Public Finance Alert: IRS Initiates Build America Bonds (Direct Payment) Program

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On April 3, 2009, the Internal Revenue Service (IRS) released guidance necessary to permit state and local government issuers to begin issuing the type of Build America Bonds (BABs) authorized by the American Recovery and Reinvestment Act of 2009, involving a 35% direct interest subsidy from the federal government to issuers of taxable bonds financing governmental capital projects. Due to the depth of the subsidy, it is expected that many governmental bond issues for capital projects will consist of BABs during 2009 and 2010, the period for which BABs are authorized under current law. IRS Notice 2009-26 sets forth procedures relating to election, information reporting and payments which have been eagerly awaited by the industry. This alert does not cover portions of the Notice addressing (i) tax credit BABs‚ whose 35% bondholder tax credit is anticipated to produce only an approximately 25% subsidy for the issuer‚ and (ii) Recovery Zone Economic Development Bonds, with a 45% direct interest subsidy, which will become operational in a similar manner to BABs when volume cap allocations are released. The key requirements of the Notice as applicable to direct payment BABs are summarized below.

Please see full alert for more information.

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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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