The Hiring Incentives to Restore Employment Act of 2010 (HIRE Act), enacted on March 18, 2010, provides an option for issuers of certain qualified tax credit bonds to irrevocably elect to issue the bonds as specified tax credit bonds with a direct pay subsidy, in the same manner as the build America bonds direct pay subsidy. The issuer of these bonds will receive an interest payment subsidy from the Federal government. Bondholders will receive a taxable interest payment from the issuer instead of a tax credit.
The American Recovery and Reinvestment Act of 2009 (ARRA) created the build America bonds direct pay option whereby the governmental issuer of these bonds may elect (in lieu of issuing tax-exempt bonds) to receive a direct refundable credit payment from the Federal government equal to a percentage of the interest payments made. The HIRE Act extended the direct pay provision to certain issuers of qualified tax credit bonds. In lieu of issuing bonds with a tax credit to the bondholder, issuers of new clean renewable energy bonds, qualified energy conservation bonds, qualified zone academy bonds, and qualified school construction bonds may elect to receive a direct payment equal to a certain amount of the interest paid on an interest payment date.
Notice 2010-35 provides guidance on the refundable tax credit payment procedures, the required elections, information reporting, and certain interim guidance. The notice is intended to facilitate prompt implementation of this borrowing option and to enable issuers to begin issuing these bonds for qualified purposes.
Issuers of all tax credit bonds must use new Form 8038-TC, Information Return for Tax Credit Bonds and Specified Tax Credit Bonds, on its release. The new form will be available on or before June 25, 2010. In the interim, while issuers of qualified tax credit bonds may continue to file their information returns on Form 8038, Information Return for Tax-Exempt Private Activity Bond Issues, issuers of specified tax credit bonds should not file their information return until Form 8038-TC is available.
Issuers of specified tax credit bonds must report on Form 8038-TC. The IRS will not be able to process the related subsidy payment request submitted on Form 8038-CP, Return for Credit Payments to Issuers of Qualified Bonds, unless Form 8038-TC is filed for these bonds. Issuers that have filed Form 8038 for an issue of specified tax credit bonds must refile on Form 8038-TC prior to filing the initial Form 8038-CP for these bonds.