CCA 200922032: Retail-space payments required section 118 capital-contribution analysis

Plain-English summary

In this 2009 email, Chief Counsel distinguished the section 118 rules for contributions in aid of construction from the treatment of payments involving retail space. It stated that section 118(c) applied only to water and sewerage-disposal utilities and treated the covered contributions as capital contributions under section 118(a). Although section 118(b) was not expressly limited to utilities, the office viewed it as applying only to utilities. For retail space, the office would use case law under section 118(a) to determine whether a payment was a contribution to the taxpayer's capital. The email did not resolve the character of any specifically described retail payment.

Ruling snapshot

• Question: Should a payment involving retail space be evaluated under the utility CIAC rules or section 118(a) case law?
• Outcome: Advice given: apply section 118(a) capital-contribution case law to retail-space payments.
• Key authorities: IRC § 118(a), (b), (c), as discussed in the 2009 email.

Full text (IRS public release)

ID: CCA-410345-09 Number: 200922032
Release Date: 5/29/2009
Office: ------------
UILC: 118.01-02

From: ----------------------
Sent: Friday, April 10, 2009 3:45 PM
To: -------------------
Subject: RE: CIACs

A contribution in aid of construction under §118(c) only applies to water and sewerage disposal utilities. We refer to a §118(c) as a good CIAC because it is treated a contribution to the capital of the taxpayer under §118(a). On its face, §118(b) is not limited to other utilities. However, we view §118(b) as only applying to utilities. We call
§118(b) the bad CIAC. For retail space, we only would apply the case law under §118(a) to determine whether the payment is a contribution to the capital of the taxpayer.