October 24, 2020

Volume X, Number 298

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FY 2021 Sequestration Reduction Rate for Direct Pay Tax Credit Bonds Set at 5.7%

According to the IRS website, the sequester reduction rate applied to payments made to issuers of direct pay tax credit bonds in fiscal year 2021 will be 5.7 percent.  This percentage will apply to all subsidy payments scheduled to be made on or after October 1, 2020 through and including September 30, 2030.

The fiscal year 2021 sequestration reduction rate represents a decrease from the fiscal year 2020 sequestration reduction rate of 5.9 percent.  The sequestration reduction rate will be applied unless and until a law is enacted that cancels or otherwise affects the sequester, at which time the sequestration reduction rate is subject to change.

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).

© 2020 Bracewell LLPNational Law Review, Volume X, Number 269
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About this Author

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

Brian Teaff has a multifaceted tax practice, advising clients in connection with tax-exempt financings and other business transactions in the public finance area, as well as counseling public charities and private foundations on a wide range of tax planning and compliance matters. In addition, Brian advises a variety of types of clients with respect to the "opportunity zone" provisions enacted under the Tax Cuts and Jobs Act of 2017. 

In his public finance practice, Brian serves as tax counsel on governmental and conduit financings where he...

713-221-1367
Victoria N. Ozimek, Bracewell, Tax Credit Obligations Lawyer, bond Issuance Attorney
Partner

Victoria Ozimek offers legal advice to clients regarding all aspects of tax advantaged obligations, from vetting the tax issues on proposed financing structures to assisting issuers with post-issuance compliance matters such as remedial actions and private business use analyses. In addition to traditional state and local government financings, Victoria has worked on transactions for the financing of multifamily and single family housing, universities and colleges, charter schools, airports and seaports, and water facilities. She has also acted as special tax counsel to a number of issuers in situations where an issuer's regular counsel may not be in a position to provide the specific tax experience needed. 

In addition to advising clients regarding the structuring of transactions, Victoria has assisted issuers with responding to examinations of obligations by the Internal Revenue Service (IRS) and, if necessary, negotiating with the IRS regarding any identified issues. She has also advised issuers regarding the IRS's Voluntary Closing Agreement Program. When needed, Victoria has worked with clients to secure private letter rulings and other guidance from the IRS regarding the tax effect of a proposed action. 

Victoria consistently seeks to provide issuers with the tools needed to successfully manage the requirements imposed by federal tax law by utilizing tax due diligence process as means to communicate with issuers regarding their compliance obligations and regularly seeking opportunities to educate the financing team regarding recent developments. Victoria is the current chair of the Education and Member Services Committee for the National Association of Bond Lawyers and is a frequent speaker on tax matters with respect to tax-advantaged debt.     

512-542-2103
R. Todd Greenwalt, Tax Attorney, Bracewell Law Firm
Partner

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...

713-221-1138
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