auction-block-150x140The FCC today issued a Public Notice to clarify that, under certain conditions, it will distribute the proceeds from the forthcoming Reverse Auction to a third party, such as a qualified intermediary or an escrow account.  This clarification may help broadcasters obtain more favorable tax treatment for their reverse auction proceeds in certain circumstances.

In its earlier Applications Procedures Public Notice, the Commission indicated that it will “follow winning reverse auction bidders’ payment instructions as set forth on their respective standardized incentive payment forms to the extent permitted by law.”  Several broadcasters sought further clarification, particularly as it relates to using a qualified intermediary or an escrow agent to distribute proceeds to channel sharing partners.  Many broadcasters expressed concerns that a host/sharer’s portion of the proceeds could be “double taxed” if the full amount is first distributed to the sharee and then redistributed to the host/sharer.

Under the procedures announced today, the FCC will disburse proceeds to any single party as directed by the winning bidder.  Examples of third parties to whom proceeds can be distributed include “a ‘qualified intermediary,’ a ‘qualified trust,’ an escrow account, or an account jointly owned by
parties to a channel sharing agreement (CSA) who are named as owners of that account.”  The FCC, however, will only disburse funds to a single payee.  So, for example, while it will pay an escrow agent or a joint account, it will not make direct payments to both the sharee and the host/sharer (unless the host/sharer also submitted a winning bid, such as to move to VHF).  Additionally, a broadcaster requesting payment to a third party must: (1) agree to indemnify and to hold harmless the United States from any and all liability arising from the disbursement of incentive payments and (2) acknowledge and agree that the payments are subject to offset pursuant to applicable law for debts (owed to the Commission or the United States) by either the winning bidder or the third party payee designated by the winning bidder, and (3) acknowledge and agree that payments will not be made to (or for the benefit of) any winning bidder or other payee appearing on the U.S. Treasury’s “Do Not Pay” portal.

The FCC did not opine on the tax consequences of its new procedures, and we suggest that parties consult with their accountant and/or tax counsel regarding their individual circumstances.

 

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