Smart Grid Experiment Participants Qualify For Income Exclusion

Private Letter Ruling 201046013, 11/19/2010

This merits a brief bonus post.  A utility company is engaging in a controlled experiment to determine the effectiveness of a variety of energy saving techniques.  They are dividing the sample into four groups:

 The first group will be the control group. They will have fixed rate electricity pricing and receive information from monthly electricity bills only. The second group will receive an Advanced Metering Infrastructure (“AMI”) meter. The AMI meter will give hourly electricity pricing and will provide web- based electricity consumption and pricing information. The third group will receive an AMI meter and a PV system. The PV system will allow the home to use electricity that it produces, not through the traditional electricity distribution grid. The forth group will have the AMI meter, the PV system, and a battery back-up energy storage for critical load panel. The panel will allow the home to produce energy with the PV system and store it for use at other times. The PV system and related property provided to customers will be owned wholly by them, and may give rise to increased value to customer's homes.

Under the most general rule of Code Section 61, the installation of the systems at no charge would constitute gross income to the homeowners and in addition to whatever else they were getting they would be receiving a 1099.  Code Section 136, however, provides an income exclusion for energy conservation subsidies provided by public utilities.  The ruling provides that this particular program qualifies so the participants will not have their sunny savings clouded by a tax bill.

Credit Card Rebates May Yield Charitable Deductions

If you have been lying awake nights worried about whether you have to report your credit card rebates as gross income, relief has finally arrived. Unfortunately, if you really were lying awake worrying about the credit card rebates, you actually have some other sort of problem and will commence worrying about something else.  Maybe you will manage to slip in one good nights sleep, though,  now that I am telling you all about PLR 201027015.

The ruling has two holdings and also a little bonus if you are the treasurer of a struggling not-for-profit.  The ruling must have been requested by a credit card company on behalf of its customers.  And you probably thought all along they weren't really doing anything to earn that usurious interest and those maddening fees.  Don't you feel mean sprited now.  Well, neither do I, but they took the trouble to invest a couple of seconds worth of their interest income in getting this ruling, so we should all pay attention.

Someone who gets this particular credit card can choose to either receive a cash rebate or have the rebate donated to charity.  The first part of the ruling is that, regardless of which choice you make, you do not have gross income,  The rebate is deemed to be a purchase price adjustment.  Presumably if you charged something deductible, you should be getting a smaller deduction, but they don't get into it.  It is interesting (to me anyway) to note that if receiving the rebate were gross income, then diverting it to charity would not necessarily avoid the gross income.  

The next part, which is intuitively obvious only if you think in double entry, is that you are entitled to a charitable deduction if you let the rebate go to charity.  Imagine you put a $2,000 big screen TV on your credit card.  The $20 rebate instead of going to you went to Free Fertility Inc (before its exempt status was pulled See my post of July 15),  What if instead of that process you had found a big screen TV that cost $2,000, but realized that if you spent all that money on the TV, you wouldn't be able to fulfill your desire to be charitable to would be mothers.  So you hunted high and low until you found one that you could get for $1,980 and managed to mail the check before their exempt status was revoked.  Well then you would have a $20 charitable deduction.  So the credit card company saved you a lot of trouble,  The least you can do is take a few years to pay off that TV so they can collect a few thousand dollars in interest from you.

The other neat thing in the ruling is a recommended acknowledgement to be sent by the charitable organization :

Dear Contributor:


This letter is to acknowledge your contribution made to the __________, an organization described in section 501(c)(3) of the Internal Revenue Code and qualified to receive contributions deductible for federal income tax purposes, provided the contribution is made exclusively for charitable purposes.




We appreciate your contribution of $_______ made in calendar year ____ and wish to confirm for you that no goods or services were provided to you in consideration, in whole or in part, for your contribution.


Sincerely, __________________


I will sometimes see organizations sending out acknowledgements that do not meet the substantiation guidelines of the regulations.  They are not being nice to their donors when they do that and they are indicating, at least to me, that there is at least one area where they are not on the ball.  So now you have a handy template that is IRS approved.  And you can thank a nameless credit card company.