26 U.S.C. § 118 — Contributions to the capital of a corpora-

Page 569 TITLE 26—INTERNAL REVENUE CODE § 118 REGULATIONS Secretary of the Treasury or his delegate to issue be- fore Feb. 1, 1988, final regulations to carry out amend- ments made by section 1114 of Pub. L. 99–514, see sec- tion 1141 of Pub. L. 99–514, set out as a note under sec- tion 401 of this title. NONENFORCEMENT OF AMENDMENT MADE BY SECTION 1151 OF PUB. L. 99–514 FOR FISCAL YEAR 1990 No monies appropriated by Pub. L. 101–136 to be used to implement or enforce section 1151 of Pub. L. 99–514 or the amendments made by such section, see section 528 of Pub. L. 101–136, set out as a note under section 89 of this title. APPLICABILITY OF CERTAIN AMENDMENTS BY PUBLIC LAW 99–514 IN RELATION TO TREATY OBLIGATIONS OF UNITED STATES For nonapplication of amendment by section 123(a) of Pub. L. 99–514 to the extent application of such amend- ment would be contrary to any treaty obligation of the United States in effect on Oct. 22, 1986, with provision that for such purposes any amendment by title I of Pub. L. 100–647 be treated as if it had been included in the provision of Pub. L. 99–514 to which such amend- ment relates, see section 1012(aa)(3), (4) of Pub. L. 100–647, set out as a note under section 861 of this title. PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989 For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title. TRANSITIONAL RULES FOR TREATMENT OF CERTAIN REDUCTIONS IN TUITION Pub. L. 99–514, title XVIII, § 1853(f), Oct. 22, 1986, 100 Stat. 2872, provided that: ‘‘(1) A tuition reduction plan shall be treated as meeting the requirements of section 117(d)(3) of the In- ternal Revenue Code of 1954 [now 1986] if— ‘‘(A) such plan would have met the requirements of such section (as amended by this section but without regard to the lack of evidence that benefits under such plan were the subject of good faith bargaining) on the day on which eligibility to participate in the plan was closed, ‘‘(B) at all times thereafter, the tuition reductions available under such plan are available on substan- tially the same terms to all employees eligible to participate in such plan, and ‘‘(C) the eligibility to participate in such plan closed on June 30, 1972, June 30, 1974, or December 31, 1975. ‘‘(2) For purposes of applying section 117(d)(3) of the Internal Revenue Code of 1954 [now 1986] to all tuition reduction plans of an employer with at least 1 such plan described in paragraph (1) of this subsection, there shall be excluded from consideration employees not in- cluded in the plan who are included in a unit of employ- ees covered by an agreement that the Secretary of the Treasury or his delegate finds to be a collective bar- gaining agreement between employee representatives and 1 or more employers, if, with respect to plans other than plans described in paragraph (1), there is evidence that such benefits were the subject of good faith bar- gaining. ‘‘(3) Any reduction in tuition provided with respect to a full-time course of education furnished at the grad- uate level before July 1, 1988, shall not be included in gross income if— ‘‘(A) such reduction would not be included in gross income under the Internal Revenue Service regula- tions in effect on the date of the enactment of the Tax Reform Act of 1984 [July 18, 1984], and ‘‘(B) such reduction is provided with respect to a student who was accepted for admission to such course of education before July 1, 1984, and began such course of education before June 30, 1985.’’ NATIONAL RESEARCH SERVICE AWARDS Pub. L. 95–600, title I, § 161(b), Nov. 6, 1978, 92 Stat. 2810, as amended by Pub. L. 96–167, § 9(b), Dec. 29, 1979, 93 Stat. 1278; Pub. L. 96–541, § 5(b), Dec. 17, 1980, 94 Stat. 3206; Pub. L. 97–248, title II, § 285, Sept. 3, 1982, 96 Stat. 569; Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, pro- vided that any amount paid to, or on behalf of, an indi- vidual as a national research service award under former section 289l–1 of title 42 during calendar years 1974 through 1983 was to be treated as a scholarship or fellowship grant under this section. SCHOLARSHIP PROGRAMS FOR MEMBERS OF THE UNIFORMED SERVICES Pub. L. 93–483, § 4, Oct. 26, 1974, 88 Stat. 1458, as amended Pub. L. 94–455, title XXI, § 2130, Oct. 4, 1976, 90 Stat. 1922; Pub. L. 95–171, § 5, Nov. 12, 1977, 91 Stat. 1355; Pub. L. 95–600, title I, § 161(a), Nov. 6, 1978, 92 Stat. 2810; Pub. L. 95–615, title I, § 6, Nov. 8, 1978, 92 Stat. 3098; Pub. L. 96–167, § 9(a), Dec. 29, 1979, 93 Stat. 1278; Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘(a) IN GENERAL.—Any amount received from appro- priated funds as a scholarship, including the value of contributed services and accommodations, by a mem- ber of a uniformed service who is receiving training under the Armed Forces Health Professions Scholar- ship Program (or any other program determined by the Secretary of the Treasury or his delegate to have sub- stantially similar objectives) from an educational in- stitution (as defined in section 151(e)(4) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) [see section 170(b)(1)(A)(ii) of this title] shall be treated as a schol- arship under section 117 of such Code [this section], whether that member is receiving training while on ac- tive duty or in an off-duty or inactive status, and with- out regard to whether a period of active duty is re- quired of the member as a condition of receiving those payments. ‘‘(b) DEFINITION OF UNIFORMED SERVICES.—For pur- poses of this section, the term ‘uniformed service’ has the meaning given it by section 101(3) of title 37, United States Code. ‘‘(c) EFFECTIVE DATE.—The provisions of this section shall apply with respect to amounts received during calendar years 1973, 1974, and 1975, and, in the case of a member of a uniformed service receiving training after 1975 and before 1981 in programs described in subsection (a), with respect to amounts received after 1975 and be- fore 1985.’’ [Section 6 of Pub. L. 95–615, which reenacted § 4(c) of Pub. L. 93–483 without change, to cease to have effect on the day after Nov. 8, 1978, see section 210(a) of Pub. L. 95–615, set out as a note under section 61 of this title.] § 118. Contributions to the capital of a corpora- tion (a) General rule In the case of a corporation, gross income does not include any contribution to the capital of the taxpayer. (b) Exceptions For purposes of subsection (a), except as pro- vided in subsection (c), the term ‘‘contribution to the capital of the taxpayer’’ does not in- clude— (1) any contribution in aid of construction or any other contribution as a customer or po- tential customer, and Page 570 TITLE 26—INTERNAL REVENUE CODE § 118 (2) any contribution by any governmental entity or civic group (other than a contribu- tion made by a shareholder as such). (c) Special rules for water and sewerage disposal utilities (1) General rule For purposes of this section, the term ‘‘con- tribution to the capital of the taxpayer’’ in- cludes 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— (A) such amount is— (i) a contribution in aid of construction, or (ii) a contribution to the capital of such utility by a governmental entity providing for the protection, preservation, or en- hancement of drinking water or sewerage disposal services, (B) 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 ex- penditure rule of paragraph (2), and (C) such amount (or any property acquired or constructed with such amount) is not in- cluded in the taxpayer’s rate base for rate- making purposes. (2) Expenditure rule An amount meets the requirements of this paragraph if— (A) an amount equal to such amount is ex- pended for the acquisition or construction of tangible property described in section 1231(b)— (i) which is the property for which the contribution was made or is of the same type as such property, and (ii) which is used predominantly in the trade or business of furnishing water or sewerage disposal services, (B) the expenditure referred to in subpara- graph (A) occurs before the end of the second taxable year after the year in which such amount was received, and (C) accurate records are kept of the amounts contributed and expenditures made, the expenditures to which contribu- tions are allocated, and the year in which the contributions and expenditures are re- ceived and made. (3) Definitions For purposes of this subsection— (A) Contribution in aid of construction The term ‘‘contribution in aid of construc- tion’’ shall be defined by regulations pre- scribed by the Secretary, except that such term shall not include amounts paid as serv- ice charges for starting or stopping services. (B) Predominantly The term ‘‘predominantly’’ means 80 per- cent or more. (C) Regulated public utility 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 serv- ice area. (4) Disallowance of deductions and credits; ad- justed basis Notwithstanding any other provision of this subtitle, no deduction or credit shall be al- lowed for, or by reason of, any expenditure which constitutes a contribution in aid of con- struction 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. (d) Statute of limitations 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— (1) 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 noti- fied by the taxpayer (in such manner as the Secretary may prescribe) of— (A) the amount of the expenditure referred to in subparagraph (A) of subsection (c)(2), (B) the taxpayer’s intention not to make the expenditures referred to in such subpara- graph, or (C) a failure to make such expenditure within the period described in subparagraph (B) of subsection (c)(2), and (2) such deficiency may be assessed before the expiration of such 3-year period notwith- standing the provisions of any other law or rule of law which would otherwise prevent such assessment. (e) Cross references (1) For basis of property acquired by a corpora- tion through a contribution to its capital, see sec- tion 362. (2) For special rules in the case of contributions of indebtedness, see section 108(e)(6). (Aug. 16, 1954, ch. 736, 68A Stat. 39; Pub. L. 94–455, title XXI, § 2120(a), Oct. 4, 1976, 90 Stat. 1912; Pub. L. 95–600, title III, § 364(a), Nov. 6, 1978, 92 Stat. 2854; Pub. L. 96–589, § 2(e)(2), Dec. 24, 1980, 94 Stat. 3396; Pub. L. 98–369, div. A, title I, § 163(a), July 18, 1984, 98 Stat. 697; Pub. L. 99–514, title VIII, § 824(a), Oct. 22, 1986, 100 Stat. 2374; Pub. L. 104–188, title I, § 1613(a)(1), (2), Aug. 20, 1996, 110 Stat. 1848–1850; Pub. L. 115–97, title I, § 13312(a), Dec. 22, 2017, 131 Stat. 2132; Pub. L. 117–58, div. H, title VI, § 80601(a), Nov. 15, 2021, 135 Stat. 1337.) Editorial Notes AMENDMENTS 2021—Subsec. (b). Pub. L. 117–58, § 80601(a)(1), inserted ‘‘except as provided in subsection (c),’’ after ‘‘For pur- poses of subsection (a),’’ in introductory provisions. Subsecs. (c) to (e). Pub. L. 117–58, § 80601(a)(2), (3), added subsecs. (c) and (d), redesignated former subsec. (d) as (e), and struck out former subsec. (c) which re- lated to regulations. 2017—Subsecs. (b) to (e). Pub. L. 115–97 added subsecs. (b) and (c), redesignated subsec. (e) as (d), and struck out former subsecs. (b) to (d) which related to contribu- Page 571 TITLE 26—INTERNAL REVENUE CODE § 118 tions in aid of construction, special rules for water and sewerage disposal utilities, and statute of limitations for assessment of deficiencies, respectively. 1996—Subsec. (b). Pub. L. 104–188, § 1613(a)(2), inserted ‘‘except as provided in subsection (c),’’ before ‘‘the term’’. Subsecs. (c) to (e). Pub. L. 104–188, § 1613(a)(1), added subsecs. (c) and (d) and redesignated former subsec. (c) as (e). 1986—Subsec. (b). Pub. L. 99–514, § 824(a), added subsec. (b) and struck out former subsec. (b) relating to con- tributions in aid of construction, containing par. (1) general rule, par. (2) expenditure rule, par. (3) defini- tions, and par. (4) disallowance of deductions and in- vestment credit; adjusted basis. Subsecs. (c), (d). Pub. L. 99–514, § 824(a), redesignated former subsec. (d) as (c) and struck out former subsec. (c), statute of limitations, which read as follows: ‘‘If the taxpayer for any taxable year treats an amount as a contribution to the capital of the taxpayer described in subsection (b), then— ‘‘(1) 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— ‘‘(A) the amount of the expenditure referred to in subparagraph (A) of subsection (b)(2), ‘‘(B) the taxpayer’s intention not to make the ex- penditures referred to in such subparagraph, or ‘‘(C) a failure to make such expenditure within the period described in subparagraph (B) of sub- section (b)(2); and ‘‘(2) such deficiency may be assessed before the ex- piration of such 3-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment.’’ 1984—Subsecs. (c), (d). Pub. L. 98–369 added subsec. (c) and redesignated former subsec. (c) as (d). 1980—Subsec. (c). Pub. L. 96–589 designated existing provisions as par. (1) and added par. (2). 1978—Subsec. (b)(1). Pub. L. 95–600, § 364(a)(1), (2), sub- stituted in provisions preceding subpar. (A) ‘‘electric energy, gas (through a local distribution system or transportation by pipeline), water,’’ for ‘‘water’’ and in subpar. (B) ‘‘electric energy, gas, steam, water,’’ for ‘‘water’’. Subsec. (b)(2)(A)(ii). Pub. L. 95–600, § 364(a)(3), sub- stituted ‘‘electric energy, gas, steam, water,’’ for ‘‘water’’. Subsec. (b)(3)(A). Pub. L. 95–600, § 364(a)(4), sub- stituted ‘‘line to an electric line, a gas main, a steam line, or a main water or sewer line’’ for ‘‘property to a main water or sewer line’’. Subsec. (b)(3)(C). Pub. L. 95–600, § 364(a)(5), substituted ‘‘electric energy, gas, water,’’ for ‘‘water’’ and inserted ‘‘(including in the case of a gas transmission utility, the provision of gas services by sale for resale to the general public)’’ after ‘‘members of the general public’’. 1976—Subsecs. (b), (c). Pub. L. 94–455, § 2120(a), added subsec. (b) and redesignated former subsec. (b) as (c). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2021 AMENDMENT Pub. L. 117–58, div. H, title VI, § 80601(b), Nov. 15, 2021, 135 Stat. 1338, provided that: ‘‘The amendments made by this section [amending this section] shall apply to contributions made after December 31, 2020.’’ EFFECTIVE DATE OF 2017 AMENDMENT Pub. L. 115–97, title I, § 13312(b), Dec. 22, 2017, 131 Stat. 2132, provided that: ‘‘(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section [amending this section] shall apply to contributions made after the date of enactment of this Act [Dec. 22, 2017]. ‘‘(2) EXCEPTION.—The amendments made by this sec- tion shall not apply to any contribution, made after the date of enactment of this Act by a governmental entity, which is made pursuant to a master develop- ment plan that has been approved prior to such date by a governmental entity.’’ EFFECTIVE DATE OF 1996 AMENDMENT Pub. L. 104–188, title I, § 1613(a)(3), Aug. 20, 1996, 110 Stat. 1850, provided that: ‘‘The amendments made by this subsection [amending this section] shall apply to amounts received after June 12, 1996.’’ EFFECTIVE DATE OF 1986 AMENDMENT Pub. L. 99–514, title VIII, § 824(c), Oct. 22, 1986, 100 Stat. 2374, as amended by Pub. L. 100–647, title I, § 1008(j)(2), Nov. 10, 1988, 102 Stat. 3445, provided that: ‘‘(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section [amending this section and section 362 of this title] shall apply to amounts received after December 31, 1986, in taxable years ending after such date. ‘‘(2) TREATMENT OF CERTAIN WATER SUPPLY PROJECTS.—The amendments made by this section shall not apply to amounts which are paid by the New Jersey Department of Environmental Protection for construc- tion of alternative water supply projects in zones of drinking water contamination and which are des- ignated by such department as being taken into ac- count under this paragraph. Not more than $4,631,000 of such amounts may be designated under the preceding sentence. ‘‘(3) TREATMENT OF CERTAIN CONTRIBUTIONS BY TRANS- PORTATION AUTHORITY.—The amendments made by this section shall not apply to contributions in aid of con- struction by a qualified transportation authority which were clearly identified in a master plan in existence on September 13, 1984, and which are designated by such authority as being taken into account under this para- graph. Not more than $68,000,000 of such contributions may be designated under the preceding sentence. For purposes of this paragraph, a qualified transportation authority is an entity which was created on February 20, 1967, and which was established by an interstate compact and consented to by Congress in Public Law 89–774, 80 Stat. 1324 (1966). ‘‘(4) TREATMENT OF CERTAIN PARTNERSHIPS.—In the case of a partnership with a taxable year beginning May 1, 1986, if such partnership realized net capital gain during the period beginning on the 1st day of such taxable year and ending on May 29, 1986, pursuant to an underwriting agreement dated May 6, 1986, then such partnership may elect to treat each asset to which such net capital gain relates as having been distributed to the partners of such partnership in proportion to their distributive share of the capital gain or loss realized by the partnership with respect to such asset and to treat each such asset as having been sold by each partner on the date of the sale of the asset by the partnership. If such an election is made, the consideration received by the partnership in connection with the sale of such as- sets shall be treated as having been received by the partners in connection with the deemed sale of such as- sets. In the case of a tiered partnership, for purposes of this paragraph each partnership shall be treated as having realized net capital gain equal to its propor- tionate share of the net capital gain of each partner- ship in which it is a partner, and the election provided by this paragraph shall apply to each tier.’’ EFFECTIVE DATE OF 1984 AMENDMENT Pub. L. 98–369, div. A, title I, § 163(c), July 18, 1984, 98 Stat. 698, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘The amendments made by this section [amending this section and sections 6501 and 6511 of this title] shall apply to expenditures with respect to which the second taxable year described in [former] section 118(b)(2)(B) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] ends after December 31, 1984.’’ Page 572 TITLE 26—INTERNAL REVENUE CODE § 119 EFFECTIVE DATE OF 1980 AMENDMENT Amendment by Pub. L. 96–589 applicable to trans- actions which occur after Dec. 31, 1980, other than transactions which occur in a proceeding in a bank- ruptcy case or similar judicial proceeding or in a pro- ceeding under Title 11 commencing on or after Dec. 31, 1980, with an exception permitting the debtor to make the amendment applicable to transactions occurring after Sept. 30, 1979, in a specified manner, see section 7(a)(1), (f) of Pub. L. 96–589, set out as a note under sec- tion 108 of this title. EFFECTIVE DATE OF 1978 AMENDMENT Pub. L. 95–600, title III, § 364(b), Nov. 6, 1978, 92 Stat. 2854, provided that: ‘‘The amendments made by this section [amending this section] shall apply to contribu- tions made after January 31, 1976.’’ EFFECTIVE DATE OF 1976 AMENDMENT Pub. L. 94–455, title XXI, § 2120(c), Oct. 4, 1976, 90 Stat. 1913, provided that: ‘‘The amendments made by this section [amending this section and section 362 of this title] apply to contributions made after January 31, 1976.’’ § 119. Meals or lodging furnished for the conven- ience of the employer (a) Meals and lodging furnished to employee, his spouse, and his dependents, pursuant to em- ployment There shall be excluded from gross income of an employee the value of any meals or lodging furnished to him, his spouse, or any of his de- pendents by or on behalf of his employer for the convenience of the employer, but only if— (1) in the case of meals, the meals are fur- nished on the business premises of the em- ployer, or (2) in the case of lodging, the employee is re- quired to accept such lodging on the business premises of his employer as a condition of his employment. (b) Special rules For purposes of subsection (a)— (1) Provisions of employment contract or State statute not to be determinative In determining whether meals or lodging are furnished for the convenience of the employer, the provisions of an employment contract or of a State statute fixing terms of employment shall not be determinative of whether the meals or lodging are intended as compensa- tion. (2) Certain factors not taken into account with respect to meals In determining whether meals are furnished for the convenience of the employer, the fact that a charge is made for such meals, and the fact that the employee may accept or decline such meals, shall not be taken into account. (3) Certain fixed charges for meals (A) In general If— (i) an employee is required to pay on a periodic basis a fixed charge for his meals, and (ii) such meals are furnished by the em- ployer for the convenience of the em- ployer, there shall be excluded from the employee’s gross income an amount equal to such fixed charge. (B) Application of subparagraph (A) Subparagraph (A) shall apply— (i) whether the employee pays the fixed charge out of his stated compensation or out of his own funds, and (ii) only if the employee is required to make the payment whether he accepts or declines the meals. (4) Meals furnished to employees on business premises where meals of most employees are otherwise excludable All meals furnished on the business premises of an employer to such employer’s employees shall be treated as furnished for the conven- ience of the employer if, without regard to this paragraph, more than half of the employ- ees to whom such meals are furnished on such premises are furnished such meals for the con- venience of the employer. (c) Employees living in certain camps (1) In general In the case of an individual who is furnished lodging in a camp located in a foreign country by or on behalf of his employer, such camp shall be considered to be part of the business premises of the employer. (2) Camp For purposes of this section, a camp con- stitutes lodging which is— (A) provided by or on behalf of the em- ployer for the convenience of the employer because the place at which such individual renders services is in a remote area where satisfactory housing is not available on the open market, (B) located, as near as practicable, in the vicinity of the place at which such indi- vidual renders services, and (C) furnished in a common area (or en- clave) which is not available to the public and which normally accommodates 10 or more employees. (d) Lodging furnished by certain educational in- stitutions to employees (1) In general In the case of an employee of an educational institution, gross income shall not include the value of qualified campus lodging furnished to such employee during the taxable year. (2) Exception in cases of inadequate rent Paragraph (1) shall not apply to the extent of the excess of— (A) the lesser of— (i) 5 percent of the appraised value of the qualified campus lodging, or (ii) the average of the rentals paid by in- dividuals (other than employees or stu- dents of the educational institution) dur- ing such calendar year for lodging pro- vided by the educational institution which is comparable to the qualified campus lodging provided to the employee, over (B) the rent paid by the employee for the qualified campus lodging during such cal- endar year.