DALLAS — The Internal Revenue Service is withholding up to $1.2 million of direct-payment subsidies for Build America Bonds issued by Austin last year, said Treasurer Art Alfaro.

The federal offset was imposed in a dispute over payroll taxes, and the city is challenging the IRS letter. In the meantime, the city comptroller’s office has shifted funds to the debt-service sinking fund, avoiding any impact on investors, Alfaro said.

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