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Tax Credits for Individuals

Supporting Innovation in Our Schools - Special Purpose Entities: An Innovative Expansion of the EITC Program

What is a Special Purpose Entity?

A Special Purpose Entity (“SPE”) is an entity that exists solely for the purpose of earning tax credits.

Why would someone want to invest in a Special Purpose Entity?

Special Purpose Entities allow individuals and small business owners to redirect their state income taxes from the general fund in Harrisburg to non-profit educational organizations like the Methacton Education Foundation (MEF). When you make a contribution to the SPE, 100% is directed to the MEF and you receive a PA state income tax credit for 90% of your contribution.  Therefore, your maximum after-tax cost is 10% of your contribution.  You may also receive federal tax deductions for your contribution to the SPE that would further reduce or eliminate your after-tax cost.

Can I invest in a Special Purpose Entity?

Yes. If you have at least a $3,500 Pennsylvania income tax liability and are willing to make a two-year commitment, you are an ideal candidate to invest in an SPE.

Can anyone invest in a Special Purpose Entity?

No. Individuals who do not meet the definition of “accredited investor” are not eligible. In addition, individuals with income solely from a sole proprietorship or employment with a non-profit organization (e.g. Methacton School District, etc.) are not eligible for the EITC program’s tax credits and should not invest in an SPE.

What is the difference between a Tax Credit and a Tax Deduction?

Tax credits are powerful tools because they reduce your income tax liability dollar-for-dollar. Tax deductions lower your taxable income.

How it works:

If you are interested in participating, you sign a simple joinder document to the SPE. Later in the year, the general partner of the SPE will send a letter asking you to send your contribution check. The SPE will have PA income tax credits equal to 90% of your donation amount. These credits will be distributed to you on a K-1 from the SPE early in the following year. These credits can then be applied to reduce your PA income tax liability. There may also be additional benefits to your federal income tax liability as they relate to Alternative Minimum Tax, as your donation should qualify for a charitable deduction. We suggest consulting with your tax preparer to maximize your overall income tax savings.

Is there a Special Purpose Entity I can join to benefit the Education Foundation for the Methacton Community (EFMC)?

Yes.  The Central PA AMT Partners, LP (CPSPE Two LP) was created for the sole purpose of participating in the EITC tax credit programs. CPSPE Two LLC memberships are now available to individuals and entities that meet its investment requirements and can commit a minimum of $3,500 annually for two consecutive years.

 

Please contact the following individuals with questions about CPSPE Two LP and/or the Methacton Education Foundation:

Jim Beam, President

Education Foundation for the Methacton Community

215-588-2187

psubeamer@gmail.com

 

Gary Gallagher, Board Member

Chair, Fund Development Committee

Education Foundation for the Methacton Community

484-432-6936

gpgallagher525@gmail.com

 

Angela Linch, Administrative Liaison

Coordinator of School and Community Information

Methacton Education Foundation

610-489-5020

alinch@methacton.org

 

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before investing in a Special Purpose Entity.