rp-10-46.pdf

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Rev. Proc. 2010-46

SECTION 1. PURPOSE
This revenue procedure provides a safe harbor under section 118(a) of the
Internal Revenue Code for certain grant amounts received by corporate taxpayers
engaged in a transportation trade or business for capital projects under 49 U.S.C.
24105, 24401 et
seq., and 26106, as enacted by sections 301, 302, and 501, Division B
of the Passenger Rail Investment and Improvement Act of 2008 (Pub. L. 110-432), and
as amended by Title XII, Division A of the American Recovery and Reinvestment Act of
2009 (Pub. L. 111-5) (ARRA).
Also, this revenue procedure provides a safe harbor under section 118(a) of the
Code for certain grant amounts received by corporate taxpayers engaged in a
transportation trade or business for capital investments in surface transportation
infrastructure under (1) the Supplemental Discretionary Grants for Capital Investments
in Surface Transportation Infrastructure (TIGER Discretionary Grants) program as
authorized by Title XII, Division A of ARRA; or (2) the National Infrastructure
Investments (TIGER II Discretionary Grants) program as authorized by the
Transportation, Housing and Urban Development, and Related Agencies Appropriations
Act for 2010 (Title I, Division A of the Consolidated Appropriations Act, 2010 (Pub. L.
111-117)).

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SECTION 2. BACKGROUND
Section 118(a) of the Code provides that in the case of a corporation, gross
income does not include a contribution to the capital of the taxpayer.
Section 1.118-1 of the Income Tax Regulations provides that section 118 applies
to contributions to capital made by a person other than a shareholder, for example,
property contributed to a corporation by a governmental unit for the purpose of enabling
the corporation to expand its operating facilities.
Section 362(c)(2) of the Code requires a basis reduction in a corporation's
property when the corporation receives money from a nonshareholder as a contribution
to its capital.
The Congestion Grant program under 49 U.S.C. 24105(a) provides that the
Secretary of Transportation (the Secretary) may make grants for financing the capital
costs of facilities, infrastructure, and equipment for high priority rail corridor projects
necessary to reduce congestion or facilitate ridership growth in intercity rail passenger
transportation.
The Intercity Passenger Rail Service Corridor Capital Assistance program under
49 U.S.C. 24402(a)(1) provides that the Secretary may make grants to assist in
financing the capital costs of facilities, infrastructure, and equipment necessary to
provide or improve intercity passenger rail transportation.
The High-Speed Rail Corridor Development program under 49 U.S.C. 26106(a)
provides that the Secretary shall establish and implement a high-speed rail corridor

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development program. 49 U.S.C. 26106(c) provides that the Secretary may make
grants to finance capital projects in high-speed rail corridors.
The Federal Railway Administration of the Department of Transportation (DOT)
issued a Notice of Funding Availability (NOFA), 74 FR 29900, that provides guidance on
the High-Speed Intercity Passenger Rail Program, which includes the Congestion Grant
program, the Intercity Passenger Rail Service Corridor Capital Assistance program, and
the High-Speed Rail Corridor Development program. If Congress makes additional
appropriations for these programs, the DOT may issue future NOFAs.
The Office of the Secretary of the DOT issued a NOFA, 74 FR 28755, that
provides guidance on TIGER Discretionary Grants. The grants must be for capital
investments in surface transportation infrastructure. If Congress makes additional
appropriations for this program, the DOT may issue future NOFAs.
The Office of the Secretary of the DOT issued a NOFA, 75 FR 30460, that
provides guidance on TIGER II Discretionary Grants. The grants must be for capital
investments in surface transportation infrastructure. The NOFA contemplates that some
funds may be used to fund the planning, preparation, or design of projects (Tiger II
Planning Grants). If Congress makes additional appropriations for this program, the
DOT may issue future NOFAs.
SECTION 3. SCOPE
This revenue procedure applies to corporate taxpayers engaged in a
transportation trade or business that receive grant amounts for capital projects under 49
U.S.C. 24105, 24401 et
seq., and 26106. However, in no case will this revenue

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procedure apply to amounts received for the following: (1) the cost of National
Environmental Policy Act Documentation, Preliminary Engineering costs that are not
capitalized for tax purposes, or the cost of a Service Development Plan as described in
74 FR 29906, section 2.2; (2) the cost of developing a State Rail Plan under 49 U.S.C.
24402(b)(1); or (3) the first-dollar liability cost for insurance related to the provision of
intercity passenger rail service under 49 U.S.C. 24404.
Also, this revenue procedure applies to corporate taxpayers engaged in a
transportation trade or business that receive grant amounts for the costs of capital
investments in surface transportation infrastructure under TIGER Discretionary Grants
or under TIGER II Discretionary Grants. In no case will this revenue procedure apply to
amounts received to pay the subsidy and administrative costs of the Transportation
Infrastructure Finance and Innovation Act of 1998 or to amounts received for TIGER II
Planning Grants.
Further, this revenue procedure does not apply to noncorporate taxpayers.
SECTION 4. PROCEDURE
The Internal Revenue Service will not challenge a corporate taxpayer’s treatment
of grant amounts received by the corporation for capital projects under 49 U.S.C.
24105, 24401 et
seq., or 26106 as a nonshareholder contribution to the capital of the
corporation under section 118(a) of the Code if the corporation properly reduces the
basis of its property under section 362(c)(2) and the regulations thereunder.
Also, the Service will not challenge a corporate taxpayer’s treatment of grant
amounts received by the corporation under TIGER Discretionary Grants for capital

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investments in surface transportation infrastructure or under TIGER II Discretionary
Grants for capital investments in surface transportation infrastructure as a
nonshareholder contribution to the capital of the corporation under section 118(a) of the
Code if the corporation properly reduces the basis of its property under section
362(c)(2) and the regulations thereunder.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective November 12, 2010.
SECTION 6. DRAFTING INFORMATION

The principal author of this revenue procedure is David McDonnell of the Office
of Associate Chief Counsel (Passthroughs & Special Industries). For further information
regarding this revenue procedure contact Mr. McDonnell at (202) 622-3040 (not a toll
free call).