Automatic Reductions in Subsidy Payments for Certain Direct Pay Bonds will Continue for Fiscal Year 2014


Pursuant to the requirements of the Budget Control Act of 2011 and the American Taxpayer Relief Act of 2012, on March 1, 2013, President Obama signed an Executive Order reducing the budgetary authority in accounts subject to "sequester." Sequester is the formal term for mandatory cuts to federal programs. On September 30, 2013, the IRS Office of Tax Exempt Bonds announced that the sequester reduction percentage for payments to issuers of certain Direct Pay Bonds (including, Build America Bonds, Qualified School Construction Bonds, Qualified Zone Academy Bonds, Qualified Energy Conservation Bonds and Clean Renewable Energy Bonds) for Fiscal Year 2014 (which are processed on or after October 1, 2013) will be 7.2 percent, a lower percentage reduction than the 8.7 percent that has been applied to subsidy payments since the sequester first went into effect on March 1, 2013.

The 7.2 percent reduction will apply, in general, to payments processed on or after October 1, 2013, and on or before October 1, 2014. Absent Congressional action, the sequester reductions will continue through and including Fiscal Year 2021.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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