REVENUE RULE 91-36

1991-2 C.B. 17, 1991-26 I.R.B. 1.

Internal Revenue Service
Revenue Ruling

RATE REDUCTIONS AND NONREFUNDABLE CREDITS

Published: June 11, 1991

26 CFR 1.61-1: Gross income

Rate reductions and nonrefundable credits. Rate reductions or nonrefundable credits received by a customer of an electric utility company who agrees to participate in energy conservation programs are not includible in the customer's gross income under section 61 of the Code.

ISSUE

If a customer of an electric utility company participates in an energy conservation program for which the customer receives a rate reduction or nonrefundable credit on the customer's electric bill, is the amount of the rate reduction or nonrefundable credit includible in the customer's gross income under section 61 of the Internal Revenue Code?

FACTS

A utility company reduces the price of electricity for customers who participate in the utility company's energy conservation programs. These energy conservation programs include load control programs and load management programs. Under the load control programs, the utility company generally installs various devices that permit it to reduce the amount of electricity furnished to participating customers during peak demand periods. Under the load management programs, participating customers generally acquire, at their own expense, specified energy efficient products or equipment, such as insulation, storm windows and doors, or energy efficient models of air conditioners, furnaces, heat pumps, hot water heaters, appliances, or similar items. These energy efficient products or equipment may be acquired from the utility company or from parties unrelated to the utility company.

The utility company reflects the price reduction for a customer who participates in the utility's energy conservation programs on the customer's monthly electric bill in the form of either (1) a reduction in the purchase price of electricity furnished to the customer (rate reduction), or (2) a nonrefundable credit against the purchase price of the electricity.

LAW AND ANALYSIS

Section 61(a) of the Code provides that gross income includes all income from whatever source derived, except as otherwise provided by law.

Section 1.61-1(a) of the Income Tax Regulations provides that, unless excluded by law, gross income includes income realized in any form, whether in money, property, or services.

In the instant case, the utility company provides rate reductions or nonrefundable credits to customers who participate in the utility company's energy conservation programs. Under the circumstances described above, these rate reductions or nonrefundable credits reflected on the customer's bill represent a reduction in purchase price of electricity.

HOLDING

Under the circumstances described above, if a customer of an electric utility company participates in an energy conservation program for which the customer receives a rate reduction or nonrefundable credit on the customer's electric bill, the amount of the rate reduction or nonrefundable credit is not includible in the customer's gross income under section 61 of the Code.

DRAFTING INFORMATION

The principal author of this revenue ruling is Mary Jane Kossar of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue ruling, contact Ms. Kossar on (202) 566- 3453 (not a toll-free call).

Rev. Rul. 91-36, 1991-2 C.B. 17, 1991-26 I.R.B. 1.