INDIAN WELLS, Calif. — At least one Build America Bond issuer has had a subsidy payment reduced because it owed money to the federal government, and this "offset" system is entirely automated, market participants warned here yesterday.

David Cholst, a partner with Chapman and Cutler LLP in Chicago, said one of his governmental issuer clients had its BAB subsidy payment reduced to offset an outstanding penalty stemming from an error made while filing a Form 1099, which is used to report miscellaneous income.

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