Reminder: Filing Requirement for Issuers of Tax Credit Bonds

Schools that have outstanding tax credit bonds must annually complete and file Form 1097-BTC with the IRS. For tax year 2015, Form 1097-BTC must be filed with the IRS on or before February 29, 2016 (or March 31, 2016, if filed electronically).

Tax credit bonds differ from conventional school bonds because the bond purchaser receives a tax credit in lieu of, or in addition to, periodic interest payments. The tax credit is based on the principal amount of the bonds. The tax credit rate is determined by the U.S. Department of Treasury. For schools, a tax credit bond is typically issued as either a Qualified School Construction Bond (“QSCB”) or a Qualified Zone Academy Bond (“QZAB”). Only QSCBs and QZABs that were issued as tax credit bonds are subject to the Form 1097-BTC filing requirement.

The IRS’s announcement in 2013 that tax credit bond issuers are required to file Form 1097-BTC re­sulted in significant confusion and resistance on the part of issuers. The IRS’s arcane filing procedures fur­ther complicate the matter. Unlike many IRS forms, Form 1097-BTC is not filed using an easily accessible form on the IRS website. Rather, Form 1097-BTC must be filed either (1) by using the IRS’s e-filing “FIRE” system, which many have found cumbersome, or (2) by ordering paper forms from the IRS. Issuers that file the paper Form 1097-BTC must also include a Form 1096, which also must be ordered directly from the IRS. Even though the IRS website provides detailed instructions for completing and filing both Form 1097-BTC and Form 1096, issuers should consider con­tracting with their bond registrar/paying agent(s) for those tax credit bonds to complete and file the re­quired IRS forms on the issuers' behalf. Financial institutions that provide bond registrar/paying agent services have both the industry knowledge and the transaction-specific information necessary to complete and file the forms.

In addition to the annual IRS filing, schools must send a Form 1097-BTC statement to the original bond purchaser each quarter. The IRS should not receive the quarterly statements sent to the purchaser. The fourth quarter submission to the purchaser, however, can utilize the same form as the annual filing submitted to the IRS and should be sent to both the IRS and the purchaser. Unlike the form submitted to the IRS, a quarterly statement provided to the purchaser may utilize the form available on the IRS website. The deadline for providing a copy of the annual (2015 fourth quarter) form to the purchaser is February 16, 2016.

A link to the IRS webpage devoted to Form 1097-BTC, including instructions for completing and filing the form, is available on the Firm’s website under “Links” – “Bond and Finance Links.” If your school has an outstanding tax credit bond, we recommend that you, or the bond registrar/paying agent acting on your school's behalf, comply with the Form 1097-BTC filing requirements and consult the IRS website for filing instructions. Please be aware that registering for the IRS’s FIRE e-filing system or ordering paper forms may take a few weeks. We encourage clients to start the filing process well before the filing deadline.

Questions regarding Form 1097-BTC should be directed to Thrun finance attorney Fredric Heidemann at 517-374-4535.