Form 8860 – Fill Out and Use This PDF

(a)

Bond issuer’s name, city

or town, and state

(b)

Month and year

bond issued

(c)

Outstanding principal

amount of bond

(d)

Credit rate

(e)

Credit ((c) x (d))

2Tentative qualified zone academy bond credit. Add all amounts in column (e). Caution: You must include this amount in the corporation’s gross income BEFORE proceeding to line 3 below

2

3Regular tax before credits. Enter the amount from Form 1120, Schedule J, line 3, or the comparable line of the corporation’s return

4Alternative minimum tax. Enter the amount from Form 4626, line 15

5Add line 3 and line 4

6a	Foreign tax credit (Form 1118, Sch. B, Part III, line 13)	6a
b	Possessions credit (Form 5735)	6b
c	Credit for fuel from a nonconventional source	6c
d	Qualified electric vehicle credit (Form 8834, line 19)	6d
e	General business credit (see instructions)	6e
f	Credit for prior year minimum tax (Form 8827, line 8)	6f

gAdd lines 6a through 6f

7Net income tax. Subtract line 6g from line 5

8Qualified zone academy bond credit. Enter the smaller of line 2 or line 7 here and on Form 1120, Schedule J, line 11, or the comparable line of the corporation’s return. Caution: If line 8 is SMALLER than line 2, the corporation should deduct the unallowed credit in figur ing its taxable income. Because this deduction will affect the tax liability limit, refigure the unallowed credit until it equals the deduction

3

4

5

6g

7

8

General Instructions

Section references are to the Inter nal Revenue Code unless otherwise noted.

Purpose of Form

Eligible holders of qualified zone academy bonds use Form 8860 to claim the qualified zone academy bond credit. A qualified zone academy bond is a taxable bond issued after 1997 by a state or local government, the proceeds of which are used to improve certain eligible public schools. In lieu of receiving periodic interest payments from the issuer, an eligible holder of the bond is generally allowed an annual income tax credit while the bond is outstanding. The credit compensates the holder for lending money to the issuer and functions as interest paid on the bond.

Who May Claim the Credit

An eligible holder of a qualified zone academy bond files Form 8860 for each tax year it holds a bond on a credit allowance date. To be an eligible holder, the taxpayer must be a bank, insurance company, or other corporation actively engaged in the business of lending money. A taxpayer that is an ineligible holder cannot claim the credit. The credit allowance date is the last day of (a) the 1-year period beginning on the date the bond was issued and (b) each successive 1-year period thereafter. The credit is deemed paid on the credit allowance date.

Specific Instructions

Part I—Tentative Credit

Line 1, Column (c)

Enter the face amount of the bond minus any payments of principal received.

Line 1, Column (d)

For bonds sold before July 1, 1999, the credit rate is 110% of the long-term applicable federal rate (AFR), compounded annually, for the month and year the bond is issued. The IRS announced the long-term AFR monthly in a series of revenue rulings published in the Internal Revenue Bulletin.

For bonds sold after June 30, 1999, the credit rate is the rate published daily by the Bureau of the Public Debt under

“SLGS and Other Special Investments” on its Internet Web Site at www.publicdebt.treas.gov. The rate is applied to the bond on the first day on which there is a binding contract in writing for the sale or exchange of the bond. The rate is determined by the Department of the Treasury based on its estimate of the yield on outstanding AA rated corporate bonds of a similar maturity for the business day immediately prior to the date on which there is a binding contract in writing for the sale or exchange of the bond.

Line 2

The tentative credit on line 2 is deemed to be a payment of qualified stated interest (as defined in Regulations section 1.1273-1(c)) on the credit allowance date. Therefore, a holder on the accrual method must accrue the credit amount as taxable interest income over the 1-year period that ends on the credit allowance date.

If the holder buys a bond between credit allowance dates, the interest (credit) accrued at the time of purchase is not interest income, and is not taxable as interest when paid. Instead, the payment of the interest (credit) on the credit

allowance date is treated as a return of capital (to the extent of the accrued interest (credit) at the time of purchase), which reduces the holder’s cost basis in the bond. If the holder sells a bond between credit allowance dates, part of the sales price is treated as interest accrued to the date of sale and must be reported as interest income.

Part II—Tax Liability Limit

Line 6e

If the corporation claimed only one of the credits that make up the general business credit, enter on line 6e the credit allowed for the current year (after the tax liability limit), including any suspended research credit allowed for the current year. See the instructions for Form 3800, General Business Credit, for a list of the credits included in the general business credit. If the corporation filed Form 3800, but not Form 8844, Empowerment Zone Employment Credit, enter the credit from Form 3800, line 17b (plus any amount shown on Form 3800, line 37). If the corporation filed both Forms 3800 and 8844, enter the sum of the credits from Form 3800, lines 17b and 37, and Form 8844, line 23. If the corporation filed Form 8844, but not Form 3800, enter the sum of the credit from Form 8844, line 23, plus any other general business credit allowed for the current year (after the tax liability limit), including any suspended research credit allowed for the current year.

Line 8

If the holder cannot use all of the credit on line 2 because of the tax liability limit in Part II (i.e., line 2 is more than line 8), the holder’s income is adjusted by deducting any unused credit for the tax year that includes the credit allowance date. Because this deduction may further reduce the tax liability limit, the holder may need to refigure the tax liability limit and the unallowed credit. Refigure the unallowed credit until it equals the deduction. It may be necessary to use the “ trial and error” method.

Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax.

You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103.

The time needed to complete and file this form will vary depending on individual circumstances. The estimated average time is:

Recordkeeping	4 hr., 47 min.
Learning about
the law or the form	12 min.
Preparing and sending the form to the IRS	17 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. See the instructions for the tax return with which this form is filed.