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Update on Federal Budget Sequestration Affecting Direct Pay Bonds

Joe E. Forrester
Edwards Wildman Palmer LLP - New York Office

Christie Lombard Martin
Antonio D. Martini
Edwards Wildman Palmer LLP - Boston Office

October 7, 2013

Previously published on October 3, 2013

On September 30, 2013, the office of Tax Exempt Bonds within the Internal Revenue Service (IRS-TEB) released a statement entitled Update: Effect of Sequestration on Certain State & Local Government Filers of Form 8038-CP, providing details regarding the continued implementation of the President’s sequester order with respect to direct pay bonds (including build America bonds, recovery zone economic development bonds, qualified zone academy bonds, qualified school construction bonds, qualified energy conservation bonds and clean renewable energy bonds) for the current 2014 federal fiscal year.

According to the IRS-TEB release, interest subsidy payments made to issuers of direct pay bonds on or after October 1, 2013, through and including September 30, 2014, will be reduced by 7.2 percent, unless Congress takes action subsequently to change the reduction percentage. IRS-TEB has advised that issuers of direct pay bonds should continue to complete IRS Form 8038-CP as directed in the instructions for the form and has noted that issuers will receive correspondence concerning the subsidy payment reduction after they file the form.

The current federal government shutdown will likely delay the processing of any interest subsidy payments but issuers of direct pay bonds should continue to file IRS Form 8038-CP as directed in the instructions for the form.

Lawyers in the Public Finance Department of Edwards Wildman Palmer LLP continue to actively monitor developments relating to sequestration and, more broadly, the proposals being made from time to time to limit or repeal the exclusion of interest on state and local bonds for purposes of federal tax law. We invite you to contact the Edwards Wildman lawyer responsible for your public finance matters or one of the authors listed if you have any questions regarding sequestration, including the ability to call direct pay bonds, or the impact of federal tax law reform proposals on state and local bonds.


The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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