IRS Publishes Final Regulations on Electronic Filing of Form 8038-CP, Effective for Filings Beginning in 2024

The IRS has released final regulations, published in the Federal Register on February 23, implementing changes to electronic filing requirements authorized under the Taxpayer First Act adopted in 2019.  While the regulations cover a wide variety of returns, of special interest to state and local governments will be the provision requiring e-filing of Form 8038-CP, Credit for Qualified Bonds Allowed to Issuer, for those filers exceeding the threshold for paper filing of the return.  The regulations are effective on the date of publication in the Federal Register and require electronic filings beginning with returns filed after December 31, 2023. 

As with most other returns subject to the new regulations, beginning on the January 1, 2024 implementation date, an issuer of a “qualified bond” filing a Form 8038-CP return to claim the refundable credit payments for its tax credit bonds must file the return electronically if the issuer is required during the calendar year to file at least 10 returns (of any type, including information returns - for example, Forms W-2 and Forms 1099 - income tax returns, employment tax returns, and excise tax returns).  This means that most issuers of tax credit bonds claiming the credit will be required to file their claims electronically. 

Under the regulations, an issuer filing a corrected Form 8038-CP must file the corrected return in the format required for the original return.  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 December 31, 2023.

The regulations provide that if the IRS’s systems do not support electronic filing, taxpayers will not be required to file a return electronically.  However, e-filing through one provider has been available for issuers of tax credit bonds since mid-2022.  This provider is currently charging issuers a $79 fee for each return filed, with a lower per-return fee for tax professionals.  Other companies could enter the field with different pricing models, but the IRS website currently only refers to the one provider.  In any event, the provision in the regulation delaying the requirement until IRS systems are ready would not seem to apply to filings of Form 8038-CP.

The regulations provide that the IRS may grant waivers of the e-filing requirement in cases of undue hardship, and that one principal factor in determining hardship will be the amount, if any, by which the cost of filing the return electronically in accordance with this section exceeds the cost of filing a paper return.  An issuer’s request for a waiver must specify the type of filing (that is, the return required to be filed electronically under this section), the name of the issuer, the name of the bond issue, the issue date of the tax credit bond, and any other information specified in the applicable revenue procedures, publications, forms, instructions, or other guidance, including postings to the IRS.gov website.  Given the tone of the document releasing the regulations, it should not be expected that waivers will be granted easily.  

The regulations also provide that the IRS may provide an exemption from the electronic filing requirement through revenue procedures, publications, forms, instructions, or other guidance, to promote effective and efficient tax administration.  The basis for a successful submission claiming an exemption is not clear.

One item of interest to bond issuers generally may be something that is not in the final regulations.  The proposed regulations published July 23, 2021 contained a provision giving the IRS authority to require the electronic filing of other information returns related to tax-advantaged bonds.  This would cover the information returns required to be filed in connection with every issuance of tax-exempt bonds.  This provision does not appear in the final regulation. The IRS committed significant resources to develop e-filing capability for the Form 8038-CP, including developing a new format for the version required for paper filing beginning in early 2022.  A significant revamping of the Form 8038-G, Form 8038-GC and Form 8038 formats might signal an intent to expand electronic filing to these forms in the future.  Based on the final regulations, however, this would not be expected for many years.