Municipal Bond Forum
Pricing of Build America Bonds
Q
I read an article more than a week ago in The Bond Buyer about plans by the IRS to audit many Build America Bond issues and the government’s push for issuers to track primary-market trading and pricing. Could this affect the bonds I bought in the secondary market?
A
James A. Klotz responds:
The article you read was an early report on this subject and it appears to have greatly overstated the BAB problem.
In a subsequent report, Steven Miller, the IRS Deputy Commissioner for Services and Enforcement, refuted the Moody’s statement that indicated the IRS, if discovering improper pricing on BABs, would disallow the “full interest subsidy.”
Miller says the IRS would only seek to disallow the loss to the government, “not the entire amount.” If this is the case, which we believe it will be, any impact to the bondholders will be inconsequential.
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