TEB - Computation of Credit Maintenance Amount

Generally, the credit maintenance amount applies to fixed rate tax credit bonds and fixed rate direct pay bonds.

For tax credit bonds, the credit maintenance amount is the present value of credit amounts that would have been allowed or allowable on each credit allowance date during the credit adjustment period of the bonds if the violation had not occurred.

For direct pay bonds, the credit maintenance amount is the present value of the refundable credits that would have been allowed or allowable during the credit adjustment period of the bonds, based on the interest rate or rates of the bonds issued, if the violation had not occurred.

If the IRS and issuer agree, TEB may consider modifications to future allowable credit payments on direct pay bonds to calculate the credit maintenance amount.

Closing agreement resolution amounts for variable rate tax credit bonds and variable rate direct pay bonds are determined based upon the facts and circumstances, but generally follow the computation method described in IRM 4.70.14.2.1.5.9.7 and IRM 4.70.14.2.1.5.9.10.

Generally, the credit adjustment period is the period from the date of the violation to the date the bonds are no longer outstanding, subject to the following:

The date of the violation is generally either the date of the deliberate action, the date of the intentional act, the issue date, or the date another action occurs which jeopardizes the tax-advantaged status of the bonds. In no event will the credit adjustment period begin earlier than the issue date of the bonds.

The statute for past credit allowance dates may be controlled as provided in IRM 4.82.3.4. Otherwise, the credit adjustment period must not apply to credit allowance dates that occurred more than three years before the date TEB identified the compliance failure unless the issuer filed the Form 8038-CP for such credit allowance date within three years before the date TEB identified the compliance failure.

Compute the credit maintenance amount for tax credit bonds as follows:

Step 1. Identify the applicable credit adjustment period.

Step 2. Determine the amount of the credit allowance for each credit allowance date occurring during the credit adjustment period. The credit allowance amount is determined under IRC 54(b), IRC 54A(b) (as reduced by IRC 54C(b), IRC 54D(b)), or IRC 54AA(b), as applicable.

Step 3. Compute the present value of each tax credit allowance calculated in Step 2 for the credit allowance dates scheduled after the date of the closing agreement per IRM 4.70.14.2.1.5.9.15, TEB – Computing Value as of the Closing Agreement Execution Date, by assuming that each tax credit will accrue on the applicable credit allowance date.

Step 4. Compute the amount of interest per IRC 6621(a)(2) on each amount calculated in Step 2 for credit allowance dates occurring during the credit adjustment period and prior to the date of the closing agreement, by assuming that each tax credit allowance occurred on the applicable credit allowance date.

Step 5. Add: (a) the credit allowances for credit allowance dates occurring prior to the date of the closing agreement plus (b) the interest amounts computed in Step 4 plus (c) the amount computed in Step 3. This sum is the credit maintenance amount for tax credit bonds.

The credit maintenance amount for direct pay bonds is computed as follows:

Step 1. Identify the applicable credit adjustment period.

Step 2. Determine the amount of each interest payment on the bonds scheduled during the credit adjustment period (take into account scheduled sinking fund payments but don’t take into account any optional redemption).

Step 3. To determine the refundable credit amount for each interest payment date, multiply each amount determined in Step 2 by the relevant refundable tax credit rate percentage in IRC 1400U-2(a)(2) or IRC 6431(b), as applicable, or (iii) determine the amounts to be paid pursuant to IRC 6431(f).

Step 4. Compute the present value of each refundable credit amount calculated in Step 3 for interest payment dates, if any, scheduled after the date of the closing agreement and during the credit adjustment period to the date of the closing agreement per IRM 4.70.14.2.1.5.9.15, TEB – Computing Value as of the Closing Agreement Execution Date, by assuming that each refundable credit amount will be paid on the applicable interest payment date (take into account scheduled sinking fund payments but don’t take into account any optional redemption).

Step 5. Compute the amount of interest per IRC 6621(a)(2) on each amount calculated in Step 3 with respect to interest payment dates that occurred during the credit adjustment period and prior to the date of the closing agreement, by assuming that each refundable credit amount was paid on the applicable interest payment date. The credit allowance amount for credit allowance dates occurring during the credit adjustment period and prior to the date of the closing agreement must reflect any reduction required by sequestration under the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, or any similar reduction in credits payable.

Step 6. Add: (a) the sum of all refundable credit amounts with respect to interest payment dates that occurred prior to the date of the closing agreement plus (b) the interest amount computed in Step 5 plus (c) the amount computed in Step 4. This sum is the credit maintenance amount for direct pay bonds.