§118 — Contributions to the capital of a corporation
82 cases·14 followed·15 distinguished·1 questioned·1 criticized·1 overruled·50 cited—17% support
Statute Text — 26 U.S.C. §118
In the case of a corporation, gross income does not include any contribution to the capital of the taxpayer.
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, and
any contribution by any governmental entity or civic group (other than a contribution made by a shareholder as such).
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—
such amount is—
a contribution in aid of construction, or
a contribution to the capital of such utility by a governmental entity providing for the protection, preservation, or enhancement of drinking water or sewerage disposal services,
in the case of a contribution in aid of construction which is property other than water or sewerage disposal facilities, such amount meets the requirements of the expenditure rule of paragraph (2), and
such amount (or any property acquired or constructed with such amount) is not included in the taxpayer’s rate base for ratemaking purposes.
An amount meets the requirements of this paragraph if—
an amount equal to such amount is expended for the acquisition or construction of tangible property described in section 1231(b)—
which is the property for which the contribution was made or is of the same type as such property, and
which is used predominantly in the trade or business of furnishing water or sewerage disposal services,
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
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.
For purposes of this subsection—
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.
The term “predominantly” means 80 percent or more.
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.
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.
If the taxpayer for any taxable year treats an amount as a contribution to the capital of the taxpayer described in subsection (c)(1)(A)(i), then—
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—
the amount of the expenditure referred to in subparagraph (A) of subsection (c)(2),
the taxpayer’s intention not to make the expenditures referred to in such subparagraph, or
a failure to make such expenditure within the period described in subparagraph (B) of subsection (c)(2), and
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.
For basis of property acquired by a corporation through a contribution to its capital, see section 362.
For special rules in the case of contributions of indebtedness, see section 108(e)(6).
Treasury Regulations
- Treas. Reg. §Treas. Reg. §1.118-1 Contributions to the capital of a corporation
- Treas. Reg. §Treas. Reg. §1.118-2 Contribution in aid of construction
- Treas. Reg. §Treas. Reg. §1.118-2(a) Special rule for water and sewerage disposal utilities—(1) In general.
- Treas. Reg. §Treas. Reg. §1.118-2(b) Contribution in aid of construction—(1) In general.
- Treas. Reg. §Treas. Reg. §1.118-2(c) Expenditure rule—(1) In general.
- Treas. Reg. §Treas. Reg. §1.118-2(d) Adjusted basis—(1) Exclusion from basis.
- Treas. Reg. §Treas. Reg. §1.118-2(e) Statute of limitations—(1) Extension of statute of limitations.
- Treas. Reg. §Treas. Reg. §1.118-2(f) Effective date.
- Treas. Reg. §Treas. Reg. §1.118-2(i) §1.118-2(i)
82 Citing Cases
Nonshareholder Contributions to Capital Section 118(a) generally excludes from gross income any contribution to the capital of a corporation. This includes contributions made by nonshareholders. Treas. Reg. § 1.118-1. The exclusion does not apply, however, to any money or other property transferred in consideration for goods or services rendered.5 Id.
In Saline Sewer we held that “the failure to report customer connection fees as income, and instead treat them as contributions to capital pursuant to section 118, is clearly not a timing issue.” See id at *9.
Accordingly, we hold that petitioners did not strictly comply with the requirement under section 170 and the regulations thereunder that the taxpayer obtain a CWA.
Contributions to the capital of a corporation.-- In the case of a corporation, section 118 provides an exclusion from gross income with respect to any contribution of money or property to the capital of the taxpayer.
- 22 - [*22] Petitioner argues that it falls under one such exclusion: section 118(a),¹² which provides that, in general, "[i]n the case ofa corporation, gross income does not include any contribution to the capital ofthe taxpayer." As relevant in this matter, section 1.118-1, Income Tax Regs., provides: In the case ofa corporation, section 118 provides an exclusion from gross income with respect to any contribution ofmoney or property to the capital ofthe taxpayer. * * * Section 118 also applie
W&N CAL of the $1,622 , 050 loan payments, petitioners ' August 30 , 2001, capital contributions to G&D and to W&N CAL were treated by petitioners as constituting income under section 1366 (a)(1) to G&D and W&N CAL (albeit as excludable income under section 118) and therefore as restoring or increasing under section 1367 (b)(2)(B) petitioners' respective tax bases in the outstanding loans each petitioner made to G&D and W&N CAL as follows : Each Petitioner's Tax Bases in Loans To G&D and W&N CAL
W&N CAL of the $1,622 , 050 loan payments, petitioners ' August 30 , 2001, capital contributions to G&D and to W&N CAL were treated by petitioners as constituting income under section 1366 (a)(1) to G&D and W&N CAL (albeit as excludable income under section 118) and therefore as restoring or increasing under section 1367 (b)(2)(B) petitioners' respective tax bases in the outstanding loans each petitioner made to G&D and W&N CAL as follows : Each Petitioner's Tax Bases in Loans To G&D and W&N CAL
- 3 - under section 118, as a nontaxable capital contribution by the Mexican Government to petitioner or to Procesos.
s. - 4 - Petitioner did not report the $35,625 on its 1989 Federal income tax return. In her notice of deficiency, respondent determined that the $35,625 was includable in petitioner's income for 1989 as "contributions in aid of construction" under section 118. At trial and in its briefs, petitioner argued that: (1) The contribution by McArthy (escrowed funds) is not a "contribution in aid of construction" within the meaning of section 118(b), but a nontaxable contribution to the capital of Impe
Section 118 Thermal argues that the $4.3 million paid by NVT is excludable from income under section 118(a), which provides that “[i]n the case of a corporation, gross income does not include any contribution to the capital of the taxpayer.” The Commissioner argues that the exceptions to section 118(a) found in section 118(b) preclude a capital con
Petitioner characterizes the transfer fees as contributions to capital and principally relies on section 118 for the proposition that contributions to capital are not included in the gross income of a corporation.
Alternatively, if gain was realized on the exchange of the Mexican debt for the Mexican pesos, petitioner argues that the gain should be regarded as having been realized not by petitioner but by Procesos and that the gain should be treated, under section 118, as a nontaxable contribution of capital by the Mexican Government to Procesos.
Petitioner argues that section 118, which 18 Respondent determined penalties for tax year ending November 30, 2015, as a computational adjustment related to the deficiencies from tax years ending November 30, 2010 through 2012.
138 (2002). Gross income derived from an individual's trade or business may be subject to self-employmenttax even when it is attributable in whole or in part to services rendered in a prior taxable year. Sec. 1.1402(a)-1(c), Income Tax Regs. Section 1402(k) exempts the termination - 7 - [*7] payments ofinsurance salesmen from self-emplo
Section 170(f)(8)(B) provides that a contemporaneous written acknowledgment must include: (i) The amount ofcash and a description (but not value) ofany property other than cash contributed.
Section 170(f)(8)(B) provides that a contemporaneous written acknowledgment must include: (i) The amount ofcash and a description (but not value) ofany property other than cash contributed.
Section 170(f)(8)(B) provides that a contemporaneous written acknowledgment must include: (i) The amount ofcash and a description (but not value) ofany property other than cash contributed.
The taxpayers in Nathel argued that "because section 118 excludes capital contributions from the gross income ofan S - 25 - [*25] corporation in all circumstances, capital contributions to an S corporation are 'permanently excludible' from the gross income ofthe S corporation and are thus tax-exempt income' under section 1.1366-1(a)(2)(viii), Income Tax Regs.".
The taxpayers in Nathel argued that "because section 118 excludes capital contributions from the gross income ofan S - 25 - [*25] corporation in all circumstances, capital contributions to an S corporation are 'permanently excludible' from the gross income ofthe S corporation and are thus tax-exempt income' under section 1.1366-1(a)(2)(viii), Income Tax Regs.".
The taxpayers in Nathel argued that "because section 118 excludes capital contributions from the gross income ofan S - 25 - [*25] corporation in all circumstances, capital contributions to an S corporation are 'permanently excludible' from the gross income ofthe S corporation and are thus tax-exempt income' under section 1.1366-1(a)(2)(viii), Income Tax Regs.".
The taxpayers in Nathel argued that "because section 118 excludes capital contributions from the gross income ofan S - 25 - [*25] corporation in all circumstances, capital contributions to an S corporation are 'permanently excludible' from the gross income ofthe S corporation and are thus tax-exempt income' under section 1.1366-1(a)(2)(viii), Income Tax Regs.".
The taxpayers in Nathel argued that "because section 118 excludes capital contributions from the gross income ofan S - 25 - [*25] corporation in all circumstances, capital contributions to an S corporation are 'permanently excludible' from the gross income ofthe S corporation and are thus tax-exempt income' under section 1.1366-1(a)(2)(viii), Income Tax Regs.".
ealized no gain on the transaction; (2) that the transaction should not be viewed as a taxable exchange because petitioner could not legally own an interest in the U.S.-dollar-denominated debt of the Mexican Government; and (3) that if gain was realized over petitioner’s cost of participating in the transaction, such gain should be regarded, under section 118, as a nontaxable capital contribution by the Mexican Government to petitioner or to Procesos.