Schools that issued tax credit bonds on or before December 31, 2017 must annually complete and file Form 1097-BTC with the IRS. For tax year 2023, Form 1097-BTC must be filed by mail by February 28, 2024 or filed electronically by April 1, 2024.
Tax credit bonds differ from conventional school bonds because the bond purchaser receives a tax credit instead 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 issued their QSCBs and QZABs as “direct-pay” bonds that do not give the purchaser a tax credit; instead, they provide the school with a subsidy from the federal government to make debt service payments. Those direct-pay bonds are not subject to Form 1097-BTC filing requirements. Only QSCBs and QZABs issued as tax credit bonds trigger the Form 1097-BTC filing requirements.
Form 1097-BTC must be filed either by: (1) using the IRS’s e-filing “FIRE” system, which can be cumbersome, or (2) mailing paper forms to the IRS. An issuer that files the paper Form 1097-BTC must also include a Form 1096, which can be ordered through 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. Importantly, the fourth quarter submission to the purchaser can serve as the annual IRS filing and should be sent to the IRS and the purchaser. The deadline for providing a copy of the annual (2023 fourth quarter) forms to the purchaser is February 15, 2024, which is earlier than the IRS deadline and the February 15 purchaser filing deadline.
Although the IRS website provides detailed instructions for completing and filing both Form 1097-BTC and Form 1096, schools should consider outsourcing that task to a financial institution that provides paying agent services. 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 school’s financial advisor to inquire whether a third party already files the forms as part of an existing engagement.
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 school officials to start the tax year 2023 filing process, or to make arrangements with an appropriate financial institution to file the form on the school’s behalf, well before the February 28 or April 1 IRS filing deadlines.