WASHINGTON — The Internal Revenue Service yesterday published two new information forms with accompanying instructions for issuers of Build America Bonds and recovery zone economic development bonds, one of which provides for direct deposit of payments from the federal government.
In a bit of a technical snafu, the forms were published roughly a week after the IRS asked issuers to comment on how burdensome it would be to fill them out.
Municipal issuers can either issue direct-pay BABs and receive direct payments from the IRS that are equal to 35% of their interest costs or they can issue tax-credit BABs, which would provide investors with tax credits.
More than $74 billion of BABs have been sold since the program was authorized more than a year ago by the American Recovery and Reinvestment Act, with very few, if any, in tax-credit form.
BABs are taxable and used to finance capital expenditures. Issuers of RZEDBs — a kind of "super BAB" that can be sold to finance projects in certain distressed areas — receive direct payments from the IRS that are equal to 45% of their interest costs.
Form 8038-B seeks information on the type of bonds issued, the purpose of the issue, the portion of the issue price allocated to each type of project expenditures, and a pro rata allocation of proceeds for such items as issuance costs and a reasonably required reserve. Issuers must also note the frequency of interest rate payments.
The form requests information about the bonds, including the stated redemption price at maturity, the final maturity date, the weighted average maturity and the yield. It also asks for the amount of proceeds used for investment, accrued interest, issuance costs (including underwriter's discount), credit enhancement, capital expenditures, and refundings. It requests descriptions of refunded bonds.
The instructions state that while direct-pay BABs generally cannot be issued to refinance capital expenditures in refunding issues, certain refinancings of short-term indebtedness with direct-pay BABs and RZEDBs are not treated as refundings.
In a miscellaneous section of the form, the IRS asks for the amount of private-activity bond volume cap allocated to the issue and the amount of gross proceeds invested in a guaranteed investment contract, as well as the final maturity date of the GIC and the GIC provider. The IRS also asks if the issuer has entered into a hedge and, if so, the type and term of the hedge as well as the name of the hedge provider.
The issuer is asked to check boxes if it has super-integrated the hedge, elected to pay a penalty in lieu of arbitrage rebate, established written procedures to ensure that all nonqualified bonds of the issue are remediated, or has procedures to monitor compliance with arbitrage requirements.
The issuer also is asked whether it will allow the IRS to disclose certain information from the form.
The instructions for Form 8038-CP state: "This form is to be filed only if, as of the date the form is filed, the issuer of the outstanding obligation[s] ... has reasonably concluded that the obligation[s] meet all applicable requirements for the payment of the requested credit."
The form asks for the name of the entity that is to receive the federal payment, its address, and the name and title of a designated contact person whom the IRS can call for more information. It also requests the issuer's name and address as well as the name of the bond issue and a contact person.
The issuer must check a box to show whether the bond issue is variable rate or fixed rate. The form contains a section seeking information about the payment. Issuers that opt to have their payments direct deposited into an account are asked for routing and account numbers.
