IRS Issues Sequestration Guidance

The IRS Tax-Exempt Bond office issued guidance on the sequestration’s effect on direct pay bonds. For payments made to issuers on or after March 1, 2013, through and including September 30, 2013, issuers should complete Form 8038-CP as directed in the instructions. The form and the instructions remain those that were revised as of January 2012, and issuers will receive correspondence concerning the reduction after they file the form. The IRS guidance is available here.

According the Office of Management and Budget, $3.351 billion in BAB payments and $914 million in payments for other direct-pay bonds could be affected by the sequestration budget cuts. The BAB program was created in 2009 as part of the American Recovery and Reinvestment Act and expired at the end of 2010. Issuers were given the option to issue BABs as tax-credit bonds, where investors receive tax credits, or direct-pay bonds, where issuers receive subsidy payments from the Treasury equal to 35% of their interest costs. Only about $181.96 billion in direct-pay BABs were issued during that period.