Energy Star Rebates Reduce Basis

By James Beavers, J.D., LL.M., CPA

Gross Income

The Office of Chief Counsel (OCC) advised that a taxpayer should treat a rebate for purchasing an Energy Star product as a reduction of the basis of the product purchased and not as income.

Background

As part of the Energy Policy Act of 2005, P.L. 109-58, Congress established a rebate program to provide incentives for residential consumers to purchase energy-efficient appliances. Under the program, the Department of Energy (DOE) allocates funds to an eligible state’s energy office if the state has an appliance rebate program that provides rebates to consumers who purchase residential Energy Star products or products with improved energy efficiency in cold climates to replace used appliances of the same type. The state energy office must meet a number of specific requirements in determining the amount of the rebate.

The American Recovery and Reinvestment Act of 2009, P.L. 111-5 (ARRA), appropriated $300 million to the DOE for the Energy Star rebate program. ARRA was a direct response to the economic crisis, designed in part to preserve and create jobs, promote economic recovery, and invest in environmental protection and other infrastructure that will provide long-term economic benefits. ARRA directs the president and heads of federal departments and agencies to commence expenditures and activities as quickly as possible, consistent with prudent management.

OCC Advice

The OCC advised that under these facts the IRS will treat payments to consumers funded by the ARRA appropriation (ARRA Energy Star rebates) as reductions in the purchase price of the purchased product rather than as income. Consequently, consumers must reduce the adjusted basis of property acquired with an ARRA Energy Star rebate by its amount and cannot treat that amount as an expenditure in determining any federal income tax deduction or credit. In addition, the OCC advised that states and other payers of ARRA Energy Star rebates are not required to report such payments on Forms 1099.

PMTA 2009-165

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