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).