Beginning in 1998, state or local governments can issue qualified zone academy bonds to raise funds for the use of a "qualified zone academy." However, these bonds require a private business contribution. Certain banks, insurance companies, and corporations actively engaged in the business of lending money can receive a tax credit as an incentive to hold these bonds. For more information about claiming the credit, see Form 8860.
The national qualified academy zone bond limit for 2003 was $400 million, but is zero for 2004 (excluding any carryover limitation). However, at the time this publication was issued, Congress was considering legislation that would establish a national limitation amount for 2004. See What's Hot in Tax Forms, Pubs, and Other Tax Products at www.irs.gov/formspubs to find out if this legislation was enacted.
Contact the appropriate state or local government agency to find out if qualified zone academy bonds are available in your area.
A qualified zone academy is a public school (or academic program within a public school) at the secondary level or below that meets certain requirements. It must be located in either an empowerment zone or an enterprise community, or there must be a reasonable expectation when the bonds are issued that at least 35% of the school's students (or program's participants) will be eligible for free or reduced-cost lunches under the school lunch program established under the National School Lunch Act. A qualified zone academy must also meet other requirements.taxmap/pubs/p954-007.htm#TXMP4bb84713
Before qualified zone academy bonds can be issued, the local educational agency (as defined in section 14101 of the Elementary and Secondary Education Act of 1965) must obtain written commitments from private entities for qualified contributions with a present value (as of the bond issue date) of not less than 10% of the proceeds of the bond issue.
A qualified contribution is a contribution made with the approval of the local educational agency of any property or service from the following list.
- Equipment for use in the qualified zone academy.
- Technical assistance in developing curriculum or in training teachers to promote appropriate market driven technology in the classroom.
- Services of employees as volunteer mentors.
- Internships, field trips, or other educational opportunities outside the academy for students.
- Any other property or service specified by the local educational agency.
- A donation of cash is generally a qualified contribution if it is to be used to buy any property or service described in this list.
For more information about qualified zone academy bonds, see section 1397E of the Internal Revenue Code and the regulations under that section.