The Internal Revenue Service
The 11-page document details the basic requirements and features of qualified zone academy bonds, qualified school construction bonds, qualified energy conservation bonds, and new clean renewable energy bonds. The IRS said it published the FAQ “to assist issuers with questions regarding qualified tax-credit and specified tax-credit bonds” but stressed that “it is not formal guidance.”
In addition, the agency said it might update the FAQ in the future to accommodate future guidance from it or the Treasury Department, or congressional tweaks to the programs.
The document answers general questions about the tax-credit bonds as well as specific questions about each of the separate bond programs.
For example, the FAQ notes that while before 2008, up to 95% of the proceeds of tax-credit bonds had to be used for a qualified purpose — such as construction of a qualified facility — rules for the new bonds are “very strict” and require that 100% of available project proceeds be used for a qualified purpose. Available project proceeds are defined as the bond proceeds minus up to 2% for issuance costs plus proceeds from earnings from the investment of the proceeds.
The FAQ also details how issuers of the bonds can opt to issue them as direct-pay bonds similar to Build America Bonds, instead of providing investors with tax credits in lieu of tax-exempt interest payments, as has been the case traditionally. These four types of bonds were “BABified” as part of the Hiring Incentives to Restore Employment Act that President Obama signed into law in March.
An issuer of tax-credit bonds must file Form 8038-TC, Information Return for Tax Credit Bonds and Specified Tax Credit Bonds, to the IRS. If it wants to receive direct-subsidy payments from the federal government, it must indicate that choice on the form and file the form at least 30 days before requesting any such payment. The issuer then must apply to receive subsidy payments from the IRS by filing a Form 8038-CP.
For fixed-rate bonds, the form should be filed between 45 and 90 days before an interest payment date. For variable-rate bonds, the form should be filed no later than 45 days after the last interest payment date of the quarter.
Under the new law, roughly 100% of the interest costs of QSCBs and QZABs can be subsidized with direct payments from the federal government. The payments are to be determined by the lesser of the actual interest rate of the bonds or the daily credit rate for municipal tax-credit bonds set by the Treasury. Issuers of QECBs and new CREBs can receive subsidy payments equal to 70% of either their interest costs or the Treasury-set rate for tax-credit bonds, whichever is lower.
In the section on new CREBs, the FAQ details how electric cooperatives can apply for a second allocation of CREB authority. Earlier this month, the IRS announced that due to lower-than-expected demand, it was accepting more applications for $190.8 million of bond authority.
Interested coops must apply by Nov. 1, and the FAQ makes clear that if a coop is awarded more bond authority as part of the supplemental allocation, it will have three years from the date of the new award to issue the bonds.
The American Recovery and Reinvestment Act authorized the issuance of $22 billion of QSCBs, $1.4 billion of QZABs, $3.2 billion of QECBs, and $1.6 billion of CREBs.
