Form 8038-CP: What It Is and How to File It

Form 8038-CP, Return for Credit Payments to Issuers of Qualified Bonds, is a document filed with the Internal Revenue Service. Governmental entities that issue specific tax-advantaged bonds use this form to claim a refundable credit from the federal government. This credit payment acts as a subsidy, reducing the borrowing costs for public projects. The form facilitates the direct payment of this subsidy from the U.S. Treasury to the bond issuer, which was established to make financing more affordable for state and local governments.

Determining Filing Requirements

Filing Form 8038-CP is a requirement for issuers of certain types of direct-pay bonds who have elected to receive a refundable credit. The authority to issue new bonds of these types has since expired, but issuers of outstanding bonds must continue to file to receive their interest subsidies.

The specific securities that fall under this requirement include Build America Bonds (BABs), which were used to finance a wide range of new infrastructure projects. Another type is Qualified School Construction Bonds (QSCBs), which provided funding for the construction and renovation of public school facilities. The filing requirement also extends to issuers of New Clean Renewable Energy Bonds (NCREBs) and Qualified Energy Conservation Bonds (QECBs), which funded projects aimed at promoting green energy and efficiency. Finally, issuers of Qualified Zone Academy Bonds (QZABs) and Recovery Zone Economic Development Bonds (RZEDBs) must also file.

Information and Calculations for Form 8038-CP

Before completing Form 8038-CP, an issuer must gather several pieces of information. This includes the issuer’s legal name, Employer Identification Number (EIN), and mailing address, which are entered in Part I of the form. You will also need the CUSIP number for the bond issue, its original issue date, its total issue price, and the specific interest payment date for which the credit is being claimed.

The primary calculation for the form is determining the refundable credit amount. The process begins by identifying the total interest payable to bondholders for the specific payment period, which is reported on Line 19a. For direct-pay bonds like BABs, a specific credit rate, such as 35 percent, is applied to this interest amount to find the gross credit. For other specified tax credit bonds like QSCBs or NCREBs, issuers must complete Schedule A to determine the credit amount.

An adjustment to this calculation is the application of sequestration. Due to federal budget laws, the credit payment is subject to a reduction. Issuers report the gross credit amount on the form, and the IRS applies the sequestration reduction before issuing the payment. For payments processed through September 30, 2031, this reduction is 5.7%. For example, if the gross credit is calculated to be $35,000, the IRS would apply the 5.7% reduction, resulting in a final payment to the issuer of $33,005.

The Filing Process

The filing deadline is directly linked to the bond’s interest payment date. For fixed-rate bonds, Form 8038-CP must be filed no earlier than 90 days before the interest payment date and no later than 45 days before that date. This window provides the IRS with adequate time to process the request and issue the payment.

For variable-rate bonds, the timeline can differ. If the interest amount is known at least 45 days in advance, the filing window is the same as for fixed-rate bonds. If the interest amount is not known that far in advance, the issuer must aggregate the credit payments on a quarterly basis and file for reimbursement within 45 days after the last interest payment date of that quarter.

Electronic filing is mandatory for issuers who file 10 or more tax returns of any kind during a calendar year. After submission, issuers can generally expect the direct payment from the Treasury to be processed, though timelines can vary.

Amending a Previously Filed Return

If an error is discovered on a Form 8038-CP that has already been submitted, the issuer must file an amended return. This process requires using a new copy of the form for the same interest payment date as the original filing. The issuer must check the “Amended Return” box at the top of the form to indicate it is a correction.

The filer should then complete the entire form with the corrected information, as it is not sufficient to only provide the corrected items. It may be advisable to attach a separate statement that explains the reason for the amendment, such as a calculation error or incorrect data entry. This can provide clarity to the IRS and help expedite the processing of the corrected return.