CCA 1237018: CCA addresses OFAS access to ARRA grant information

Plain-English summary

Chief Counsel advice considered whether the Treasury Department’s Office of the Fiscal Assistant Secretary could access IRS return information while administering the ARRA section 1603 renewable-energy grant program. The advice concluded that OFAS officers and employees may access tax information when their grant-compliance monitoring duties are sufficiently related to tax administration and they have a need to know the information. For other duties, such as grant eligibility or award decisions, OFAS may seek taxpayer consent under section 6103(c). The advice also described requirements for a valid written consent, including identifying the taxpayer, recipient, information, and tax years covered.

Ruling snapshot

• Question: When may OFAS access IRS return information connected with ARRA section 1603 grants?
• Outcome: Advice
• Key authorities: IRC §§ 48 and 6103; Treas. Reg. § 301.6103(c)-1

Full text (IRS public release)

       Office of Chief Counsel
       Internal Revenue Service
       memorandum
       Number: 201237018
       Release Date: 9/14/2012
       CC:PA:07:ALMielke
       POSTS-111474-11

UILC: 6103.03-00, 6103.08-01

date: June 29, 2012

 to:   Benjamin J. Mower
       Attorney (Denver)
       (Large Business & International)

from: Julie C. Schwartz
Senior Counsel
(Procedure & Administration)

subject: ARRA Section 1603 Compliance and OFAS Access to Return Information

       This is in response to your request for advice on the captioned matter.

       ISSUE

       Whether the Department of the Treasury’s Office of the Fiscal Assistant Secretary
       (OFAS) has access to returns and return information (tax information) in connection with
       administering the American Recovery and Reinvestment Act of 2009 section 1603
       (ARRA section 1603) program.

       CONCLUSION

       In appropriate circumstances, and only where OFAS’ duties in connection with
       administering the ARRA section 1603 program are related to tax administration, its
       officers and employees may have access to tax information as necessary for carrying
       out these functions. For all other circumstances, OFAS may seek a consent to
       disclosure under which ARRA section 1603 applicants would agree to IRS sharing tax
       information with OFAS.

       FACTS

       The American Recovery and Reinvestment Act of 2009 (ARRA) contains several
       provisions intended to provide incentives to developers and producers of renewable

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energy. ARRA section 1603 allows applicants to elect to receive a grant, rather than a
tax credit, when specified energy property is placed in service. Applicants can receive
grants in the amount of either 10% or 30% of the basis of qualifying projects placed in
service by the specified credit termination date. Tax credits for qualifying projects are
available under IRC § 48. Taxpayers cannot accept a grant and take a tax credit for the
same project.

Under a Compliance Initiative Project (CIP), the IRS will be examining a sampling of
taxpayers that receive ARRA section 1603 grants. Examinations will focus on all
aspects of tax compliance in this scenario, including, among other matters, whether the
taxpayer has claimed a tax credit and received an ARRA section 1603 grant with
respect to the same property; whether the taxpayer appropriately reduced its basis by
50% of the amount of the ARRA section 1603 grant; and whether the taxpayer’s
depreciable basis was appropriately stated. In a September 27, 2011 General Legal
Advice Memorandum (GLAM), the Office of the Associate Chief Counsel (Passthroughs
and Special Industries) addressed the issue of excessive grant payments under ARRA
section 1603. The GLAM concluded that an excessive ARRA section 1603 grant
payment is includible in income and the Service has three years from the date the return
was filed to assess the amount disallowed.

The IRS has access to OFAS’ ARRA section 1603 database, which includes all ARRA
section 1603 applications, terms and conditions, and the supporting documentation
submitted with the applications. OFAS also provides the IRS an annual list of ARRA
section 1603 grant recipients as well as a quarterly list of those recipients who indicate
to OFAS on their annual reports that they have claimed a tax credit with respect to
applicable property. OFAS can neither direct nor request the IRS to examine a
particular taxpayer, but can provide information to the IRS about particular taxpayers for
the IRS’ examination consideration.

The Code does not contain authority for the IRS to specifically recoup ARRA section
1603 grant overpayments but does allow the IRS to avail itself of all compliance and
enforcement provisions in connection with the examination of tax credits, including, the
ability to disallow or recapture the credit. In addition, the IRS is also responsible for
ensuring that grant recipients properly account for the grant payment in the calculation
of their taxes, i.e., recipients must reduce their basis by 50% of the grant. The IRS also
has an enforcement interest in ensuring that grant applicants have properly stated their
basis on their grant applications because the amount of basis claimed on the grant
application is also the amount of basis used for depreciation purposes. The information
gathered, collected or created by the IRS during its examination, including the
information leading to the conclusion that the taxpayer may not be entitled to all or part
of the grant, is tax information subject to IRC § 6103 confidentiality. IRC § 6103(b)(2).

While the IRS can determine a grant overpayment occurred and take action authorized
by the Code such as including the overpayment in taxable income, OFAS is responsible
for recapture of any erroneously awarded grant overpayments. OFAS has six years
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from when the claim first accrues, usually when the overpayment is discovered, to seek
recovery of such erroneous amounts. The IRS, through its CIP, is more likely than
OFAS to discover a grant overpayment. OFAS would like the IRS to share this tax
information with it so OFAS can use it to take action on recapture as appropriate. You
have asked us to opine whether IRC § 6103(h)(1) affords OFAS access to tax
information to conduct its recapture authority and, if not, whether OFAS can obtain
consents to disclosure from all ARRA section 1603 program applicants allowing the IRS
to share tax information with OFAS.

LAW AND ANALYSIS

IRC § 6103(h)(1)

IRC § 6103(a) provides that tax information “shall be confidential,” and may be
disclosed only as expressly authorized under the Code. The Code contains numerous
exceptions to this confidentiality rule, including IRC § 6103(h)(1), which allows the
inspection and disclosure of tax information to officers and employees of the
Department of the Treasury where such inspection or disclosure is necessary for tax
administration purposes. This means Treasury employees may have access to tax
information if they have a “need to know” the information for tax administration reasons.

Tax administration is defined in IRC § 6103(b)(4) as

   (A) (i) the administration, management, conduct, direction, and supervision of the
   execution and application of the internal revenue laws or related statutes (or
   equivalent law or statutes of a State) and tax conventions to which the United
   States is a party, and

   (ii) the development and formulation of Federal tax policy relating to existing or
   proposed internal revenue law, related statutes, and tax conventions, and

   (B) includes assessment collection, enforcement, litigation, publication, and
   statistical gathering functions under such law, statutes or conventions.

(Emphasis added). Courts have held that the meaning of “tax administration” is
sweeping. United States v. Mangan, 575 F.2d 32 (2nd Cir. 1978), cert denied, 439 U.S.
931 (1978); Tavery v. United States, 32 F.2d 1423 (10th Cir. 1994). See, also, First W.
Gov’t Sec.,Inc. v. United States, 796 F.2d 356, 360 (10th Cir.1986). The term “related
statute” is not defined in the Code. Whether or not a statute is "related" to the internal
revenue laws within the meaning of section 6103(b)(4) depends on the nature and
purpose of the statute and the facts and circumstances in which the statute is being
enforced or administered.

Given the interconnection between OFAS’ responsibilities in the ARRA section 1603
program and the IRS’ responsibilities under the Code for the same projects, some of
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OFAS’ program responsibilities under the ARRA section 1603 statute are related to tax
administration. The administration of the ARRA program, established under I.R.C.
§ 48(d) with the tax credit and revised by the grant provisions that are not included in
the Code, will unquestionably implicate and relate to the IRS’s compliance activities
under the Code with respect to the tax credit. There is a division of responsibilities
between the two agencies responsible for the program. As noted earlier, the IRS
enforces the prohibition against receiving a grant and a tax credit for the same property
and is also responsible for ensuring that grant recipients properly account for the grant
payment in the calculation of their taxes, i.e., recipients must reduce their basis by 50%
of the grant. OFAS supports the online application process, reviews the application for
eligibility and awards grant funds and is responsible for recapture of erroneously
awarded grant overpayments. The IRS’ examination, assessment and collection
authority and action taken will directly relate to and impact any action OFAS elects to
take regarding the same project and grant particularly with regard to OFAS’ post-award
grant compliance responsibilities. For example, if OFAS recaptures a grant
overpayment and the Service had not earlier required the taxpayer to include the
overpayment in taxable income, the overpayment would have been treated by the
taxpayer as a non-taxable grant under section 48(d)(3)(A) and would not have been
included in income. Thus, the taxpayer's taxable income would not be reduced by the
grant recapture amount. If, on the other hand, the Service had determined that all or a
portion of a grant was an overpayment and had made an adjustment adding the
overpayment amount to gross income under the reasoning of the GLAM, any repayment
to OFAS of the overpayment amount would then reduce the taxpayer's taxable income
by the amount repaid.

While OFAS may like to know certain information in connection with its monitoring
responsibilities, it is unclear whether it would have a need to know. There are certain
compliance activities that OFAS conducts under the ARRA program that are so
inextricably intertwined with the IRS’ tax compliance activities that these activities are
related to tax administration and officers and employees of OFAS may have access to
tax information as necessary for carrying out these functions. While not free from
doubt, we believe that an argument can be made that OFAS’ responsibility for
monitoring grant compliance, as opposed to its grant eligibility and award
responsibilities, is so inextricably intertwined with, and related to, the IRS’ tax
compliance responsibilities as to constitute tax administration. As such, we believe that
a reasonable argument may be made that ARRA section 1603 is a related statute with
respect to the IRS’s and OFAS’s respective roles in ensuring that recipients do not
accept grant funds and claim credits, and in ensuring that recipients reduce their basis
by 50% of the grant amount in their tax filings. Accordingly, OFAS is authorized access
to tax information under I.R.C. § 6103(h)(1) in connection with its compliance monitoring
responsibilities only. In keeping with this statutory authority, access to tax information
will be limited to those situations where OFAS’ officers and employees have a need for
the tax information in carrying out those official grant compliance monitoring
responsibilities that arise out of, and are related to, the administration of the internal
revenue laws. OFAS will have access only to that tax information it has a need to know
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to conduct these activities. OFAS may only use the tax information to which it has
access in connection with its grant compliance monitoring responsibilities.1

IRC § 6103(c) Consents

Section 6103(c) provides, generally, that, subject to the requirements and conditions set
forth by the Secretary in regulations, tax information may be disclosed to persons
designated by the taxpayer in a request for or consent to disclosure. Treas. Reg.
§ 301.6103(c)-1(a) et. seq., sets forth the relevant requirements for disclosures to
designees. According to Treas. Reg. § 301.6103(c)-1(b), an authorization for disclosure
must include the following items in a written document2 pertaining solely to the
authorization: (1) the taxpayer’s identity (name, address, taxpayer identifying number)
that enables the IRS to clearly identify the taxpayer; (2) the identity of the person to
whom disclosure is to be made; (3) the type of return or return information to be
disclosed; and (4) the taxable year or years covered by the return or return information.
Treas. Reg. § 301.6103(c)-1(b)(1). The regulations also require that the taxpayer sign
and date the written document. In addition, the regulations bar disclosure of a return or
return information unless the written request for or written consent to disclosure is
received by the IRS (or an agent or contractor of the IRS) within 120 days following the
date upon which the written request was signed and dated by the taxpayer. Treas. Reg.
§ 301.6103(c)-1(b)(2); Prop. Treas. Reg. § 301.6103(c)-1(b)(2), 76 Fed. Reg. 14827
(Mar.18, 2011); Notice 2010-8, 2010-3 IRB 297.

To date, OFAS has on an ad hoc basis asked grant applicants to agree to consent to
IRS sharing tax information compiled during examinations. For those situations in which
OFAS’s non-tax administration responsibilities (e.g., grant eligibility and award
responsibilities) would benefit from access to tax information, OFAS may seek a
consent to disclosure from grant applicants.

As we understand it, upon receipt of a consent, OFAS will verify the validity of the
consent and upload the verified consent into the ARRA section 1603 database to which
the IRS has unfettered access. In order to satisfy the requirement that the IRS receive
the consent within 120 days following the date upon which the consent was signed and
dated by the taxpayer/grantee, OFAS must upload the consent into the ARRA section
1603 database within 120 days of that date, noting the upload date on the system. Prior
to disclosing the authorized tax information to OFAS, IRS will confirm a valid consent
exists in the database. OFAS will be required to maintain the original consent, whether
in paper or electronic form, for the time period specified by the IRS.

1
The return information in OFAS’s possession remains confidential under I.R.C. § 6103(a).
.
2
An authorization for disclosure (consent) may be also be done electronically. Treas. Reg.
§ 301.6103(c)-1(e)(1).
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For coordination of consent matters or for questions regarding consent procedures,
please contact Tim Christian, Disclosure Manager, Disclosure Program Operations, at --
--------------------or -----------------------------------.

Please call (202) 622-7950 if you have any further questions.