership net or “bottom line” taxable income or loss as an allocation to such partner of the same share of each item of income, gain, loss, and deduction that is taken into account in computing the partner's net or “bottom line” taxable income or loss. In addition, a non-pro rata “de minimis” cash distribution by a CDE to a partner or partners during the taxable year will not be treated as a redemption. A non-pro rata “de minimis” cash distribution may not exceed the lesser of 5 percent of the CDE's “operating income” for that taxable year or 10 percent of the partner's capital interest in the CDE. For purposes of this paragraph (e)(3)(iii), with respect to any taxable year, “operating income” is the sum of:
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(B) Tax-exempt income under section 103;
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(D) Deductions under sections 167 and 168, including the additional first-year depreciation under section 168(k), and any other depreciation and amortization deductions under the Code;
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(e) * * *
(4) Section 708(b)(1)(B) termination . A termination under section 708(b)(1)(B) of a CDE that is a partnership is not a recapture event.
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(h) * * *
(2) Exception for certain provisions . * * * Paragraph (d)(6)(i) of this section as it relates to a CDE's investment under paragraph (d)(1)(iv)(A), paragraph (e)(3)(iii) of this section as it relates to the distribution of undistributed “operating income” for the prior taxable year and to the application of § 1.704-1(b)(1)(vii), paragraph (e)(3)(iii)(B) of this section, paragraph (e)(3)(iii)(D) of this section as it relates to any other depreciation and amortization deductions under the Code, and paragraph (e)(4) of this section apply to taxable years ending on or after the date of publication of the Treasury decision adopting these rules as final regulation in the Federal Register .