A bill to amend the Internal Revenue Code of 1986 to provide that certain contributions by government entities are treated as contributions to capital.
Bill: S.1997 | Sponsor: Sen. Shaheen, Jeanne (D-NH)
Policy area: Taxation

Summary:
This bill revises requirements for the tax exclusion for contributions to the capital of a corporation. Specifically, the bill allows an exclusion for certain amounts received by a regulated public utility that provides water or sewerage disposal services.

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 Representatives 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 Revenue Code of 1986 
is amended--
            (1) by redesignating subsection (d) as subsection (e), and
            (2) by striking subsections (b) and (c) and inserting 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 property other 
                than water or sewerage disposal facilities, such amount 
                meets the requirements of the expenditure rule of 
                paragraph (2), and
                    ``(C) such amount (or any property acquired or 
                constructed with such amount) is not included in the 
                taxpayer's rate base for ratemaking 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 subparagraph 
                (A) occurs before the end of the second 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 allocated, and the year in 
                which the contributions and expenditures are received 
                and made.
            ``(3) Definitions.--For purposes of this subsection--
                    ``(A) Contribution in aid of construction.--The 
                term `contribution in aid of construction' shall be 
                defined by regulations prescribed by the Secretary, 
                except that such term shall not include amounts paid as 
                service charges for starting or stopping services.
                    ``(B) Predominantly.--The term `predominantly' 
                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 sewerage 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 credit shall be allowed for, or by reason of, 
        any expenditure which constitutes a contribution in aid of 
        construction to which this subsection applies. The adjusted 
        basis of any property acquired with contributions in aid of 
        construction to which this subsection applies shall be zero.
    ``(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 prescribe) of--
                    ``(A) the amount of the expenditure referred to in 
                subparagraph (A) of subsection (c)(2),
                    ``(B) the taxpayer's intention not to make the 
                expenditures referred to in such subparagraph, 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.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to contributions made after December 22, 2017.
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