The Internal Revenue Service has released several notices since April 3, 2009, to guide state and local governments issuing the new tax credit bonds provided for in the American Recovery and Reinvestment Act of 2009 (ARRA). A summary of the notices appears below. Click here for a more detailed look at the guidance.

In summary:

  • The IRS has provided the procedures for electing to receive the direct interest subsidy from the federal government equal to 35 percent of the interest on Build America Bonds (Direct Payment) and 45 percent of the interest on Recovery Zone Economic Development Bonds.  
  • Form 8038-CP is available to issuers filing to receive interest subsidy payments on Build America Bonds (Direct Payment) or Recovery Zone Economic Development Bonds for debt service payments scheduled to be made on or after July 1, 2009. The IRS will begin accepting forms on May 1, 2009. The filing schedule differs for fixed-rate and variable-rate bonds.
  • The IRS clarified that the Build America Bonds (Direct Payment) cannot be used to refund prior debt but can be used to reimburse capital expenditures under the general reimbursement rules applicable to tax-exempt bonds. Refinancing of short-term debt used to finance capital expenditures paid or incurred after February 17, 2009, will be treated as a reimbursement, not a refunding.
  • Build America Bonds (Tax Credit) that provide a 35 percent credit directly to the bondholder can be issued to finance the same type of expenditures allowed for with tax-exempt governmental bonds, including advance and current refundings, working capital, tax increment financings, and tax assessment financings.
  • Neither Build America Bonds nor Recovery Zone Economic Development Bonds can be issued as private activity bonds, thus excluding issuance for 501(c)(3) organizations in a manner that would otherwise be private activity bonds. 
  • The IRS has provided the 2008 and 2009 volume allocations for Qualified Zone Academy Bonds. States may establish their own methods of sub-allocating these bonds. 
  •  The 2009 allocations of the volume cap for Qualified School Construction Bonds to the states and the 100 large local educational agencies were announced. The amounts available to Indian tribal governments for Bureau of Indian Affairs schools will be announced later by the Department of Interior. 
  • The IRS announced the allocations of the Qualified Energy Conservation Bonds to the states. The notice sets out the required method for sub-allocating to counties and large municipalities but not the sub-allocation dollar amounts. The IRS clarifies that Qualified Energy Conservation Bonds can be issued by the state or by a county or large municipality that has received a direct sub-allocation of volume cap. 
  • Applications for an allocation of the nationwide allocation of the new Clean Renewable Energy Bonds are due by August 4, 2009. 
  • The Bureau of Public Debt will publish on its Web site daily the credit rates, maturity limitation, and debt service sinking fund yield limitation for the Qualified Zone Academy Bonds, Qualified School Construction Bonds, Qualified Energy Conservation Bonds, and Clean Renewable Energy Bonds.
  • Allocations for the Recovery Zone Economic Development Bonds and Recovery Zone Facility Bonds are not available yet.

The Public Finance lawyers at Ballard Spahr Andrews & Ingersoll, LLP are happy to answer any questions you may have about the ARRA bond provisions or any other bond-related matter. Please contact Linda B. Schakel at 202.661.2228,

Copyright © 2009 by Ballard Spahr LLP.
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