WASHINGTON - U.S. Senators Amy Klobuchar (D-MN), Deb Fischer (R-NE), Tina Smith (D-MN), Pete Ricketts (R-NE), Gary C. Peters (D-MI), and Raphael Warnock (D-GA), along with Representatives Daniel T. Kildee (D-MI), Don Bacon (R-NE), Angie Craig (D-MN), Mike Flood (R-NE), Betty McCollum (D-MN), Gwen Moore (D-WI), Ilhan Omar (D-MN), Rashida Tlaib (D-MI), and Dean Phillips (D-MN) called on Internal Revenue Service (IRS) Commissioner Danny Werfel to make clear that property owners will not owe taxes on the cost of having their lead service lines replaced through funding provided by the Infrastructure Investment and Jobs Act.
“There are an estimated 9.2 million service lines across the country leaching lead into drinking water, putting the health of children and families at risk,” the lawmakers wrote. “Unfortunately, many state and local governments have been unable to use these critical federal resources to begin replacing lead service lines due to the uncertain tax status of lead pipe replacement projects in our states. The IRS must act expeditiously to remedy this issue.”
“We understand the IRS is working on guidance clarifying that lead pipe replacement projects will be considered non-taxable under the General Welfare Exclusion,” continued the lawmakers. “While we appreciate the IRS’s attention to this issue, it is critical that the agency act as swiftly as possible so state and local governments can begin working with residents to remove dangerous lead service lines from housing units of all types.”
The Infrastructure Investment and Jobs Act, which Klobuchar supported, was signed into law in 2021 and delivered a 50 percent increase in the amount of available funding for grants and resources for improving the state’s roads, bridges, public transportation, and water infrastructure.
The law also provided significant resources for state and local governments to replace lead service lines at no cost to property owners in communities across the country. However, many state and local governments have been unable to move forward with lead service line replacement projects because the IRS has not clarified whether property owners must report the cost of lead service line replacement as gross income, and could in turn owe thousands of dollars in taxes.
The full text of the letter is available HERE and below:
Dear Commissioner Werfel:
We write to urge the Internal Revenue Service to clarify the tax status of lead pipe replacement grants as soon as possible.
As you know, the Infrastructure Investment and Jobs Act provided long-overdue federal funding to replace dangerous lead water pipes. There are an estimated 9.2 million service lines across the country leaching lead into drinking water, putting the health of children and families at risk. Unfortunately, many state and local governments have been unable to use these critical federal resources to begin replacing lead service lines due to the uncertain tax status of lead pipe replacement projects in our states. The IRS must act expeditiously to remedy this issue.
Through its General Welfare Exclusion, the IRS has a long history of exempting taxpayers from reporting legislatively provided payments that promote public health as taxable income. This policy should apply to property owners receiving funds for lead pipe replacements as well. However, the cost of removing and replacing lead service lines through programs in our states currently must be reported as taxable income. As a result, property owners who have lead pipes replaced through this funding will be taxed for the cost of the replacement work and could in turn owe thousands of dollars in taxes.
We understand the IRS is working on guidance clarifying that lead pipe replacement projects will be considered non-taxable under the General Welfare Exclusion. While we appreciate the IRS’s attention to this issue, it is critical that the agency act as swiftly as possible so state and local governments can begin working with residents to remove dangerous lead service lines from housing units of all types.
Thank you for your urgent attention to this matter.
###
