Bond lawyers are urging the Treasury Department and the Internal Revenue Service to avoid issuing new guidance to address whether Build America Bonds issued by a state or locality would continue to exist, or be considered “extinguished,” if they were purchased by a related entity such as the public pension fund or state lottery.

Created under the federal stimulus program, BABs are taxable bonds whose issuers receive subsidy payments from the federal government equal to 35% of the interest costs. The advent of BABs led investors of taxable debt, including state pension funds and government-operated nonprofit entities, to become interested in investing in them.

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