Notice 2015-11: QZAB allocations for 2014

Notice 2015-11: QZAB allocations for 2014

The IRS today released an advance copy of Notice 2015-11 that sets forth the maximum face amount of qualified zone academy bonds (QZABs) that may be issued for each state, the District of Columbia, and U.S. possessions for calendar year 2014.

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Notice 2015-11 [PDF 34 KB] provides the limitations that apply for 2014 under section 54E(c)(2).

Overview of QZABs

The QZAB program, under Code section 54E, provides tax credits to the holder of a bond issued by a state or local government whose proceeds will be used for certain types of improvements and services by a school located in an empowerment zone or enterprise community with a significant low-income student body. The credit is set at a rate that is intended to provide an overall benefit to the holder, similar to what a market interest rate on the bond would provide. The credits are allowed once each calendar quarter over the life of the QZAB. An amount equal to the credits allowed must be included in gross income, treated as interest income.

The Code sets a national limitation on the amount of QZABs that can be issued each calendar year, which the Treasury allocates among the states based upon poverty rates. Each state is then authorized to allocate its portion among eligible schools in the state.

The recent “tax extenders” legislation, the Tax Increase Prevention Act of 2014, enacted December 19, 2014, authorized $400 million of QZABs for 2014 (the same amount that has been authorized in most earlier years, since the program began in 1998). Notice 2015-11 provides the specific amount allocated to each state for 2014. Section 54E provides that if the QZABs issued in a state for a calendar year are less than the amount the state can designate, the unused allocable amount is carried over, and available for designation in the next two calendar years.

No amount of QZABs has been authorized for calendar year 2015. Presumably most states will be using their 2014 allocation (and possibly a part of their 2013 allocation) against QZABs the state designates in 2015.

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