Bonds

The Internal Revenue Service has finalized its regulations on electronic filing of Form 8038-CP, its return for credit payments for issuers of qualified bonds and will be requiring electronic filing for all returns filed after Dec. 31, 2023.

This is part of a larger effort by the IRS to modernize its filing system after experiencing serious backlogs during COVID-19 shutdowns. But those efforts haven’t extended to the e-filing of other forms such as 8038-G, 8038-GC or Form 8038 in this final regulation, which the IRS was given authority via its proposed regulations.

“A significant revamping of the Form 8038-G, Form 8038-GC and Form 8-38 formats might signal an intent to expand electronic filing to these forms in the future,” law firm Hunton Andrews Kurth said. “Based on the final regulations, however, this would not be expected for many years.”

Form 8038-CP was one of the forms most affected by COVID-19 related disruptions and because electronic filing was not available for this form before the pandemic struck. Those returns became significantly delayed and the IRS published its proposed regulations on July 23, 2021 and were expected to make electronic filing a mandatory offering by the end of 2022.

Darrell Smelcer, special counsel for Hunton Andrews Kurth and former tax law specialist at the Department of the Treasury said issuers should still plan to file the form electronically 45 days in advance, as has been practice, but may end up getting their payments a little early.

“A lot more non-individual entities will have to file electronically and that’ll obviously help the IRS with their processing,” Smelcer said.

The IRS released a new form in January 2022 to help issuers with e-filing. The updated form includes a new Schedule A which is intended to “simplify and increase accuracy for claims with respect to specified tax credit bonds,” the IRS said. “Specified tax credit bonds reported on Schedule A are new clean renewable energy bonds, qualified energy conservation bonds, qualified zone academy bonds and qualified school construction bonds.”

With the new regulations, issuers will be forced to file electronically if they file at least 10 returns of any type, which could include W-2 and Forms 1099, ensuring most issuers of tax credit bonds claiming the credit will have to file electronically.

“Under the regulation, an issuer filing a corrected Form 8038-CP must file the corrected return in the format required for the original return,” Hunton Andrews Kurth said. “Thus a correction of a return filed before the issuer is required to file electronically must be filed using a paper return, even if the correction is filed after Dec. 31, 2023.”

The IRS does provide a few exceptions, as it maintains the right to grant waiver of the e-filing requirement in cases of undue hardship, and one factor in determining hardship will be the amount by which the cost of e-filing exceeds that of a paper filing.

According to the IRS website, there is currently one provider that offers e-filing services of Form 8038-CP and charges a $79 fee for each return. Other companies may join the field with different pricing models.

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