Qualified mortgage bonds and qualified veterans' mortgage bonds.   Section 143(g)(3) and section 103A(i)(4) of the 1954 Code provide the arbitrage rebate rules for qualified mortgage bonds and qualified veterans' mortgage bonds issued after August 15, 1986. Under these special rules, issuers may pay the rebate either to mortgagors, or if an election is made before issuance of the bond, to the United States. Use this form only if you have elected to pay the rebate to the United States.

Industrial development bonds.   Obligations that are part of an issue of industrial development bonds issued before 1986 (other than housing obligations described in section 103(b)(4)(A) of the 1954 Code or section 11(b) of the Housing Act of 1937) are subject to the rebate requirements of section 103(c)(6)(D) of the 1954 Code. However, see the instructions for line 28 on page 4.

Computation of arbitrage rebate.   The amount of the rebatable arbitrage is:

  For rules on computing the arbitrage rebate for bonds subject to section 148(f), see the regulations under section 148. The 1993 regulations, as amended, are generally effective for bonds sold after July 7, 1997. Generally, an issuer may apply these regulations to bonds that are outstanding on July 8, 1997, and to which certain prior regulations apply. Moreover, the 1997 amendments to the 1993 regulations, redesignating the temporary rules as sections 1.148-1A through 1.148-6A and 1.148-9A through 1.148-11A, together with the applicable provisions of the original 1993 regulations, continue to apply to bonds issued before July 8, 1997. The 18-month spending exception to the rebate requirement cannot be applied to any bond sold before July 1, 1993.

  For rules on computing the arbitrage rebate for bonds subject to section 143(g)(3) or section 103A(i)(4) of the 1954 Code, see Temporary Regulations section 6a.103-2(i)(4). For rules on computing the arbitrage rebate for bonds subject to section 103(c)(6)(D) of the 1954 Code, see Temporary Regulations section 1.103-15AT, T.D. 8005, 1985-1 C.B. 39, if the issuer has not applied the later regulations. Also, see line 28 and its instructions as well as the 1992 and 1993 regulations.

Failure to pay the proper amount of arbitrage rebate on time may cause the bond to be treated as not being, and as never having been, tax exempt.

In the case of a construction issue, an exception from the rebate requirement is provided under section 148(f)(4)(C) for the available construction proceeds of the issue if certain spending requirements are met. Since this exception only applies to available construction proceeds, other proceeds of a construction issue do not qualify for this exception. Thus, rebatable arbitrage may be owed for proceeds other than available construction proceeds even if this exception is satisfied for the available construction proceeds. The issuer may have elected to pay a penalty in lieu of rebating arbitrage for the available construction proceeds if the spending requirements of section 148(f)(4)(C) are not satisfied. The penalty, if any, is payable for each applicable 6-month period after the date the bonds are issued. For detailed rules concerning these provisions see Regulations section 1.148-7.

A “construction issue” is an issue of tax-exempt bonds that meets both of the following conditions:

Generally, the “available construction proceeds” means the amount equal to the issue price of the construction issue:

The penalty in lieu of arbitrage rebate is equal to 1½% of the amount of the available construction proceeds that do not meet certain spending requirements. See section 148(f)(4)(C) and Regulations section 1.148-7 for the rules for construction proceeds, available construction proceeds, and spending requirements needed to compute the penalty in lieu of arbitrage rebate.

You may terminate the election to pay a penalty in lieu of arbitrage rebate by paying a 3% penalty. Generally, compute the penalty for the termination election under section 148(f)(4)(C)(viii) with reference to the end of the initial temporary period. See section 148(c) and Regulations section 1.148-2(e) for definitions of a temporary period. Compute the amount of the penalty for the termination election under section 148(f)(4)(C)(ix) with reference to the date of the election. See section 148(f)(4)(C)(viii) and (ix) for the rules for terminating an election to pay a penalty in lieu of rebate.

Failure to pay the proper amount of penalty and interest on time (after an appropriate election either to pay penalty in lieu of arbitrage rebate or to pay a termination penalty) may cause the bond (or any refunding bond with respect thereto) to be treated as not being, and as never having been, tax exempt. In general, the rules discussed in Failure To Pay Arbitrage Rebate on Time, on page 1, also apply to these penalties. See Regulations section 1.148-6(n) (1992 regulations) and 1.148-3(h) (1993 regulations).

File Form 8038-T when paying yield reduction payments to the United States in accordance with Regulations section 1.148-5(c). In general, an amount is paid under Regulations section 1.148-5(c) if it is paid to the United States at the same time and in the same manner as rebate amounts are required to be paid.

A yield reduction overpayment may also be recovered. For details, see Regulations section 1.148-3(i) and Recovery of Overpayment below.

File Form 8038-T when paying the arbitrage rebate to the United States. Under section 148(f), the installments are due 60 days after the end of every 5th bond year during the term of the issue. The final installment is due 60 days after the date the last bond of the issue is discharged.

Under Regulations section 1.148-1(b) (1992 regulations), each installment must be in an amount that equals at least 90 percent of the rebatable arbitrage as of the computation date (i.e., the end of the 5-year period). In addition, under Regulations section 1.148-1(b) (1992 regulations), the final installment must include all of the rebatable arbitrage as of the last computation date, plus any income attributable to the rebatable arbitrage.

Under Regulations section 1.148-3(f), each installment must be in an amount that, when added to the future value as of the computation date (i.e., the end of the 5-year period) of previous rebate payments made for the issue, equals at least 90 percent of the rebatable arbitrage as of the computation date. In addition, under Regulations section 1.148-3(f), the final installment must include an amount that, when added to the future value of previous rebate payments made for the issue, equals 100 percent of the rebate amount as of that date. See Regulations sections 1.148-3(f)(3) and 1.148-3(c) for detailed rules determining future value for these purposes.

Under section 148(f)(4)(C), the payment of a penalty in lieu of arbitrage rebate must be made no later than 90 days after the end of each 6-month period relating to the penalty.

Payment of the 3% penalty to terminate the penalty in lieu of arbitrage rebate must be made to the United States no later than 90 days after (a) the end of the initial temporary period if the termination election was made under section 148(f)(4)(C)(viii), or (b) the date of the termination election if it was made under section 148(f)(4)(C)(ix).

See the instructions for line 25 for paying a penalty for failure to pay on time either of the penalties described above.

See the instructions for line 18 for paying a penalty for failing to pay the arbitrage rebate to the United States on time.

In general, an issuer may recover an overpayment of rebate for an issue of tax-exempt bonds by establishing to the Internal Revenue Service that the overpayment occurred. To request recovery of amounts paid under rebate provisions, including yield reduction payments, see new Form 8038-R, Request For Recovery of Overpayments Under Arbitrage Rebate Provisions.

Form 8038-T must be signed by an authorized representative of the issuer. Also type or print the name and title of the person signing Form 8038-T.

Amended Return.   If you are filing an amended Form 8038-T, check the amended return box. Complete Part I and only those parts of Form 8038-T you are amending. Use the same report number (line 4) that was used in the original report.

Line 1.   Enter the name of the governmental entity that issued the bonds, not the name of the entity receiving the benefit of the financing.

Line 4.   After the predesignated 7, enter two self-designated numbers. Number reports consecutively during any calendar year (e.g., 734, 735, etc.).

Line 6.   Enter the date of issue. This is generally the first date on which there is a physical exchange of the bonds for the purchase price.

Line 7.   Enter the name of the issue. If there is no name, please provide other identification of the issue.

Line 8.   Enter the CUSIP (Committee on Uniform Securities Identification Procedures) number of the bond with the latest maturity. If the issue does not have a CUSIP number, enter “None.”

Line 11.   Enter the type of issue as was checked for this issue on Form 8038 or Form 8038-G. For bonds previously reported on Form 8038-GC, enter “Small Governmental Bond.” Also enter the total issue price that was listed on Form 8038, 8038-G, or 8038-GC filed for this issue.

Line 14.   Enter the date of the most recently filed (previous) Form 8038-T for this issue.

Line 15.   In case of a rebate of arbitrage, check the box marked “Yes” only if the issue has been discharged (redeemed, called, etc.). In the case of the payment of a penalty in lieu of arbitrage rebate, check the box marked “Yes” only if the spending provisions of section 148(f)(4)(C) have been fully complied with or if a termination penalty payment is made with this form. In all other cases, check the box marked “No.”

Follow the procedures for each of the revenue procedures except use the mailing address under Where To File on page 2.

If you are completing this section, you must have made a timely election under section 148(f)(4)(C)(vii). See also section 148(f)(4)(C)(xv).