IRS announces FY 2014 sequester reduction rate for qualified refundable credit bonds.

• Author: Garner, Ken

On Sept. 30, the IRS announced that refundable credit payments processed on or after Oct. 1, 2013, and on or before Sept. 30,2014, will be reduced by a sequestration rate of 7.2% for issuers of Build America Bonds, Qualified School Construction Bonds, Qualified Zone Academy Bonds, New Clean Renewable Energy Bonds, and Qualified Energy Conservation Bonds that elected to receive a direct credit subsidy under Sec. 6431.

Direct Pay Credit Bonds

Sec. 6431 allows certain bonds, which would generally qualify as tax-exempt under Sec. 103, to be treated as taxable bonds and allows the issuers to receive the equivalent of a federal tax credit. The state and local governments issuing these bonds are eligible to receive subsidies directly from the U.S. Treasury for amounts up to 35% of the coupon interest on the bonds. In theory, this allows the bonds to compete with other taxable-interest options in the marketplace while receiving a benefit directly from the federal government.

Effect of Sequester

On March 1, 2013, the automatic spending cuts required by the 2011 Budget Control Act, P.L. 112-25, took effect through sequestration. On the same day, the White House Office of Management and Budget issued a report detailing cuts to various agencies and programs, as well as reductions in a number of tax-related provisions, including Build America Bonds, Qualified School Construction Bonds, Qualified Zone Academy Bonds, New Clean Renewable Energy Bonds, and Qualified Energy Conservation Bonds payments.

In March 2013, the IRS announced a sequestration reduction rate of 8.7% for payments to affected issuers from March 1, 2013, through Sept. 30...