Schools that issued tax credit bonds before December 22, 2017 must annually complete and file Form 1097-BTC with the IRS. For tax year 2019, Form 1097-BTC must be filed by mail by February 28, 2020, or filed electronically by March 31, 2020.
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. For schools, tax credit bonds were typically issued as either a Qualified School Construction Bond (QSCB) or a Qualified Zone Academy Bond (QZAB).
Many schools have issued QSCBs and QZABs as direct-pay bonds that do not give the purchaser a tax credit but, instead, provide the school with a subsidy from the federal government to make debt service payments. Those direct-pay bonds are not subject to the Form 1097-BTC filing regulations. Only QSCBs and QZABs that were issued as tax credit bonds trigger the Form 1097-BTC filing requirement.
Form 1097-BTC must be filed either by: (1) using the IRS’s e-filing “FIRE” system, which many find cumbersome; or (2) filing paper forms with the IRS. Issuers that file the paper Form 1097-BTC must include a Form 1096, which can be downloaded from the IRS website.
In addition to the annual IRS filing, school officials must send a Form 1097-BTC statement to the original bond purchaser (but not the IRS) each quarter. The fourth quarter submission to the purchaser, however, can serve as the annual IRS filing and should be sent to both the IRS and the purchaser. The deadline for providing a copy of the annual (2019 fourth quarter) form to the purchaser is February 15, 2020, which is earlier than the IRS deadline.
Even though the IRS website provides detailed instructions for completing and filing both Form 1097-BTC and Form 1096, tax credit bond issuers should consider contracting with a financial institution that provides paying agent services to complete and file the forms.
For tax credit bonds issued after 2013, the financial advisor for many school transactions negotiated a contract with a Kansas bank to file the forms on the school’s behalf. If your tax credit bond was issued after 2013, we recommend contacting your financial advisor to inquire whether a third party already files the forms for you.
If your school has an outstanding tax credit bond, we recommend that school officials, or the bond registrar or paying agent acting on your school’s behalf, comply with the Form 1097-BTC filing requirements and consult the IRS website for filing instructions. We encourage clients to start the 2020 filing process, or contact an appropriate financial institution to file the form on your behalf, well before the February 28 or March 31 filing deadlines.