Vehicle-scrappage mobility incentives qualified for the general welfare exclusion

Plain-English summary

A state-created air-quality program provided need-based incentives to lower-
income residents who scrapped high-polluting vehicles and selected cleaner
vehicles or mobility options. Payments generally went to dealerships or other
providers on recipients' behalf, or through restricted prepaid cards. The IRS
ruled that the incentives were excluded from recipients' gross income under the
general welfare exclusion because they came from a governmental program,
promoted general welfare based on need, and were not compensation for services.
Because the payments were not includible in recipients' income, the administering
taxpayer had no Section 6041 information-reporting requirement for them.

Ruling snapshot

• Question: Are the clean-transportation incentives excluded under the general welfare exclusion, and must the program report them under Section 6041?
• Outcome: Approved; the payments are excluded and no Section 6041 reporting is required
• Key authorities: IRC §§ 61 and 6041; Treas. Reg. § 1.6041-1; Rev. Rul. 2005-46

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202409009 Third Party Communication: None
Release Date: 3/1/2024 Date of Communication: Not Applicable
Index Number: 61.08-00
Person To Contact:
--------------------------------------------------- ----------------------, ID No. -----------------
------------------------------------- Telephone Number:
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Refer Reply To:
-------------------------------- CC:ITA:08
PLR-113875-23
Date:
December 05, 2023

TY: -------

Legend:

Parent = ------------------------------------------
Taxpayer =-----------------------------------------------------------------------------
Program = -----------------------------------
State = -------------
District = --------------------------------------
A = ---
B = --------------------------------------------------

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

This ruling is in response to Taxpayer’s request for a letter ruling, dated -----------------,
that (i) the incentive payments made under Program to or on behalf of eligible recipients
are excludable from gross income of the recipients of the incentive payments under the
general welfare exclusion and (ii) the Taxpayer does not have an information reporting
requirement with respect to the incentive payments under section 6041(a) of the Internal
Revenue Code.

FACTS

Parent was established by State to promote and protect public health, welfare, and
ecological resources through effective reduction of air pollutants. Parent is the lead
agency for climate change programs and oversees all air pollution control efforts in
State to attain and maintain health-based air quality standards. State has A Districts.
These Districts are separate and distinct from Parent. The Districts’ duties include
administering air quality improvement grant programs managed by Parent, including
Program.
PLR-113875-23 2

The State legislature enacted Program and provided funding to improve air quality in
State, reduce greenhouse gas emissions, and provide benefits to lower income
constituents. Because lower income individuals make up the majority of residents in
those communities, they are disproportionately affected by poor air quality in State and
have high barriers to access for clean transportation and mobility options. Studies show
that lower income individuals exposed to high levels of air pollution have higher
mortality rates than higher income individuals. State’s research on the disproportionate
burden of poor air quality on lower income individuals has underscored the need to
reduce emissions in the communities where they live. Under Program, Districts provide
incentives to lower income individuals to replace high polluting vehicles with zero or
near zero emission replacements.

In order to qualify for Program, applicants must satisfy four criteria, which are the same
for all administering Districts. First, the applicant must reside within the jurisdiction of
the District administering Program. Second, the applicant must establish that his or her
household income is equal to or less than B. Each District has its own process for
verifying income; however, the income eligibility requirements are the same across the
Districts. A District has the right to lower the income eligibility requirement but not
increase it. Third, the vehicle being scrapped must meet certain criteria determined by
the Districts. Finally, the applicant or a member of his or her household must not have
previously received a Program incentive payment.

Under Program, Taxpayer provides incentives to lower income constituents to scrap
their high polluting vehicles and replace them with zero- or near-zero emission
replacements. Eligible applicants have a choice to purchase replacement vehicles or
other mobility options (e.g., a voucher for public transit, car sharing, bike sharing, or an
electric bicycle). Program recipients generally do not receive incentive payments
directly. When a recipient chooses to purchase a vehicle, Taxpayer make the payments
to participating automobile dealerships on behalf of the Program recipient. For other
mobility options, Taxpayer may choose to pay the bike sellers, ride share providers or
other third parties directly or they may issue a pre-paid card to the recipient. The pre-
paid cards must be used for a mobility option.

LAW AND ANALYSIS

Section 61(a) of the Internal Revenue Code (Code) provides that, except as otherwise
provided, gross income means all income from whatever source derived. Under section
61, Congress intends to tax all gains and undeniable accessions to wealth, clearly
realized, over which taxpayers have complete dominion. Commissioner v. Glenshaw
Glass Co., 348 U.S. 426 (1955), 1955-1 C.B. 207.

The Service has historically concluded that payments to individuals by governmental
units under legislatively provided social benefit programs for the promotion of general
welfare are not included in the recipient's income ("general welfare exclusion"). Rev.
PLR-113875-23 3

Rul. 76-395, 1976-2 C.B. 16 (payments made to low-income individuals primarily in
order to subsidize home improvements necessary to correct building code violations
and thereby provide safe and decent housing were excluded from the recipients'
income); Rev. Rul. 74-205, 1974-1 C.B. 21 (replacement housing payments made to
displaced homeowners pursuant to the Housing and Urban Development Act of 1968
were excluded from recipients' incomes). To qualify under the general welfare
exclusion, payments must: (i) be made from a governmental fund; (ii) be for the
promotion of the general welfare (i.e., generally based on individual or family need); and
(iii) not represent compensation for services. Rev. Rul. 2005-46, 2005-2 C.B. 120; Rev.
Rul. 76-395, 1976-2 C.B. 16; Rev. Rul. 75-246, 1975-1 C.B. 24.

Section 6041(a) provides, in part, that all persons engaged in a trade or business and
making payment in the course of such trade or business to another person of rent,
salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or
other fixed or determinable gains, profits, and income of $600 or more in any taxable
year, shall render a true and accurate return to the Secretary. Under section 6041(d),
the person required to make a return is also required to furnish an information statement
to the payee.

Section 1.6041-1(b)(1) of the Income Tax Regulations clarifies that the term "persons
engaged in a trade or business" in section 6041 includes not only organizations
engaged for gain or profit, but also organizations the activities of which are not for the
purpose of gain or profit, for example, the organizations referred to in paragraph (i) of
section 1.6041-1. Section 1.6041-1(i) provides, in part, that information returns on
Forms 1096, Annual Summary and Transmittal of U.S. Information Returns, and 1099 of
payments made by a state, or political subdivision, agency or instrumentality thereof,
shall be made by the officer or employee of such state or political subdivision, agency or
instrumentality thereof, having control of such payments or by the officer or employee
appropriately designated to make such returns.

Section 1.6041–1(f)(1) provides that the section 6041 information reporting requirement
applies to payments that are “includible in the gross income of the payee.” Section
1.6041-1(a) of the Regulations provides that the section 6041 information reporting
requirement applies to payments made during the calendar year to another person of
"fixed or determinable income." Section 1.6041-1(c) provides that income is "fixed"
when paid in amounts definitely predetermined and "determinable" whenever there is a
basis for calculating the amount to be paid.

Because Taxpayer makes the incentive payments under a governmental program to
help needy recipients, the Program incentive payments are excluded from gross income
under the general welfare exclusion.
PLR-113875-23 4

CONCLUSION

Based on the information and representatives provided, we conclude that (i) the
incentive payments made under Program to or on behalf of eligible recipients within the
Taxpayer’s jurisdiction are excluded from each recipient’s gross income under the
general welfare exclusion and (ii) the Taxpayer does not have an information reporting
requirement with respect to the incentive payments under section 6041(a) of the Code.

Except as expressly provided herein, no opinion is expressed or implied concerning the
federal income tax consequences of any aspect of any transaction or item discussed or
referenced in this ruling.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. 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.

                                       Sincerely,



                                       Shareen Pflanz
                                       Chief, Branch 8
                                       Office of Associate Chief Counsel
                                       (Income Tax and Accounting)

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