IRS Form 8038-B Guide: Build America Bonds Filing Rules

1. Introduction – What is Form 8038-B?

IRS Form 8038-B, titled Information Return for Build America Bonds and Recovery Zone Economic Development Bonds, is an official municipal finance reporting form issued by the Internal Revenue Service (IRS). It is administered under the IRS Tax Exempt and Government Entities (TE/GE) division pursuant to Sections 149(e), 54AA(g), and 1400U-2 of the Internal Revenue Code.

This form was established under the American Recovery and Reinvestment Act of 2009 (ARRA) to report taxable municipal bonds issued with direct federal interest subsidies. State and local government entities used Form 8038-B to register these bond issues with the federal government and make the formal, irrevocable legal election to receive direct cash payments from the U.S. Treasury.

2. Purpose of the Form – Why Does Form 8038-B Exist?

Traditional municipal bonds provide tax-exempt interest to investors, which appeals primarily to domestic individual buyers. To open municipal infrastructure debt to a broader global investor base (such as pension funds and foreign investors who do not benefit from U.S. tax exemptions), Congress created taxable “direct-pay” municipal bonds.

Form 8038-B serves several vital tax and financial functions:

• Irrevocable Subsidy Election: It documents the issuer’s binding legal election to issue Direct Payment Build America Bonds (BABs) or Recovery Zone Economic Development Bonds (RZEDBs).
• Unlocks Federal Cash Subsidies: Submitting a valid Form 8038-B is a mandatory prerequisite for issuers to collect quarterly or semi-annual federal cash interest subsidies (35% for BABs and 45% for RZEDBs) using Form 8038-CP.
• Verifies Capital Project Use: It proves that 100% of available project proceeds were dedicated to capital expenditures, public infrastructure, and government facilities.
• Statutory Volume Cap Tracking: It records local governmental allocations for Recovery Zone bonds to ensure issuances remained within statutory economic development limits.

3. Who Needs to File Form 8038-B?

Form 8038-B was required to be filed by state and local government issuers that authorized and delivered qualifying direct-pay taxable bonds. Eligible issuing entities include:

• Direct Payment Build America Bond Issuers: States, cities, counties, school districts, and municipal authorities issuing taxable governmental bonds under IRC Section 54AA(g).
• Recovery Zone Economic Development Bond Issuers: Local governments issuing taxable economic development bonds for public infrastructure in designated economically distressed recovery zones under IRC Section 1400U-2.
• Municipal Bond Compliance Teams: Public finance officers and bond counsel maintaining active compliance records to support ongoing debt service subsidy payments.

4. Who Is Exempt / Not Required to File?

Form 8038-B is strictly limited to direct-payment taxable government bonds. The following bond categories and entities do not file this form:

• Traditional Tax-Exempt Municipal Bonds: Standard municipal bonds exempt from federal income tax are reported on Form 8038-G (for issues of $100,000 or more) or Form 8038-GC.
• Tax Credit Build America Bonds: BABs structured to deliver tax credits to bondholders rather than direct cash subsidies to the issuer were reported on Form 8038-G.
• Private Activity Bonds: Municipal debt issued on behalf of non-profit or commercial entities is reported on Form 8038.
• Individual Taxpayers & Bond Investors: Everyday retail investors who purchase municipal bonds never file Form 8038-B.

5. When to File – Deadlines and Program Timing

Form 8038-B is an event-driven information return governed by strict quarterly filing deadlines under Treasury regulations:

• Quarterly Filing Rule: Form 8038-B must be filed on or before the 15th day of the 2nd calendar month following the close of the calendar quarter in which the bonds were issued.
• The 30-Day Pre-Requisite: Form 8038-B was required to be submitted at least 30 days before the issuer filed its first Form 8038-CP to request an interest subsidy payment.
• Statutory Authorization Window: Direct Payment BABs and RZEDBs were authorized for issuance between February 17, 2009, and December 31, 2010. While new original issuances have ceased, Form 8038-B filings remain active legal foundation documents for ongoing subsidy payments and IRS audits until the debt matures.

6. Where and How to File Form 8038-B

Form 8038-B is traditionally executed by municipal bond counsel and submitted directly to the IRS:

• Mailing Address: Mail the signed original paper Form 8038-B to the IRS address as per instructions (specifically the Internal Revenue Service Center in Ogden, UT).
• Permanent Recordkeeping: An executed copy of Form 8038-B, along with certified mailing receipts and debt amortization schedules, must be permanently retained in the issuer’s bond transcript for the entire life of the bond issue plus three years.

7. Step-by-Step Instructions to Fill Form 8038-B

Form 8038-B consists of six sections covering issuer identity, bond classifications, financial terms, use of proceeds, and formal statutory elections.

Part / Section	Item Name	Instructions & Requirements
Part I	Reporting Authority	Enter the governmental issuer’s legal name, Employer Identification Number (EIN), address, issue name, report date, and CUSIP number.
Part II	Type of Issue	Check the appropriate statutory box: Line 1 for Section 54AA(g) Direct Payment Build America Bonds, or Line 2 for Section 1400U-2 Recovery Zone Economic Development Bonds.
Part III	Description of Obligations	Enter the issue date, issue price, stated redemption price at maturity, weighted average maturity (WAM) in years, and the calculated bond yield.
Part IV	Uses of Proceeds	Detail the allocation of gross proceeds: issuance costs, underwriter’s discount, credit enhancement fees, reasonably required reserve funds, and Available Project Proceeds (APP) for capital expenditures.
Part V	Description of Financed Property	Describe the capital projects financed (such as transportation infrastructure, public schools, utility plants, or government buildings).
Part VI	Elections & Certifications	Confirm the formal, irrevocable election to treat the issue as a direct-pay bond, certify volume cap allocations for RZEDBs, and obtain the authorized issuer signature.

8. Required Documents and Information Needed Before Filling

To ensure total compliance with federal bond regulations, compile the following closing documents before completing Form 8038-B:

• Bond Indenture & Official Statement: The primary legal agreements detailing the debt service schedule, interest payment dates, and maturity terms.
• Sources and Uses Closing Statement: Financial breakdown confirming that 100% of Available Project Proceeds were allocated to capital spending (with issuance costs capped at 2%).
• Bond Yield & Maturity Schedules: Actuarial calculations of bond yield and weighted average maturity prepared by the underwriter or municipal advisor.
• Governing Body Resolution: Formal minutes and authorizing resolutions showing the local council or board voted to make the Section 54AA(g) direct-pay election.
• Volume Cap Allocation Certificate: Official documentation proving proper local allocation under federal Recovery Zone formulas (for RZEDBs).

9. Common Mistakes to Avoid

Errors on Form 8038-B can disrupt federal cash payments and create substantial municipal budget shortfalls. Avoid these critical mistakes:

• Confusing Direct-Pay BABs with Tax Credit BABs: Filing Form 8038-G instead of Form 8038-B prevents the issuer from claiming direct federal cash payments on Form 8038-CP.
• Failing to File Before Requesting Subsidies: Submitting Form 8038-CP for an interest refund before the IRS has processed Form 8038-B results in automated payment rejections.
• Violating the 2% Issuance Cost Cap: Using more than 2% of the sale proceeds to pay bond issuance costs (legal, underwriting, and rating fees) violates statutory BAB rules.
• Incorrect CUSIP Reporting: Mismatched CUSIP numbers between Form 8038-B and subsequent Form 8038-CP filings create massive processing bottlenecks.
• Missing the Irrevocable Election Box: Failing to check the statutory election box in Part VI invalidates the direct-pay status of the entire bond issue.

10. Penalties for Non-Filing or Errors

Because Form 8038-B governs the flow of federal cash subsidies, non-compliance leads to direct financial loss rather than simple late fees:

• Denial of Federal Cash Subsidies: If Form 8038-B is invalid or filed late without administrative relief, the IRS will reject all future Form 8038-CP subsidy claims, forcing local taxpayers to absorb 100% of the interest costs.
• Subsidy Clawbacks & Audit Assessments: If an IRS audit discovers that Available Project Proceeds were spent on non-capital costs, the IRS will demand full repayment of previously disbursed subsidies plus statutory interest.
• Costly Section 9100 Relief: Curing a late or defective Form 8038-B requires requesting an extension under Treasury Regulation Section 301.9100-3, incurring tens of thousands of dollars in legal fees and IRS user fees.

11. Related Forms and Schedules

Form 8038-B coordinates directly with several municipal finance tax returns:

• Form 8038-CP: Return for Credit Payments to Issuers of Qualified Bonds (the recurring form used to collect ongoing 35% or 45% federal cash subsidies).
• Form 8038-G: Information Return for Tax-Exempt Governmental Obligations.
• Form 8038-TC: Information Return for Tax Credit Bonds.
• Form 8038-T: Arbitrage Rebate, Yield Reduction and Penalty in Lieu of Arbitrage Rebate.
• Form 8038-R: Request for Recovery of Overpayments Under Arbitrage Rebate Provisions.

12. Frequently Asked Questions (FAQs)

1. What is the difference between Direct Payment BABs and Tax Credit BABs?

Direct Payment BABs (Form 8038-B) pay a direct cash interest subsidy (35%) from the U.S. Treasury to the municipal issuer. Tax Credit BABs (Form 8038-G) provide federal tax credits directly to the investors holding the bonds.

2. How much subsidy did the federal government provide for bonds on Form 8038-B?

The federal government provided a direct cash payment equal to 35% of the total interest payment for Direct Payment Build America Bonds, and 45% of the interest payment for Recovery Zone Economic Development Bonds.

3. How does Form 8038-B connect to Form 8038-CP?

Form 8038-B registers the bond issue once at closing. Thereafter, the issuer submits Form 8038-CP on a recurring basis (typically 45 to 90 days before each interest payment date) to receive the cash payment.

4. Are Build America Bonds affected by federal budget sequestration?

Yes. Since 2013, annual federal budget sequestration has applied percentage reductions to the subsidy payments requested on Form 8038-CP, slightly lowering the net cash refund received by issuers.

5. Can a municipality still issue new Build America Bonds today?

No. The statutory authority to issue new Build America Bonds expired on December 31, 2010. However, outstanding bonds issued during 2009 and 2010 continue to rely on their original Form 8038-B filings until maturity.

6. Can an issuer refinance or refund bonds originally reported on Form 8038-B?

Yes. Issuers can execute current or advance refundings of BABs, but the newly issued refunding bonds cannot receive direct-pay federal subsidies and are generally issued as traditional tax-exempt bonds reported on Form 8038-G.

13. Conclusion – Key Takeaways Summarized

IRS Form 8038-B was the crucial legal gateway that enabled American municipalities to access billions of dollars in federal interest subsidies for major public works, schools, roads, and utility projects. By recording the irrevocable direct-pay election under Section 54AA and Section 1400U-2, it unlocked vital federal cash flows that continue to support local government balance sheets today.

For municipal finance teams managing outstanding BAB portfolios, maintaining the original Form 8038-B transcript, matching CUSIP data on recurring Form 8038-CP filings, and preserving capital expenditure records ensures ongoing compliance and uninterrupted subsidy disbursements.