Form 8038: Information Return for Tax-Exempt Private Activity Bond Issues

Form 8038: Information Return for Tax-Exempt Private Activity Bond Issues

Form 8038 is a crucial document used to report tax-exempt private activity bond issues to the IRS. Private activity bonds are issued by state or local governments to finance specific private projects that benefit the public, such as private schools, hospitals, and infrastructure projects. However, for the bonds to remain tax-exempt, the issuer must follow strict IRS guidelines, which is why Form 8038 is required.

This form ensures compliance with Section 141 of the Internal Revenue Code (IRC), which governs tax-exempt private activity bonds. The form provides the IRS with the necessary information to verify that the bonds meet all eligibility requirements and that the proceeds are being used for qualified purposes.

In this guide, we will explain who needs to file Form 8038, the key information required, and the filing process to help you ensure your tax-exempt bond issuance is in line with IRS requirements.

What is Form 8038?

Form 8038 is an information return filed by issuers of tax-exempt private activity bonds. These bonds are issued for projects that involve private entities but are generally intended to serve public purposes, such as building private non-profit hospitals, schools, or infrastructure that benefits the community.

The IRS uses Form 8038 to ensure that the bonds comply with the rules for tax-exempt status under the Internal Revenue Code. The form helps the IRS verify that the private activity bonds are not being misused, ensuring that tax-exempt status is maintained throughout the life of the bonds.

Who Must File Form 8038?

Form 8038 must be filed by the issuer of the tax-exempt private activity bonds. This typically involves state or local governments or other eligible entities responsible for issuing these bonds for private projects.

Here are the key groups required to file Form 8038:

1. State or Local Governments:

   • These entities often issue private activity bonds to finance specific projects that may have a private beneficiary, such as a private company or non-profit organization.

2. Qualified Private Activity Bonds:

   • Only bonds that qualify under the IRS definition of private activity bonds are reported on Form 8038. This generally includes bonds issued for public-private partnerships or for projects that serve the general public but have a private benefit (e.g., private hospitals, airports, and some types of housing projects).

3. Bond Type:

   • Private Activity Bonds: The bonds reported on Form 8038 must meet the criteria set forth by the IRS for tax-exempt status under the Internal Revenue Code (IRC). These bonds are typically used to finance private projects that serve public interests.

When is Form 8038 Due?

The due date for Form 8038 depends on when the bond issuance takes place. Generally, Form 8038 must be filed within 90 days after the issuance of the bonds.

In practice, the form is due on or before the 15th day of the 3rd month after the bond issuance date. For example:

• If the bond is issued on June 1st, Form 8038 would be due by September 15th.

Key Information Required on Form 8038

To complete Form 8038, the issuer must provide several important details about the bond issue and the project being financed. Here is a breakdown of the essential information needed:

1. Issuer Information:

   • Name of Issuer: The name of the governmental entity or other organization issuing the bonds.
   • Employer Identification Number (EIN): The unique number assigned to the issuer by the IRS.
   • Issuer’s Address: The mailing address of the entity issuing the bonds.
   • Contact Person: The name, phone number, and email address of the individual responsible for filing the form.

2. Bond Issue Information:

   • Issue Date: The date when the bonds were issued or sold to investors.
   • Bond Amount: The total face value or principal amount of the bond issue.
   • Bond Type: Specify that the bonds are private activity bonds.
   • Maturity Date: The date when the bonds will mature and the issuer is required to repay the principal.

3. Project Information:

   • Use of Bond Proceeds: A description of how the bond proceeds will be used. For private activity bonds, this typically includes information about the private project being funded, such as private hospitals, non-profit organizations, or private university buildings.
   • Description of the Project: The specific nature of the project being financed, including whether it is a qualified private activity under IRS rules (e.g., health care facilities, airports, etc.).

4. Tax-Exempt Status Certification:

   • Issuers must certify that the bonds meet the requirements for tax-exempt status under Section 141 of the Internal Revenue Code. This includes confirming that the bonds are issued for qualified purposes and comply with all IRS requirements.

5. Bond Classification:

   • The form requires the issuer to specify whether the bonds are qualified 501(c)(3) bonds (for non-profit organizations) or other types of private activity bonds.

6. Miscellaneous Information:

   • Rebate Compliance: Information about whether the bond issuer complies with arbitrage rebate rules. These rules ensure that issuers do not earn higher yields from bond proceeds than allowed by tax-exempt regulations.
   • Issuer’s Certification: A statement from the issuer certifying that the bonds were used for qualified purposes, such as projects benefiting the public through private entities.

Filing and Submission Process

1. Prepare the Information:

   • Gather all relevant documentation regarding the bond issuance, including the total bond amount, issuance date, use of proceeds, and detailed project descriptions.

2. Complete the Form:

   • Fill out Form 8038 accurately with the required details. It is essential to provide correct information about the bonds and the project to avoid penalties and potential loss of tax-exempt status.

3. Submit the Form:

   • Form 8038 must be submitted by mail to the IRS. The correct address for submission is provided in the form’s instructions.
   • Electronic filing is not available for this form.

4. Record Keeping:

   • Retain a copy of Form 8038 and supporting documents for your records. These may be needed if the IRS requests additional information during audits or compliance checks.

Penalties for Non-Filing or Late Filing

Failure to file Form 8038 on time or inaccurately reporting information can lead to several consequences:

1. Late Filing Penalties:

   • The IRS imposes a penalty of $25 per day for each day the form is late, up to a maximum of $1,000 per bond issue.

2. Loss of Tax-Exempt Status:

   • If the form is not filed or if there are issues with compliance, the bond may lose its tax-exempt status. This would mean that bondholders would be required to pay taxes on the interest they earn from the bonds, potentially causing significant financial implications for the issuer.

3. Increased IRS Scrutiny:

   • Issuers who fail to comply with the filing requirements may face more IRS audits, which can lead to additional costs and administrative burdens.

Conclusion

Form 8038 is a vital document for issuers of tax-exempt private activity bonds, ensuring compliance with IRS regulations and preserving the tax-exempt status of the bonds. By properly completing the form and submitting it on time, issuers can avoid penalties, maintain the bonds’ tax-exempt status, and demonstrate compliance with federal tax laws.