Upcoming FCC Incentive Auction to Relinquish Spectrum Usage Rights
Commencing in December 2015, broadcasters are being given an opportunity to participate in a Federal Communications Commission ("FCC") incentive auction to relinquish their spectrum usage rights in exchange for payments to be disbursed by the US Treasury. Winning bidders can use a portion of the relinquishment proceeds to facilitate a channel sharing arrangement with another broadcaster that will not participate (or will conditionally participate) in the auction and that will remain on the air following the auction. Until recently, the FCC has wanted all proceeds to be paid only to the winning broadcaster and it was up to the relinquishing broadcaster to choose how to use such proceeds.
Consideration has been given to having winning bidders use a portion of relinquishment proceeds towards a channel sharing arrangement with another broadcaster pursuant to a tax-deferred Section 1031 like-kind exchange. The FCC's position that relinquishment proceeds can be paid only into the account of winning broadcasters prevented such structures.
In response to a number of comments and inquiries, the FCC issued a Public Notice on November 25, 2015, agreeing that relinquishment proceeds can be disbursed to third parties, other than the winning bidders. The Public Notice specifically references a qualified intermediary, a qualified trust, an escrow account, and an account jointly owned by parties to a channel sharing agreement who are owners of that account. This acceptance overcomes a major obstacle towards structuring and using any portion of the relinquishment proceeds in a like-kind exchange.
Two additional points clarified by the Public Notice are that the payments made to winning broadcasters can be disbursed only to a single payee and only to a single account. These requirements can affect the timing of when winning broadcasters can receive the portion of relinquishment proceeds not used in the like-kind exchange.
There are many remaining points for consideration in connection with utilizing a like-kind exchange to structure an arrangement in connection with the upcoming FCC auction.
As further background to this topic, the IRS sent a letter to the FCC during 2014 discussing in broad terms certain tax consequences associated with the upcoming auction, including a discussion of like-kind exchanges. In addition, attached is the letter cited in the recently issued public notice (note 4) in support of expanding permissible recipients of FCC relinquishment proceeds.
We hope you find this information valuable.