Direct Subsidy Bond Payments May be Delayed Due to COVID-19

Issuers of tax-exempt, direct pay Build America Bonds (“BABs”) and Recovery Zone Economic Development Bonds (“RZEDBs”) under the American Recovery and Reinvestment Act of 2009 (“ARRA”) are entitled to receive direct subsidy payments from the Internal Revenue Service (the “IRS”) of 35% or 45% of the interest paid on the BABs or RZEDBs, respectively, for the lifetime of the bond. Although these payments were reduced through sequestration, payments are normally processed when the Issuer files Form 8038-CP, Return for Credit Payments to Issuers of Qualified Bonds, with the Internal Revenue Service.

Due to COVID-19 social distancing restrictions, certain IRS services are extremely limited or suspended until further notice. As of June 22, 2020, all Taxpayer Assistance Centers remain temporarily closed until further notice. The IRS continues to process electronic tax returns, issue direct deposit refunds and accept electronic payments. However, the IRS has been experiencing delays in processing paper tax returns (see Millions of paper tax returns go unopened at short-staffed IRS), including Forms 8038-CP, for which no electronic processing alternative is available.

At a recent web conference sponsored by the New York University School of Professional Studies and CPA Academy, Sunita Lough, IRS Deputy Commissioner for Services and Enforcement said that the IRS has begun processing paper tax returns, but due to the current backlog of unopened mail, taxpayers and issuers should expect delays in receiving their payments until processing centers are able to reopen and possibly after the corresponding interest payment date.