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IRS Compliance Reporting for Direct-Pay Bonds October 19, 2010 South Carolina GFOA 2010 Fall Conference.

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Presentation on theme: "IRS Compliance Reporting for Direct-Pay Bonds October 19, 2010 South Carolina GFOA 2010 Fall Conference."— Presentation transcript:

1 IRS Compliance Reporting for Direct-Pay Bonds October 19, 2010 South Carolina GFOA 2010 Fall Conference

2 2 So……. What Are Direct-Pay Bonds?

3 Types of Direct-Pay Bonds 3  Build America Bonds (BABs)  Recovery Zone Economic Development Bonds (RZEDBs)  Qualified School Construction Bonds (QSCBs)  Qualified Zone Academy Bonds (QZABs)  New Clean Renewable Energy Bonds (CREBs)  Qualified Energy Conservation Bonds (QECBs)

4 Build America Bonds (BABs)  Created by the American Recovery and Reinvestment Act of 2009 (ARRA)  Are taxable to the bondholder (investor)  Issuer receives a 35% interest subsidy payment  Must qualify as a governmental bond, not a private activity bond  May be used to finance capital expenditures on projects, but cannot be used to refund previously issued bonds (other than certain short-term obligations)  Issuance of BABs currently is set to expire on 12/31/10. Expiration date may be extended  BABs are subject to the arbitrage rebate and yield restriction requirements!!! 4

5 Recovery Zone Economic Development Bonds  Must meet all requirements of Build America Bonds (BABs)  Issuer receives a 45% interest subsidy  Must be used for qualified economic development purposes  Subject to volume cap limitations ($115 million was allocated to South Carolina local governments) – federal government originally allocated issuance authority to cities and counties throughout the State; State deemed unused authority waived, and has been reallocating 5

6 Qualified School Construction Bonds (QSCBs)  100% of “Available Project Proceeds” must be used for construction, rehabilitation or repair of a public school facility or the acquisition of land on which such a facility is to be constructed  Subsidies from the federal government equal the lesser of  1) 100% of interest payable on the bond on such date, or  2) 100% of interest that would be payable on the bond on such date if the interest were determined at the applicable credit rate determined on the sale date  Subject to volume cap limitations ($131 million to South Carolina in 2009; $130 million to South Carolina in 2010)  Proceeds must be spent within three years or used to redeem bonds 6

7 Qualified Zone Academy Bonds (QZABs)  100% of “Available Project Proceeds” must be used to rehabilitate or repair a public school facility, provide equipment or develop course materials and training teachers and other school personnel.  Subsidies from the federal government equal the lesser of  1) 100% of interest payable on the bond on such date, or  2) 100% of interest that would be payable on the bond on such date if the interest were determined at the applicable credit rate determined on sale date  Subject to volume cap limitations ($22 million to South Carolina in 2009; $23 million to South Carolina in 2010) 7

8 New Clean Renewable Energy Bonds (CREBs) and Qualified Energy Conservation Bonds (QECBs)  CREBs may be used to finance renewable energy projects  QECBs may be used to finance energy conservation projects  Subsidies from the federal government equal the lesser of  1 ) 100% of interest payable on the bond on such date, or  2) 70% of interest that would be payable on the bond on such date if the interest were determined at the applicable credit rate determined on sale date  CREBs and QECBs are subject to volume cap limitations:  CREBs – Volume cap has been allocated  QECBs - $46 million in South Carolina 8

9 Now… You are going to issue a Direct-Pay Bond. What reporting will be required? 9

10 IRS COMPLIANCE Compliance at Closing  IRS Form 8038-B (filed for BABs and RZEDBs)  IRS Form 8038-TC (filed for QSCBs, QZABs, CREBs and QECBs) Post-Issuance Compliance  Calculate interest subsidy and file IRS Form 8038-CP (Calculation Agent)  Calculate arbitrage rebate and arbitrage yield restriction (Rebate Analyst)  Maintain records and create written procedures (Reporting Agent)  Complete IRS Form All of the IRS forms can be found at 10

11 IRS Form 8038-CP  IRS Form 8038-CP is used for all Direct-Pay Bonds to request interest subsidy payments from the federal government  For fixed-rate bonds, IRS Form 8038-CP must be filed no earlier than 90 days and no later than 45 days prior to the applicable interest payment date  For variable-rate bonds, when the issuer knows the interest payment amount, IRS Form 8038-CP must be filed in the same manner as the fixed rate bonds  For variable-rate bonds, when the issuer does not know the interest payment amount 45 days before the interest payment date, the issuer must aggregate all credit payments on a quarterly basis (based on the issue date of the Bonds) and file IRS Form 8038-CP for reimbursement in arrears no later than 45 days after the last interest payment date  IRS Form 8038-CP was revised in January 2010 to permit the direct deposit of the subsidy to issuer’s designated account 11

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14 IRS Form In order to continue to receive the subsidy payments, issuers must comply with a range of post-issuance IRS requirements, including the completion of IRS Form  The IRS has indicated that every Issuer of BABs and RZEDBs will receive IRS Form  The IRS has indicated that it will send a similar questionnaire for all other types of Direct-Pay bonds 14

15 Sample Questions from IRS Form

16 Sample Questions from IRS Form

17 Sample Questions from IRS Form

18 Sample Questions from IRS Form

19 Your Calculation Agent, Rebate Analyst and Reporting Agent can provide you with certain required information and assist you in completing IRS Form

20 Michael Larsen Parker Poe Adams & Bernstein LLP 200 Meeting Street Charleston, SC t f Kristen Kalinowski The Bank of New York Mellon 5050 Poplar Ave., Suite 1717 Memphis, TN t f Thomas K. Dawkins The Bank of New York Mellon Centurion Parkway Jacksonville, FL t f Sheila Papelbon The Bank of New York Mellon Centurion Parkway Jacksonville, FL t f Presenter Information 20


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