Form 8038-CP: Credit for Qualified Bonds Allowed to Issuer

Form 8038-CP: Credit for Qualified Bonds Allowed to Issuer

Form 8038-CP, the Credit for Qualified Bonds Allowed to Issuer, is an essential document for issuers of certain qualified tax-exempt bonds. This form is used to claim the federal credit associated with qualified bonds, such as Build America Bonds (BABs) and Recovery Zone Economic Development Bonds (RZEDBs), where the IRS provides a subsidy to the issuer to help cover the interest costs of these bonds.

If you are an issuer of qualified bonds, understanding how to file Form 8038-CP is crucial to receive the federal credit and ensure your bond issuance remains compliant with IRS regulations. In this guide, we will explore what Form 8038-CP is, who is required to file it, the information required for submission, and the importance of timely filing.

What is Form 8038-CP?

Form 8038-CP is a tax return used by bond issuers to claim the federal credit associated with certain types of qualified tax-exempt bonds, such as Build America Bonds and Recovery Zone Economic Development Bonds. These bonds allow issuers to receive a subsidy from the federal government to reduce their interest payment burden.

The form helps issuers report the issuance of these bonds and request the credit, which is typically paid directly to the issuer. The credit essentially lowers the cost of borrowing for public entities, such as state and local governments, that issue these bonds for purposes like infrastructure development or job creation.

Who Must File Form 8038-CP?

Form 8038-CP must be filed by the issuer of qualified bonds. This could be a variety of government entities or organizations that are eligible to issue tax-exempt bonds. Here are the key entities required to file this form:

1. State and Local Governments: State, municipal, and local governments that issue Build America Bonds or Recovery Zone Economic Development Bonds are required to file Form 8038-CP to claim the federal subsidy.

2. Other Qualified Entities: Nonprofit organizations or other authorized entities that issue these bonds for public purposes, like infrastructure projects, are also required to file the form.

3. Bond Types Covered:

   • Build America Bonds (BABs): These are taxable bonds issued by state and local governments that allow for a federal subsidy to help cover the cost of interest.
   • Recovery Zone Economic Development Bonds (RZEDBs): These are tax-credit bonds where the federal government provides tax credits to bondholders, but the issuer may still need to file Form 8038-CP to report and claim any applicable credits.

When is Form 8038-CP Due?

The due date for Form 8038-CP depends on the timing of the bond issuance and the dates on which interest payments are made. Specifically:

1. Filing Deadline:

   • Form 8038-CP is due on the 15th day of the second month following the end of the calendar quarter in which the issuer made an interest payment on the qualified bonds.
   • For example, if an interest payment on the bonds is made in March, the Form 8038-CP must be filed by May 15th.

2. Multiple Filings:

   • If there are multiple interest payments throughout the year, separate filings of Form 8038-CP are required for each bond issue and payment. The form must be submitted for each quarter in which the interest payment occurs.

Key Information Required on Form 8038-CP

Form 8038-CP requires bond issuers to report a variety of information regarding the bonds and their issuance. Below is an overview of the key details required for accurate filing:

1. Issuer’s Information:

   • Name of the Issuer: This could be a state or local government or another authorized organization.
   • Employer Identification Number (EIN): This is the EIN of the issuer.
   • Issuer’s Address: The physical address where the issuer is located.
   • Contact Person: The name and contact details of the person responsible for the bond issuance.

2. Bond Issue Information:

   • Issue Date: The specific date the bonds were issued.
   • Total Amount of Bond Issue: The total face value of the bonds issued.
   • Interest Payment Amount: The amount of interest to be paid to bondholders.
   • Qualified Purpose of the Bonds: The purpose for which the bonds were issued, such as infrastructure improvements, economic development, or job creation.

3. Credit and Subsidy Information:

   • Amount of Credit or Subsidy: The federal subsidy the issuer is claiming. This is typically based on a percentage of the interest payments, as specified for Build America Bonds or Recovery Zone Economic Development Bonds.
   • Payment to Issuer: The form must report any payments the issuer has received from the IRS related to the subsidy.

4. Compliance Information:

   • Issuers are required to certify compliance with all requirements for the issuance and use of the qualified bonds.
   • Information about bondholder eligibility for tax credits or subsidies must be included, if applicable.

Filing and Submission Process

1. Gather Information:

   • Before filing Form 8038-CP, ensure that all the required documentation is available, such as bond issuance records, payment schedules, and IRS correspondence.

2. Complete the Form:

   • Fill out the form accurately with all relevant details, including the issuer’s information, bond details, interest payment amounts, and the requested credit or subsidy amount.

3. File with the IRS:

   • Form 8038-CP must be filed with the IRS by mail at the appropriate address listed in the form instructions.
   • Electronic filing may not be available for all issuers, so it is important to verify the correct filing method.

4. Payment of Subsidy:

   • If the IRS determines that the issuer is entitled to a subsidy, they will make a payment to the issuer based on the claimed amount. This payment is generally made by direct deposit or check.

Penalties for Non-Filing or Late Filing

Failing to file Form 8038-CP on time can result in significant penalties for the issuer. Some of the potential consequences include:

1. Late Filing Penalties:

   • The IRS can impose penalties for late filings, which typically amount to $25 per day for each day the form is late, up to a maximum penalty of $1,000 for each bond issue.

2. Loss of Credit or Subsidy:

   • Failure to file the form may result in the loss of the federal subsidy or tax credits associated with the bond issuance. This could lead to increased costs for the issuer, as they would have to pay full interest on the bonds without the subsidy.

3. Increased IRS Scrutiny:

   • The failure to submit accurate or timely filings may lead to additional IRS audits, resulting in further administrative burdens for the issuer.

Conclusion

Form 8038-CP is a critical document for issuers of Build America Bonds and Recovery Zone Economic Development Bonds. It helps claim the federal subsidy or credit associated with these qualified bonds and ensures that issuers comply with the rules governing these bonds. Timely and accurate filing of this form is essential to maintaining the financial benefits for bond issuers and avoiding penalties or loss of subsidies.