Effect of Sequestration on Direct-Pay Bonds

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The American Recovery and Reinvestment Act of 2009 allowed, for a limited period of time, the issuance of taxable state or local bonds for which the U.S. Treasury Department pays the issuer a specified percentage of interest on the bonds, with the percentage depending on the applicable type of direct-pay bonds.

On Friday, March 1, 2013, the President signed an executive order reducing budgetary authority to accounts subject to sequester, including payments to issuers of direct-pay bonds. As of March 1, 2013, amounts claimed by an issuer on Form 8038-CP filed with the Internal Revenue Service are subject to a reduction of 8.7% of the amount budgeted for such payments.

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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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