Public-benefit rebates need no information reporting

Plain-English summary

A political subdivision created a rebate program to pay part of property owners' costs for installing equipment on designated private properties. The installations furthered governmental purposes by reducing expected public-system expenses and avoiding larger capital expenditures. The IRS concluded that the installations did not give the property owners gross income because the program operated for the government's benefit and any private-property benefit was incidental or uncertain. Because the reimbursements were not income under section 61, the government did not have to report them under section 6041.

Ruling snapshot

• Question: Must the political subdivision report reimbursements paid to property owners for installations required by its public-benefit program?
• Outcome: Approved, no information reporting is required because the reimbursements are not gross income to the owners.
• Key authorities: IRC §§ 61 and 6041; Treas. Reg. § 1.6041-1.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201527018 Third Party Communication: None
Release Date: 7/2/2015 Date of Communication: Not Applicable
Index Number: 6041.00-00, 61.40-00
Person To Contact:
---------------------- ---------------------, ID No. ------------------
--------------------------------- Telephone Number:
-------------------- ----------------------
-------------------------------- Refer Reply To:
------------------------------- CC:ITA:B04
PLR-137683-14
------------------------------------------ Date:
---------------------------- March 30, 2015

LEGEND

Taxpayer = -------------------------------------------
Events = ------------------
Rebate Program = ---------------------------------------------------------------
Statute = ----------------------------------------------
B = -----------------------------------------
C = ------------------------------------------
D = ----------------------------------
E = ---------------------------------------------------------------------------------
F = ---------------------------------------------------------------------------------
G = -----------------------------
p = --------
r = --------------------------------------------------
s = ---------------------------------
t = ----------
v = ---------
w = -----------
x = -----------------
y = --------
z = --------------------------

Dear ---- --------:

This is in reply to Taxpayer’s request for a ruling that it is not subject to an information
reporting obligation under § 6041 of the Internal Revenue Code for reimbursing property
owners for installation of B located on their property under the Rebate Program because
the reimbursements will not result in gross income to the owners under § 61.

PLR-137683-14 2

                                      FACTS

Taxpayer is a political subdivision of a state. Taxpayer owns and operates a D in which
w and x share the same y and are together delivered to z. During Events, x can
overwhelm the D, which causes G and leads to E. A recent increase in Events has also
resulted in a significant increase in F.

Therefore, Taxpayer created the Rebate Program, which requires installation of B on
certain private properties. B are v that can be installed inside t and allow s but block r.
Taxpayer established the Rebate Program for the governmental purposes of enabling it
to avoid large expenditures for separating its C and paying future F. Taxpayer
determines which properties require the installation of B based on furthering these
governmental purposes and only the owners of those properties can participate in the
Rebate Program.

The Rebate Program will reimburse property owners for up to generally $p of the cost of
installing B on their property. Under the Rebate Program, Taxpayer requires property
owners to enter into contracts for installation of B with a Taxpayer-approved contractor
under which City only pays for installations that provide the needed public benefit.
Pursuant to Statute, as a condition of connecting to Taxpayer’s C, property owners
have the duty to repair or reconstruct nonconforming facilities (including B) to make
them comply with applicable law. Thus, Taxpayer has the authority to inspect B on
private property to verify that property owners comply with Taxpayer’s requirements.
Property owners who are required to have B installed are not required to participate in
the Rebate Program. Instead, Taxpayer may install B in Taxpayer’s right-of-way
adjacent to an owner’s property under Taxpayer’s public works program.

                              LAW AND ANALYSIS

Section 6041 requires all persons engaged in a trade or business who, in the course of
that trade or business, pay another person “fixed and determinable gains, profits, and
income” aggregating $600 or more in any taxable year to (1) file an information return
for each calendar year in which they make such payments and (2) furnish a copy of the
information return to that person. See § 6041(a) and (d) and § 1.6041-1(a)(1) and (b) of
the Income Tax Regulations. Although the word “income” as used in § 6041 is not
defined by statute or regulation, its appearance in the phrase “fixed or determinable
gains, profits, and income” indicates that it refers to “gross income,” not the gross
amount paid. Thus, § 6041 requires a payor to report only those payments aggregating
$600 or more that are includible in the recipient’s gross income.

Under § 61(a), gross income means all income from whatever source derived. Gross
income extends to undeniable accessions to wealth, clearly realized, over which the

PLR-137683-14 3

taxpayers have complete dominion. Commissioner v. Glenshaw Glass Co., 348 U.S.
426 (1955).

The Rebate Program is for Taxpayer’s benefit. For example, the Rebate Program will
reduce Taxpayer’s expenses for future F and enable Taxpayer to avoid large capital
expenditures for a complete separation of its C. Taxpayer represents that the contracts
for installation only pay for installations that provide the needed public benefit. Further,
Taxpayer requires installation of B on or adjacent to designated properties through
either the Rebate Program or Taxpayer’s public works program. Thus, Taxpayer is
undertaking the Rebate Program for the governmental purposes of avoiding large
expenses for future F and a complete separation of its C, without regard to whether B
benefits an owner’s property. In addition, B may or may not benefit an owner’s
property.

Under these facts, the installation of B under the Rebate Program does not give rise to
income to the property owners under § 61. Because there is no income under § 61,
Taxpayer does not have an information reporting obligation under § 6041 with respect
to reimbursements to property owners for the installation of B located on their property
under the Rebate Program.

                                   CONCLUSION

Based strictly on the information submitted and representations made, we conclude that
Taxpayer does not have an information reporting obligation under § 6041 with respect
to reimbursements to property owners for installation of B located on their property
under the Rebate Program because the installation will not result in gross income to the
property owners under § 61.

This letter ruling is directed only to the taxpayer requesting it, and does not express or
imply an opinion on the federal tax consequences of any aspect of this transaction other
than that expressed in the preceding sentence. Section 6110(k)(3) provides that this
letter ruling may not be used or cited as precedent.

The rulings contained in this letter are based upon information and representations that
Taxpayer submitted under penalties of perjury. While this office has not verified any of
the material submitted in support of the request for rulings, it is subject to verification on
examination.

Taxpayer must attach to any income tax return to which it is relevant a copy of this letter
or, if it files its returns electronically, include a statement providing the date and control
number of this letter ruling.

PLR-137683-14 4

In accordance with the Power of Attorney on file with this office, we are sending a copy
of this letter to your authorized representative.

                                     Sincerely,



                                     Michael J. Montemurro
                                     Chief, Branch 4
                                     Office of Associate Chief Counsel
                                     (Income Tax & Accounting)