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Page 1 of 4 Instructions for Form 8038-T 16:42 - 6-MAY-2011
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Department of the Treasury
Internal Revenue Service
Instructions for Form 8038-T
(Rev. April 2011)
Arbitrage Rebate, Yield Reduction and Penalty in Lieu of Arbitrage Rebate
Section references are to the Internal 100 percent of the investment earnings Exceptions
Revenue Code unless otherwise noted. on amounts in the defeasance escrow. General. A number of exceptions
General Instructions Applicable Regulations may relieve an issuer of the rebaterequirement for all or a part of an issue of
Purpose of Form General bonds.
Under section 148(f), interest on a state Unless otherwise stated, regulation Note. The following exceptions may
or local bond is not tax-exempt unless the sections referenced in these instructions apply only to a portion of an issue. In
issuer of the bond rebates to the United are to the 1993 regulations, as amended. such cases, the rebate requirement
States arbitrage profits earned from Generally, an issuer may apply these continues to apply to the portion of the
investing proceeds of the bond in higher regulations to bonds that are outstanding issue not covered by the exception.
rebateyieldingmustofsubjecttax-exemptuseandtononpurposethistherelatedformprovisionsbondspayments.toinvestments.andmakeofanysectionarbitrageotherIssuers148bonds amendmentsT.D.regulationson8538,seeJulyT.D.8718,1994-18,8476,1997.1997-1generallytoC.B.1993-2theForC.B.26.1993theapplyForC.B.47.1993regulations,thetoThe13,bondsregulations,1997and1992T.D.seeinissuingbondsrequirementaSmallcalendarissuednoissuermoredoesyear.bythanexception.governmentalnot$5applymilliontoThecertainunitsof bondsrebate
Mortgage Revenue Bonds issued before July 1, 1993. For the 1992 The exception is modified as follows: a
Section 143(g)(3) provides special regulations, see T.D. 8418, 1992-1 C.B. governmental unit may issue up to $10
arbitrage rebate rules for qualified 29. million in bonds after 1997 ($15 million
mortgagerules,beforemortgageStates.mortgagors,issuersissuanceUsebonds.bondsthisormayifformofandanUnderpaytheelectionqualifiedonlybond,thetheseifrebateyouistoveterans’specialmadethehaveeitherUnitedtoForSpecialrebateTemporary6a.103A-2(i)(4).rulesforRulesonmortgageRegulationscomputingrevenuethesectionarbitragebonds, see sectionpublicsectionnoafterusedmore2001)toschool1.148-8.148(f)(4)(D)financethanpercapital$5calendarexpendituresmillionandexpenditures.ofRegulationsyear,proceedsotherprovidedSeethanare
elected to pay the rebate to the United For rules on computing the arbitrage
States. rebate for bonds subject to section 6-month exception. The rebate
103(c)(6)(D) of the 1954 Code, see requirement is considered to be met for
Qualified Zone Academy Bonds Temporary Regulations section gross proceeds of an issue (as defined in
Issued Under Section 1397E 1.103-15AT, T.D. 8005, 1985-1 C.B. 39, if Regulations section 1.148-7(c)(3)) if those
A qualified zone academy bond (QZAB) is the issuer has not applied the later gross proceeds are spent within 6 months
a bond issued by a state or local regulations. of the issue date. The 6-month exception
governmentpublic schooltopurposes.finance certainAn issuereligibleof 1397EFor QZABsand sectionissued54E,underseesectionRegulations isrefundingthe onlyissues.exception available for
defeasancesectionQZABs54E,issuedescrowif applicable,undertosectioncuremaya1397Efailureestablishtoor a ArbitrageT.D. 9495. Rebate RegulationsSee sectionsection148(f)(4)(B)1.148-7(a)–(c).and
properly use QZAB proceeds. An issuer 18-month exception. The rebate
must pay 100 percent of the investment Computation of Arbitrage Rebate requirement is considered to be met for
earnings on amounts in the defeasance The rebate amount for an issue is based gross proceeds of an issue if those gross
escrow. Use this form to make payments on the difference between the amount proceeds are spent according to an
of investment earnings on amounts in actually earned on nonpurpose 18-month expenditure schedule
defeasance escrows. See Regulations investments and the amount that would measured from the issue date.
sectionNote. Use1.1397E-1(h)(8)(ii)(C).a separate Form 8038-T for havehad abeenyieldearnedequal toifthethoseyieldinvestmentson the issue. (b),SeeandRegulations(d). section 1.148-7(a),
each issue. Note. Regulations section 1.148-3(b)
provides that as of any date, the rebate 2-year exception. The “available
Who Must File amount for an issue is the excess of the construction proceeds” of a construction
Issuers of tax-exempt bonds and any future value, as of that date, of all receipts issue are treated as meeting the rebate
other bonds subject to the provisions of on nonpurpose investments over the requirement if those proceeds are spent
section 148 must file Form 8038-T to pay: future value, as of that date, of all in accordance with a 2-year expenditure
1. Arbitrage rebate. payments on nonpurpose investments. schedule measured from the issue date.
2. Yield reduction payments. The definitions of payments and receipts See section 148(f)(4)(C) and
3. The penalty: in Regulations section 1.148-3(d), in part, Regulations section 1.148-7(a), (b), and
• In lieu of arbitrage rebate; or require inclusion of transactions (e)-(j).
• To terminate the election to pay a (including, but not limited to, acquisition,
penalty in lieu of arbitrage rebate. earnings and return of principal) on a date Exception for certain investments.
4. Penalties and interest on the failure for each nonpurpose investment. Any The rebate requirement generally does
to pay on time any amounts in 1-3 above. cash flow representation to the contrary not apply to gross proceeds that are
may result in the understatement of invested in certain tax-exempt bonds,
Issuers of QZABs issued under section rebate amount. Yield reduction payments certain tax-exempt mutual funds, or
1397E or section 54E, as applicable, that are determined using payments and certain demand deposit securities
establish a defeasance escrow under the receipts as described in Regulations purchased directly from the United States
Regulations must file Form 8038-T to pay section 1.148-5(b)(1). Treasury.
Cat. No. 30066E