Ruling on sale of spectrum-based content distribution rights

Tax Hot Topics newsletter The IRS ruled that the sale or disposition of spectrum-based content distribution rights and related assets associated with a taxpayer's broadcast services to the Federal Communications Commission was a sale under a threat of an involuntary conversion for purposes of Section 1033 and that stock acquired was also eligible for Section 1033 treatment (PLR 201816008).

The taxpayer is a television broadcasting company that provides programming to television stations. The Middle Class Tax Relief and Job Creation Act of 2012 (Spectrum Act) implemented a mandate to repurpose spectrum in the 600 MHz band currently used by television broadcasters to meet mobile broadband needs. Television broadcasters were provided the option to participate in an Incentive Auction, intended to motivate the relinquishment of some or all of their 600 MHz spectrum usage rights. Alternatively, broadcasters could forgo the Incentive Auction but potentially be subject to repacking, which entails involuntary spectrum reassignment with limited compensation.

A voluntary sale qualifies as an involuntary conversion under Section 1033 if the threat or imminence of condemnation is present at the time of sale. Under the Spectrum Act, if a broadcaster does not participate in the Incentive Auction, there are reasonable grounds to expect that condemnation is forthcoming due to the threat of repacking. Therefore, the sale of spectrum-based content distribution rights constitutes a disposition under a threat of condemnation for purposes of Section 1033, PLR 201702034, which concluded the same holding under similar facts.

Furthermore, the acquisition of stock in a corporation primarily engaged in the operation of a broadcasting station may qualify as replacement property for purposes of Section 1033 with respect to the sale of the broadcasting station. The IRS held that the taxpayer’s purchase of stock during the replacement period will qualify as “stock in the acquisition of control of a corporation owning property similar or related in service or use” to the spectrum-based content distribution rights within the meaning of Section 1033(a)(2)(A).

Sharon Kay
Washington National Tax Office
T +1 202 861 4140

John Suttora
Managing Director
Washington National Tax Office
T +1 202 521 1523

David Auclair
National Managing Principal
Washington National Tax Office
T +1 202 521 1515

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