CCA 200851099: Connecticut renters' rebate payments look like general welfare, not a rebate

Plain-English summary

A first-impression reaction to a question about Connecticut's renters' rebate program, weighing two different ways a payment can stay out of gross income.

The first is the general welfare doctrine. Section 61 sweeps in income from whatever source derived, and a payment from a state is income on that language alone. The doctrine is an administrative exception to it: payments made from a governmental fund for the promotion of the general welfare, based on individual need rather than as compensation for services, are not included in gross income. Need is what does the work. A payment that goes to everyone, or that pays someone for something they did, falls outside the exception. The writer's reaction is that these payments may be excludable on that basis, because they appear to be need-based, which is consistent with how the program is built, since the state's renters' rebate goes to older and disabled renters of limited income.

The second theory is the one the program's own name suggests and the writer rejects. A true rebate is not income because it is a reduction of the price paid, so the buyer simply spent less than it first appeared. That reasoning needs a purchase to adjust. A state payment keyed to a tenant's age, disability and income is not a discount on rent, and the writer agrees the payments would not be a rebate.

Then comes the complication, and it is the reason the release is worth keeping. The writer recalls cases involving utility company payments for storm windows and similar energy improvements, where the Service allowed the payments to be treated as rebates even though they were not made by the company that sold the windows. That undercuts the instinct that only the seller can rebate a price. If a third party's payment can reduce the effective cost of a purchase, the rebate theory is not as easy to rule out as the first paragraph assumes, and the writer flags the tension without resolving it.

The release is explicitly preliminary. It offers a first impression, agrees with part of what the recipient proposed, and raises a contrary line of authority by recollection rather than citation. No conclusion is reached on whether the Connecticut payments are includible, and the reasoning on the utility cases is left as a caution rather than developed.

This is a clean digital release rather than a scan, so no OCR correction was needed. Kept as released: "On first impression"; "However in cases involving utility company payments for storm windows etc., I think the Service allowed," with no comma after "However"; and the quotation marks around "general welfare doctrine."

Ruling snapshot

• Question: Are payments under the State of Connecticut renters' rebate program includible in gross income?
• Outcome: Advice given, as a first impression. The payments may be excludable under the general welfare doctrine because they appear to be based on need, and they would not be a rebate, though the writer notes that utility company payments for storm windows and similar improvements were allowed to be characterized as rebates even when not made by the seller.
• Key authorities: IRC section 61; the general welfare doctrine; prior Service treatment of utility company energy improvement payments as rebates.

Full text (IRS public release)

ID: CCA-916100-08 Number: 200851099
Office: -------------- Release Date: 12/19/2008

UILC: 61.00-00

From: --------------------
Sent: Tuesday, September 16, 2008 10:03 AM
To: --------------------
Cc:
Subject: FW: State of Connecticut Renters' Rebate Program

On first impression, the payments may be excludable from income under the "general welfare doctrine" since they appear to be based on need. I agree that they would not be a rebate. However in cases involving utility company payments for storm windows etc., I think the Service allowed the payments to be characterized as rebates even though they were not made by the company that sold the storm windows.