The relationship between bond issuers and the Internal Revenue Service will fundamentally change in enforcement actions involving direct-pay Build America Bonds authorized by the stimulus package, bond lawyers said this week.

The BAB program allows muni issuers in 2009 and 2010 to offer an unlimited amount of taxable debt and to elect to either receive a cash subsidy from the federal government or have it provide bondholders with a tax credit. Both the payment and tax credit would be equal to 35% of the interest paid on the bonds.

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