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How to complete IRS Form 1097-BTC

IRS Form 1097-BTC is a new form starting in 2012 that issuers of certain tax credit bonds use to report tax credit to the bond holders and the IRS.

A bond is a type of loan. Every time I think of a bond, I think back to my days I served on my local Village Board. The Village I lived in wanted a library that cost roughly $4 million dollars to build. In this example, the Village (or debtor) issued bonds to finance this purchase. The bonds are debt security in which the issuer will pay interest, usually at a fixed intervals, and the principal at a later date. Very often the bond is negotiable and the bond ownership can be transferred in the secondary market.

Tax Credit Bonds (TCB) are a type of bond that offers the holder a federal tax credit instead of interest. The bond issuer maintains the responsibility to pay the principal on the bond. TCB’s provide an interest-free loan for the issuer. In 2008, Congress amended the tax credit bond rules to permit tax credits to be sold separately from the related bond. This is known as “stripping” the tax credit and makes the debt instrument more attractive to investors.

There are two entities to keep in mind; there is the original recipient who is allowed a tax credit and there may exist a person or entity that received the tax credit and is now distributing the tax credit to someone else.

Tax Credit Bonds that need to be reported include:

  • Build America Bonds
  • Qualified Forestry Conservation Bonds
  • New Clean Renewable Energy Bonds
  • Qualified Energy Conservation Bonds
  • Qualified Zone Academy Bonds
  • Qualified School Construction Bonds
  • Clean Renewable Energy Bonds
  • Midwestern Tax Credit Bonds
  • and others…

Who must file?

Anyone who is allowed a tax credit, directly or indirectly, from a tax credit bond or a stripped tax credit during the calendar year in an amount of at least $10 must file Form 1097-BTC.

Form 1097-BTC

The top part of Form 1097-BTC shows the issue name, address and TIN followed by the recipient name, address and TIN. The bottom part has two check boxes that asks whether the filer is the original entity to receive this tax credit or whether the filer is a person or entity that received this tax credit from someone else as a distribution. One of those check boxes needs to be checked.

The other edit boxes are discussed here:

Box 1. Shows the aggregate total of credits allowed.

Box 2a. Shows the code identifying which type of unique identifier the issuer plans on using in Box 2b. There are 3-codes, namely, A – Account number, C – CUSIP number and/or O – any other identifier.

Box 2b. Shows account number, CUSIP number or other unique identifier for the bond. The unique identifier can be at most 40 alpha numeric characters.

Box 3. Shows bond type as a code. There are 2-codes; 101 – Clean renewable energy bond, 199 – Other.

Box 5a-5l. Shows the amount of credit allowed for the month during the calendar year.

Copy B of Form 1097-BTC is sent to the recipient by the end of January. Copy A must be paper filed to the IRS by the end of February or electronically filed by the end of March.

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Erich J. Ruth

Erich J. Ruth provides technical support for National Software which is the parent company for 1099FIRE. 1099FIRE develops and markets a comprehensive range of products that enables any size of business or institution to effectively manage and comply with year-end filing requirements. 1099FIRE is an employee-owned company located in Phoenix, Arizona.

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