It looks like tax-exempt noncommercial TV stations likely won't have to pay taxes on their incentive auction payouts.
That is according to a copy of a July 14 letter to the FCC from the IRS about the tax implications of the billions in payouts to stations anticipated in the auction.
The FCC had sought guidance on the tax implications for tax-exempt broadcasters, including 501(c)3's, under the four possible auction scenarios: relinquishing spectrum and going off the air; relinquishing spectrum and channel sharing; getting paid for moving from a UHF to a VHF or from a high to a low VHF assignment; and FCC payments to broadcasters involuntarily reassigned to a new channel in the repack.
IRS Janine cook, Deputy Associate Chief Counsel for tax exempt and government entities, pointed out that tax law is complex, and highly dependent on particular facts and circumstances (she advised that TV stations could seek their own IRS determination based on those particular facts and circumstances.
But, she also said that while tax-exempt organizations, including some broadcasters, are subject to taxes on unrelated business taxable income (UBTI), "for tax exempt broadcasters that have rarely or never disposed of spectrum rights, participation in the reverse auction or the involuntary reassignment would likely not qualify as a "regularly carried on" trade or business under section 512" that could be taxed.
There are also UBTI carve-outs for the disposition of property other than inventory or saleable goods to customers, and for involuntarily conversions (an exception would be if the spectrum rights were a debt-financed property), which would appear to apply to auction proceeds or payments to cover the expense of involuntary channel moves.
Cook emphasized that "the federal income tax consequences of participation in the reverse auction or an involuntary reassignment for broadcasters...depend on the particular facts and circumstances of each broadcaster."
Bottom line for noncoms: Check with the IRS.