Municipal Finance
IRS Guidance on ARRA Bond Provisions

 IRS Releases Guidance on ARRA Bond Provisions

 

The American Recovery & Reinvestment Act of 2009 (ARRA) created several new types of tax-exempt bonds and tax credit bonds under the Internal Revenue Code. Of particular note, the ARRA created new tax incentives for certain taxable governmental bonds called Build America Bonds and Recovery Zone Economic Development Bonds whereby the governmental issuer of such 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 on these bonds.

 

The latest guidance, forms and information on the ARRA bond provisions is available at the links below. For more information about other ARRA tax provisions, please visit ARRA information page.

 

Build America Bonds & Recovery Zone Economic Development Bonds

 

Notice 2009-26 (Build America Bonds and Direct Payment Subsidy Implementation)


This notice provides guidance on the new tax incentives for Build America Bonds under section 54AA of the Internal Revenue Code and the implementation plans for the refundable credit payment procedures for these bonds. The notice also includes guidance on the modified Build America Bond program for Recovery Zone Economic Development Bonds under section 1400U-2 of the Code.

 

Form 8038-CP – Return for Credit Payments to Issuers of Qualified Bonds


Governmental issuers of qualified Build America Bonds and Recovery Zone Economic Development Bonds must submit this form to request refundable credit payments payable under section 6431 of the Internal Revenue Code. Instructions for Form 8038-CP – Return for Credit Payments to Issuers of Qualified Bonds.

 

IRS News Release, IR-2009-33, April 3, 2009 (IRS Issues Guidance on New Build America Bonds)

 

Education Related Bond Provisions

 

Notice 2009-30 (Qualified Zone Academy Bond Allocations for 2008 and 2009)


This notice provides guidance on qualified tax credit bonds called Qualified Zone Academy Bonds (QZABs) under section 54E of the Internal Revenue Code. The notice sets forth the amount of QZABs that may be issued within each State for each of the calendar years 2008 and 2009. QZABs may be issued to finance certain expenditures relating to a qualified zone academy established by a local education agency.


Notice 2009-35 (Qualified School Construction Bond Allocations for 2009)

This notice provides guidance on qualified tax credit bonds called Qualified School Construction Bonds (QSCBs) under section 54F of the Internal Revenue Code. The notice sets forth the amount of QSCBs that may be issued by each State and large local education agency in 2009. QSCBs may be issued to finance certain construction and land acquisition expenditures relating to public school facilities.

 

Energy Related Bond Provisions

 

Notice 2009-29 (Qualified Energy Conservation Bond Allocations for 2009)

This notice provides guidance on qualified tax credit bonds called Qualified Energy Conservation Bonds (QECBs) under section 54D of the Internal Revenue Code. The notice sets forth the amount of QECBs that may be issued for each State. QECBs may be issued to finance projects designed to reduce greenhouse gas emissions.

 

Notice 2009-33 (New Clean Renewable Energy Bonds Application and Requirements)

This notice provides guidance on and solicits applications for authority to issue qualified tax credit bonds called New Clean Renewable Energy Bonds (New CREBs) under section 54C of the Internal Revenue Code to finance certain clean renewable energy facilities described under section 45(d) of the Code. There is a national limitation of $2.4 billion of volume of New CREBs which the IRS may allocate to qualified issuers.  Application for Notice 2009-33 (New Clean Renewable Energy Bonds) – Rich Text Format.
 
IRS Guidance on Build America Bonds

IRS Issues Guidance on New Build America Bonds

WASHINGTON — The Internal Revenue Service today issued guidance on the new Build America Bond program. This program allows state and local governments to issue taxable bonds for capital projects and to receive a new direct federal subsidy payment from the Treasury Department for a portion of their borrowing costs.

The American Recovery and Reinvestment Act of 2009 creates the new Build America Bond program, which authorizes state and local governments to issue Build America Bonds as taxable bonds in 2009 and 2010 to finance any capital expenditures for which they otherwise could issue tax-exempt governmental bonds. State and local governments receive a direct federal subsidy payment for a portion of their borrowing costs on Build America Bonds equal to 35 percent of the total coupon interest paid to investors. This new program is intended to assist state and local governments in financing capital projects at lower borrowing costs and to stimulate the economy and create jobs. “These innovative bonds give state and local governments an important new tool to help finance public capital projects that will benefit communities in challenging times,” said IRS Commissioner Doug Shulman.

The IRS issued Notice 2009-26, which provides guidance on Build America Bonds to enable state and local governments to begin using this program. This notice includes guidance on eligible types of projects and financings, initial implementation of the direct federal subsidy payment procedures, elections to use this program, and information reporting for this program. Certain guidance in this notice also applies to another type of Build America Bond in which a federal subsidy is delivered in the form of tax credits to investors instead of direct federal subsidy payments to state and local governments. In addition, the IRS released a new form to claim the federal subsidy payment. Issuers can expect to receive requested payments within 45 days after the IRS receives new Form 8038-CP, Return for Credit Payments to Issuers of Qualified Bonds. Build America Bonds can be issued in 2009 and 2010. There is no volume limitation on the amount of eligible Build America Bonds that can be issued during this period. Notice 2009-26 also solicits public comment on all aspects of the direct payment procedures for Build America Bonds. The notice will appear in Internal Revenue Bulletin 2009-16 dated April 20, 2009.
Related Items:

 
Accounting & Tax Increment Financing PDF  | Print |  E-mail

ACCOUNTING FOR SELF-FUNDED TIF’S  

QUESTION 

How does a municipality document tax increment project costs paid out of funds of the municipality under SDCL 11-9-30(2)?  

 FACTS 

SDCL 11-9-30 (2) allows entities to finance a Tax Increment (Financing) District (T.I.F.) with their own resources, specifically from the General Fund.

 

Generally accepted accounting principles (GAAP) provide for the use of a Capital Projects Fund for major capital projects.  Smaller projects may be accounted for directly within the General Fund or a Special Revenue Fund.

 

SDCL 11-9-31 & 32 establishes a separate fund for the deposit of tax increments and the payment of project costs (small projects).  GAAP would classify this fund as a Special Revenue Fund.

 

Governmental funds such as the General Fund, Special Revenue Funds and Capital Projects Funds are required to have budgets.  SDCL 9-21-2

 

Since entity resources originate from the General Fund and the use of a special fund is legally required, an interfund loan should be established to reflect the balance owed the General Fund by the Special Revenue T.I.F. Fund to account for the payment of T.I.F. project costs paid for by the General Fund.

 
FLOW OF RESOURCES 


The governing board decides to fund the project costs of a T.I.F. from its General Fund resulting in the following entries:


 GENERAL FUND 


Advance to Special Revenue T.I.F. Fund     XXXXX

 


            Cash                                                      XXXXX


 SPECIAL REVENUE T.I.F. FUND  


Cash                                                  XXXXX

 

            Advance from General Fund                   XXXXX

 

-------------------------------------------------------------------------------------------------------------------

  

The governing board should then approve the transfer of money from the Special Revenue T.I.F. Fund to a Capital Projects Fund, for large projects, to provide resources for the construction phase of the project.


 SPECIAL REVENUE T.I.F. FUND 


Transfer – Out                                XXXXX

 


            Cash                                                   XXXXX


 CAPITAL PROJECTS FUND 


Cash                                            XXXXX

 


            Transfer – In                                       XXXXX

 


(Capital Projects Fund monies are subsequently spent and the fund is closed)

 


--------------------------------------------------------------------------------------------------------------

 


T.I.F. increments are received by the entity.


 SPECIAL REVENUE T.I.F. FUND 


Cash                                       XXXXX

 


            Property Tax Revenue                XXXXX

 


--------------------------------------------------------------------------------------------------------------

 

The interfund loan is repaid.


 SPECIAL REVENUE T.I.F. FUND 


Advance From General Fund           XXXXX

 

            Cash                                                    XXXXX


 GENERAL FUND 


Cash                                              XXXXX

 

            Advance to Special Revenue T.I.F. Fund           XXXXX

 

----------------------------------------------------------------------------------------------------------------

 

NOTE:  If an entity has adopted an “Other Comprehensive Basis of Accounting” (OCBOA) with no related modifications, then the interfund loan entries above would instead be accounted for as “transfers”.

  

GASB 38 requires disclosures when interfund loans and interfund transfers occur as follows:

 

Interfund Balances and Transfers


GASBS38, Par. 14


14.       Governments should disclose in the notes to the financial statements the following details about interfund balances reported in the fund financial statements:

 

a. Amounts due from other funds by individual major fund, nonmajor governmental funds in the aggregate, nonmajor enterprise funds in the aggregate, internal service funds in the aggregate, and fiduciary fund type

 

b. The purpose for interfund balances

 

c. Interfund balances that are not expected to be repaid within one year from the date of the financial statements.

 

GASBS38, Par. 15


15.       Governments should disclose in the notes to the financial statements the following details about interfund transfers reported in the fund financial statements:

 

a. Amounts transferred from other funds by individual major fund, nonmajor governmental funds in the aggregate, nonmajor enterprise funds in the aggregate, internal service funds in the aggregate, and fiduciary fund type

 

b. A general description of the principal purposes of the government's interfund transfers

 

c. The intended purpose and the amount of significant transfers that meet either or both of the following criteria:

 

       (1)   Do not occur on a routine basis—for example, a transfer to a wastewater enterprise fund for the local match of a federal pollution control grant


(2)   Are inconsistent with the activities of the fund making the transfer—for example, a transfer from a capital projects fund to the general fund.

 

Based on the preceding accounting principles, disclosures relating to a self-funded TIF’s may appear as follows:

 

INTERFUND LOAN

 

The General Fund has loaned the Special Revenue T.I.F. Fund $XX,XXX to finance the Meadowland Acres Project.  This loan is schedule to be repaid from TIF increment dollars over the next 10 years.

 

INTERFUND TRANSFER

 

            The Special Revenue T.I.F. Fund transferred $XX,XXX to the Capital Projects       Fund for the purpose of constructing roads at the Meadowland Acres Project.


OFTEN ASKED RELATED QUESTION: 

Can the municipality just issue to itself a bond or note?

ANSWER:  No

REASON:  The municipality can not issue a bond or note to itself evidencing the transaction.  South Dakota Attorney General Opinion 97-07 reasoned that municipal indebtedness is intended to be between the municipality and outside entities.  Further, any intention to reimburse an interfund transfer is not binding in future years unless such expenditure is included on the municipality's annual appropriation ordinance or evidenced by a supplemental appropriation. SDCL 9-21-9
 
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