A bill to amend the Internal Revenue Code of 1986 to provide that certain contributions by government entities are treated as contributions to capital.

II 117TH CONGRESS 1ST SESSION S. 1997 To amend the Internal Revenue Code of 1986 to provide that certain contributions by government entities are treated as contributions to capital. IN THE SENATE OF THE UNITED STATES JUNE 9, 2021 Mrs. SHAHEEN (for herself, Ms. MURKOWSKI, and Ms. HASSAN) introduced the following bill; which was read twice and referred to the Committee on Finance 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- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. TREATMENT OF CERTAIN CONTRIBUTIONS BY 3 GOVERNMENT ENTITIES AS CONTRIBUTIONS 4 TO CAPITAL. 5 (a) IN GENERAL.—Section 118 of the Internal Rev- 6 enue Code of 1986 is amended— 7 (1) by redesignating subsection (d) as sub- 8 section (e), and 9 VerDate Sep 11 2014 04:56 Jun 18, 2021 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S1997.IS S1997 kjohnson on DSK79L0C42PROD with BILLS 2 •S 1997 IS (2) by striking subsections (b) and (c) and in- 1 serting the following: 2 ‘‘(b) CONTRIBUTIONS IN AID OF CONSTRUCTION, 3 ETC.—For purposes of subsection (a), except as provided 4 in subsection (c), the term ‘contribution to the capital of 5 the taxpayer’ does not include any contribution in aid of 6 construction or any other contribution as a customer or 7 potential customer. 8 ‘‘(c) SPECIAL RULES FOR WATER AND SEWERAGE 9 DISPOSAL UTILITIES.— 10 ‘‘(1) GENERAL RULE.—For purposes of this 11 section, the term ‘contribution to the capital of the 12 taxpayer’ includes any amount of money or other 13 property received from any person (whether or not 14 a shareholder) by a regulated public utility which 15 provides water or sewerage disposal services if— 16 ‘‘(A) such amount is a contribution in aid 17 of construction, 18 ‘‘(B) in the case of contribution of prop- 19 erty other than water or sewerage disposal fa- 20 cilities, such amount meets the requirements of 21 the expenditure rule of paragraph (2), and 22 ‘‘(C) such amount (or any property ac- 23 quired or constructed with such amount) is not 24 VerDate Sep 11 2014 04:56 Jun 18, 2021 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1997.IS S1997 kjohnson on DSK79L0C42PROD with BILLS 3 •S 1997 IS included in the taxpayer’s rate base for rate- 1 making purposes. 2 ‘‘(2) EXPENDITURE RULE.—An amount meets 3 the requirements of this paragraph if— 4 ‘‘(A) an amount equal to such amount is 5 expended for the acquisition or construction of 6 tangible property described in section 7 1231(b)— 8 ‘‘(i) which is the property for which 9 the contribution was made or is of the 10 same type as such property, and 11 ‘‘(ii) which is used predominantly in 12 the trade or business of furnishing water 13 or sewerage disposal services, 14 ‘‘(B) the expenditure referred to in sub- 15 paragraph (A) occurs before the end of the sec- 16 ond taxable year after the year in which such 17 amount was received, and 18 ‘‘(C) accurate records are kept of the 19 amounts contributed and expenditures made, 20 the expenditures to which contributions are al- 21 located, and the year in which the contributions 22 and expenditures are received and made. 23 ‘‘(3) DEFINITIONS.—For purposes of this sub- 24 section— 25 VerDate Sep 11 2014 04:56 Jun 18, 2021 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1997.IS S1997 kjohnson on DSK79L0C42PROD with BILLS 4 •S 1997 IS ‘‘(A) CONTRIBUTION IN AID OF CONSTRUC- 1 TION.—The term ‘contribution in aid of con- 2 struction’ shall be defined by regulations pre- 3 scribed by the Secretary, except that such term 4 shall not include amounts paid as service 5 charges for starting or stopping services. 6 ‘‘(B) PREDOMINANTLY.—The term ‘pre- 7 dominantly’ means 80 percent or more. 8 ‘‘(C) REGULATED PUBLIC UTILITY.—The 9 term ‘regulated public utility’ has the meaning 10 given such term by section 7701(a)(33), except 11 that such term shall not include any utility 12 which is not required to provide water or sewer- 13 age disposal services to members of the general 14 public in its service area. 15 ‘‘(4) DISALLOWANCE OF DEDUCTIONS AND 16 CREDITS; ADJUSTED BASIS.—Notwithstanding any 17 other provision of this subtitle, no deduction or cred- 18 it shall be allowed for, or by reason of, any expendi- 19 ture which constitutes a contribution in aid of con- 20 struction to which this subsection applies. The ad- 21 justed basis of any property acquired with contribu- 22 tions in aid of construction to which this subsection 23 applies shall be zero. 24 VerDate Sep 11 2014 04:56 Jun 18, 2021 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S1997.IS S1997 kjohnson on DSK79L0C42PROD with BILLS 5 •S 1997 IS ‘‘(d) STATUTE OF LIMITATIONS.—If the taxpayer for 1 any taxable year treats an amount as a contribution to 2 the capital of the taxpayer described in subsection (c), 3 then— 4 ‘‘(1) the statutory period for the assessment of 5 any deficiency attributable to any part of such 6 amount shall not expire before the expiration of 3 7 years from the date the Secretary is notified by the 8 taxpayer (in such manner as the Secretary may pre- 9 scribe) of— 10 ‘‘(A) the amount of the expenditure re- 11 ferred to in subparagraph (A) of subsection 12 (c)(2), 13 ‘‘(B) the taxpayer’s intention not to make 14 the expenditures referred to in such subpara- 15 graph, or 16 ‘‘(C) a failure to make such expenditure 17 within the period described in subparagraph 18 (B) of subsection (c)(2), and 19 ‘‘(2) such deficiency may be assessed before the 20 expiration of such 3-year period notwithstanding the 21 provisions of any other law or rule of law which 22 would otherwise prevent such assessment.’’. 23 VerDate Sep 11 2014 04:56 Jun 18, 2021 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S1997.IS S1997 kjohnson on DSK79L0C42PROD with BILLS 6 •S 1997 IS (b) EFFECTIVE DATE.—The amendments made by 1 this section shall apply to contributions made after De- 2 cember 22, 2017. 3 Æ VerDate Sep 11 2014 04:56 Jun 18, 2021 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6301 E:\BILLS\S1997.IS S1997 kjohnson on DSK79L0C42PROD with BILLS