I 
117TH CONGRESS 
1ST SESSION H. R. 5366 
To amend the Internal Revenue Code of 1986 to provide that certain 
contributions by government entities are treated as contributions to capital. 
IN THE HOUSE OF REPRESENTATIVES 
SEPTEMBER 24, 2021 
Ms. KUSTER introduced the following bill; which was referred to the 
Committee on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to provide 
that certain contributions by government entities are 
treated as contributions to capital. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. TREATMENT OF CERTAIN CONTRIBUTIONS BY 
GOVERNMENT ENTITIES AS CONTRIBUTIONS 
TO CAPITAL. 
(a) IN GENERAL.—Section 118 of the Internal Rev-
enue Code of 1986 is amended— 
(1) by redesignating subsection (d) as sub-
section (e), and 
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(2) by striking subsections (b) and (c) and in-
serting the following: 
‘‘(b) CONTRIBUTIONS
IN AID
OF CONSTRUCTION, 
ETC.—For purposes of subsection (a), except as provided 
in subsection (c), the term ‘contribution to the capital of 
the taxpayer’ does not include any contribution in aid of 
construction or any other contribution as a customer or 
potential customer. 
‘‘(c) SPECIAL RULES FOR WATER AND SEWERAGE 
DISPOSAL UTILITIES.— 
‘‘(1) GENERAL
RULE.—For purposes of this 
section, the term ‘contribution to the capital of the 
taxpayer’ includes any amount of money or other 
property received from any person (whether or not 
a shareholder) by a regulated public utility which 
provides water or sewerage disposal services if— 
‘‘(A) such amount is a contribution in aid 
of construction, 
‘‘(B) in the case of contribution of prop-
erty other than water or sewerage disposal fa-
cilities, such amount meets the requirements of 
the expenditure rule of paragraph (2), and 
‘‘(C) such amount (or any property ac-
quired or constructed with such amount) is not 
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included in the taxpayer’s rate base for rate-
making purposes. 
‘‘(2) EXPENDITURE RULE.—An amount meets 
the requirements of this paragraph if— 
‘‘(A) an amount equal to such amount is 
expended for the acquisition or construction of 
tangible 
property 
described 
in 
section 
1231(b)— 
‘‘(i) which is the property for which 
the contribution was made or is of the 
same type as such property, and 
‘‘(ii) which is used predominantly in 
the trade or business of furnishing water 
or sewerage disposal services, 
‘‘(B) the expenditure referred to in sub-
paragraph (A) occurs before the end of the sec-
ond taxable year after the year in which such 
amount was received, and 
‘‘(C) accurate records are kept of the 
amounts contributed and expenditures made, 
the expenditures to which contributions are al-
located, and the year in which the contributions 
and expenditures are received and made. 
‘‘(3) DEFINITIONS.—For purposes of this sub-
section— 
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‘‘(A) CONTRIBUTION IN AID OF CONSTRUC-
TION.—The term ‘contribution in aid of con-
struction’ shall be defined by regulations pre-
scribed by the Secretary, except that such term 
shall not include amounts paid as service 
charges for starting or stopping services. 
‘‘(B) PREDOMINANTLY.—The term ‘pre-
dominantly’ means 80 percent or more. 
‘‘(C) REGULATED PUBLIC UTILITY.—The 
term ‘regulated public utility’ has the meaning 
given such term by section 7701(a)(33), except 
that such term shall not include any utility 
which is not required to provide water or sewer-
age disposal services to members of the general 
public in its service area. 
‘‘(4) DISALLOWANCE
OF
DEDUCTIONS
AND 
CREDITS; ADJUSTED
BASIS.—Notwithstanding any 
other provision of this subtitle, no deduction or cred-
it shall be allowed for, or by reason of, any expendi-
ture which constitutes a contribution in aid of con-
struction to which this subsection applies. The ad-
justed basis of any property acquired with contribu-
tions in aid of construction to which this subsection 
applies shall be zero. 
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‘‘(d) STATUTE OF LIMITATIONS.—If the taxpayer for 
any taxable year treats an amount as a contribution to 
the capital of the taxpayer described in subsection (c), 
then— 
‘‘(1) the statutory period for the assessment of 
any deficiency attributable to any part of such 
amount shall not expire before the expiration of 3 
years from the date the Secretary is notified by the 
taxpayer (in such manner as the Secretary may pre-
scribe) of— 
‘‘(A) the amount of the expenditure re-
ferred to in subparagraph (A) of subsection 
(c)(2), 
‘‘(B) the taxpayer’s intention not to make 
the expenditures referred to in such subpara-
graph, or 
‘‘(C) a failure to make such expenditure 
within the period described in subparagraph 
(B) of subsection (c)(2), and 
‘‘(2) such deficiency may be assessed before the 
expiration of such 3-year period notwithstanding the 
provisions of any other law or rule of law which 
would otherwise prevent such assessment.’’. 
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(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to contributions made after De-
cember 22, 2017. 
Æ 
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