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Internal Revenue Service to Issue Guidance Allowing Lead Service Line Replacement to Proceed
Cities have been prevented from replacing private lead service lines because the work would have had to be reported as taxable income against the property owner.
In a major win for cities, nationwide, the Internal Revenue Service (IRS) alerted the League of Minnesota Cities and others on Feb. 23 that it will be issuing formal clarification — as an official IRS tax guidance update — on March 11, 2024, that work done by water service providers to replace lead service lines on private properties will not need to be reported as taxable income.
Laying the groundwork
That announcement culminates a year-long campaign by LMC, the office of Gov. Tim Walz, the Minnesota Department of Health, and the Minnesota Public Facilities Authority to have that barrier removed to address the significant potential public health issue of private lead service connections.
The work came to a head over the winter 2023-2024 as the municipal leagues from Minnesota and Nebraska teamed up to involve their congressional delegations in pushing the IRS to solve this problem. A letter signed by Republican and Democratic members of both the House and Senate was released under the leadership of the offices of Sen. Amy Klobuchar (D-Minnesota) and Sen. Debra Fischer (R-Nebraska) on Feb. 13, 2024.
The letter requested that the IRS immediately develop a solution that allowed this important and federally required work to move ahead by removing the illogical requirement that the work counted as income, even though the property owner never received any money, and it did not improve the value of the property other than removing a public health threat. The National League of Cities also became involved at that point.
The result of this effort was the Feb. 23 announcement by the IRS of completed guidance that will become official when it is published on March 11, 2024.
View a draft of the IRS’ updated guidance on lead service line replacement requirements (pdf).
Members of the Minnesota delegation that signed the letter included Sen. Klobuchar, Sen. Tina Smith, Rep. Angie Craig, Rep. Betty McCollum, Rep. Ilhan Omar, and Rep. Dean Phillips. Their support played a key role in resolving this issue for cities across the country.