Credit to Holders of Qualified Tax Credit Bonds (I.R.C. § 54A)

November 6, 2009

General Rules

Qualified tax credit bonds may be issued as direct pay bonds under I.R.C. 6431.  Note that a de minimis premium requirement applies when the bonds are issued as direct pay bonds, similar to the limit that applies to tax credit and direct pay build America bonds.  See Notice 2010-35.

Claiming Tax Credits

See Form 8912 regarding claiming tax credits for qualified tax credit bonds.  See also the description in the instructions to such form relating to determining the credit, when bonds have been partially redeemed.

Stripping Tax Credits

See TAM 200512020.

See IRS Notice 2010-28.

Expenditure Period

Section 54A(d)(2)(B)(ii) provides that for purposes of the relevant sections of the code, the term “expenditure period” means, with respect to the issue, the three-year period beginning on the date of issuance.  Such term can be extended with the consent of the Secretary.  There have been several private letter rulings describing extensions of the expenditure period.  All relate to unexpected events occurring after the issue date.  Here are a few of those rulings:

PLR 201609005 (Nov. 23, 2015):  New clean renewable energy bonds.  Permits expected to be received from a state agency weren’t received in time despite the issuer’s reasonable expectations.  The delay was the responsibility of the state entity.

PLR 201330003 (July 31, 2013): Extension of time to spend QSCB proceeds.  Subcontractors unexpectedly default.

PLR 201309012 (Dec. 3, 2012): Extension of time to spend QSCB proceeds.  Lower than expected project costs resulting in delays in making project adjustments.

PLR 201332004 (May 14, 2013): Extension of time to spend QSCB proceeds as a result of unexpected delays in moving students out of building to be rehabilitated.

PLR 201514005 (Dec. 8, 2014): Extension of time to spend QSCB proceeds because the school experienced unexpected funding cuts giving rise to reprioritization of expenditures. Extension was by 16 months.

PLR 201613012 (Mar. 28, 2016): An authority, an instrumentality of a state, was granted an extension of the original three-year expenditure period for the available project proceeds of qualified zone academy bonds for rehabilitating, repairing, and equipping various public school buildings located throughout the city. The authority failed to expend its allocable portion of the available project proceeds due to reasonable cause and the expenditures of the proceeds for qualified purposes would proceed with due diligence.

Davis-Bacon Act; Buy American Provisions

Projects financed with proceeds of QTCBs must comply with the Davis-Bacon Act, which requires that workers be paid wages at rates not less than those prevailing on similar work in the locality.  Such projects do not, however, need to satisfy the Buy American provisions of the American Recovery and Reinvestment Act of 2009.  Therefore it does not appear that these projects are subject to Mr. Trump’s executive order of April 2017 concerning buying American and hiring American.