October 20, 2019

October 18, 2019

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FY 2020 Sequestration Reduction Rate Set at 5.9%

According to the IRS website, the sequester reduction rate applied to payments made to issuers of direct pay tax credit bonds in fiscal year 2020 will be 5.9 percent. This percentage will apply to all subsidy payments scheduled to be made on or after October 1, 2019 through and including September 30, 2020.

The fiscal year 2020 sequestration reduction rate represents a decrease from the fiscal year 2019 sequestration reduction rate of 6.2 percent. Congress may still alter the sequester for fiscal year 2020, and if such action is taken, the percentage may change or be eliminated.  Absent Congressional action, the sequester reductions will continue through and including fiscal year 2027, with the sequestration reduction rate being set at different percentages each year.

Direct pay bonds include Build America Bonds, Qualified School Construction Bonds, Qualified Zone Academy Bonds, New Clean Renewable Energy Bonds, and Qualified Energy Conservation Bonds for which an issuer elected to receive a direct credit subsidy pursuant to section 6431 of the Internal Revenue Code. As we have previously posted, the Tax Cuts and Jobs Act eliminated the ability to issue all categories of direct pay bonds after December 31, 2017. However, issuers who issued direct pay bonds before January 1, 2018 (and have not otherwise refunded such bonds) continue to be eligible to receive the federal subsidy payment (reduced by the applicable sequestration reduction rate).

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About this Author

R. Todd Greenwalt, Tax Attorney, Bracewell Law Firm

Todd's practice focuses on governmental entities and tax-exempt organizations, advising clients with regard to tax-exempt financings and other business transactions, and resolving tax-exempt status issues.

His clients include all types of state and local governmental entities, hospitals, other health care organizations, colleges and universities, charter schools, museums, arts organizations, community and economic development organizations, private foundations, advocacy groups, and other charities. Todd serves as bond counsel and advises health...

Victoria N. Ozimek, Bracewell, Tax Credit Obligations Lawyer, bond Issuance Attorney

Victoria Ozimek's practice focuses on advising clients regarding the tax aspects of the issuance of tax-exempt and tax credit obligations. Victoria serves as tax counsel on governmental and conduit financings, where she works with issuers and borrowers to review and structure proposed new money and refunding obligations. She also assists issuers with post-issuance compliance matters. 

Brian P. Teaff, Business Transaction Attorney, Bracewell Law Firm

Brian Teaff's practice focuses on advising clients, including governmental entities and tax-exempt organizations, on tax-exempt financings and other business transactions in the public finance area. Brian serves as tax counsel on governmental and conduit financings where he works with issuers and borrowers to review and structure proposed new month and refunding obligations.  He also assists issuers and borrowers with post-issuance compliance matters.  In addition, Brian counsels public charities and private foundations on a wide range of tax planning and compliance...