In Revenue Procedure 2017-22, the IRS clarified earlier guidance regarding safe harbors for corporate taxpayers receiving grants from the government for capital improvements to transportation services.

Section 118 provides that gross income does not include contributions to a corporation’s capital from non-shareholders. When money is contributed, the corporation must reduce the basis of any property acquired within 12 months by the amount of the contribution. I.R.C. § 362(c). Any excess contribution must be applied to reduce the basis of other property held by the corporation. Id.  

In Revenue Procedure 2010-46, the IRS set forth a safe harbor for capital investments in transportation trades or businesses. Specifically, Revenue Procedure 2010-46 applies to grants received 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)).” Under the safe harbor, if a corporate taxpayer receiving such a grant reduces the basis of its property within the 12 month period, the IRS will not challenge the taxpayer’s classification of the grant as a contribution to capital excludable from the taxpayer’s income.  

In Revenue Procedure 2017-22, the IRS clarified that the safe harbor described above also will apply to any TIGER Discretionary Grants authorized in the years following 2010 (the publication year) and in any future years. This recent guidance is a helpful clarification for all taxpayers receiving federal grants under these programs.

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