Alaska AHFC Energy Rebate should Not Be Taxable

Q. IS THE AHFC HOME ENERGY REBATE TAXABLE INCOME? I HEARD THAT I WILL RECEIVE A 1099 FORM FROM AHFC.   AHFC has received a legal opinion from the State of Alaska Department of Law that requires AHFC to issue a 1099-G to individuals who receive payments under this program. It is up to the recipient to contact their tax advisor about any possible tax consequences. – See more at: .  Indeed AHFC reports the amount in block 6 and reports the amount as a “taxable grant.”

The Internal Revenue Code provides for the exclusion from income of Energy conservation subsidies provided by public utilities under 26 USC § 136.

(a) Exclusion

Gross income shall not include the value of any subsidy provided (directly or indirectly) by a public utility to a customer for the purchase or installation of any energy conservation measure.
(b) Denial of double benefit
Notwithstanding any other provision of this subtitle, no deduction or credit shall be allowed for, or by reason of, any expenditure to the extent of the amount excluded under subsection (a) for any subsidy which was provided with respect to such expenditure. The adjusted basis of any property shall be reduced by the amount excluded under subsection (a) which was provided with respect to such property.
(c) Energy conservation measure
(1) In general
For purposes of this section, the term “energy conservation measure” means any installation or modification primarily designed to reduce consumption of electricity or natural gas or to improve the management of energy demand with respect to a dwelling unit.
2) Other definitions
For purposes of this subsection—

(A) Dwelling unit

The term “dwelling unit” has the meaning given such term by section 280A (f)(1).
(B) Public utility
The term “public utility” means a person engaged in the sale of electricity or natural gas to residential, commercial, or industrial customers for use by such customers. For purposes of the preceding sentence, the term “person” includes the Federal Government, a State or local government or any political subdivision thereof, or any instrumentality of any of the foregoing.
(d) Exception
This section shall not apply to any payment to or from a qualified cogeneration facility or qualifying small power production facility pursuant to section 210 of the Public Utility Regulatory Policy Act of 1978.
Other Precedent
There are no reported decisions as of the date of this post.  There are only three private letter rulings regarding the statute and its application.  The letter agreements can only be relied upon by the parties that obtained the letter rulings.  However, at least two of those letter rulings support the finding that Alaska Homeowners should not be paying tax on the AHFC energy rebates.  The other ruling appears to not be relevant.

Utility customers participating in test of “smart grid” technology utilizing new solar photovoltaic system to be installed in homes by taxpayer utility were not required to include value thereof in income per IRC § 61 because same was excludable as IRC § 136 “energy conservation measure;” nor was IRC § 6041 information reporting required. Private Letter Ruling 201046013, 2010 PLR LEXIS 2352.

As IRC § 136 did not apply to homeowner who received one-time renewable energy credit from utility upon installation of residential renewable energy system, homeowner was required to include gain from sale of associated environmental credits and benefits triggered by resulting electricity generation in income and to credit for 30% of expenditure. Private Letter Ruling 201035003, 2010 PLR LEXIS 1080.

Payments to residential customers by exempt entity to promote energy efficiency through state program were not income to recipients under I.R.C. § 61 but were energy conservation subsidies excluded under section 136; because payments were not income to customers, entity did not have to report payments under section 6041. Private Letter Ruling 200717010, 2007 PLR LEXIS 93.

It would be nice if AHFC would obtain a private letter ruling establishing that Alaska homeowners are not liable for taxes on the AHFC Energy rebate.  The cost of the letter agreement exceeds the benefit to any single homeowner.  But, AHFC would establish a lot of good will and keep more money in Alaska instead of shipping it off to DC.  Instead, they issue the 1099 and give you the following advice.  The IRS also provides advice here.  

The U.S. Treasury Department requires us to advise you that this written advice is not intended or written by our firm to be used, and cannot be used by any taxpayer, for the purpose of avoiding any penalties that may be imposed under the Internal Revenue Code. Written advice from our firm relating to Federal tax matters may not, without our express written consent, be used in promoting, marketing or recommending any entity, investment plan or arrangement to any taxpayer, other than the recipient of the written advice.

Posted on: 25 November 2013, by : Clayton Walker

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