The Internal Revenue Service (“IRS”) has released Revenue Procedure 2010-20, which provides a safe harbor under section 118(a) of the Internal Revenue Code for the treatment of a Smart Grid Investment Grant (“SGIG”) made by the United States Department of Energy (“DOE”) to a corporation for qualifying investments under the Smart Grid Investment Matching Grant Program. The revenue procedure applies to corporate taxpayers that receive an SGIG under 42 U.S.C. 17386 from DOE. The revenue procedure does not apply to (1) noncorporate taxpayers, or (2) to grants under 42 U.S.C. 17384 (Smart Grid technology research, development, and demonstration).
Under the revenue procedure, the IRS will not challenge a corporation’s treatment of a SGIG made by DOE to the corporation as a nontaxable nonshareholder contribution to the capital of the corporation under section 118(a) if the corporation properly reduces the basis of its property under section 362(c)(2) and the regulations thereunder. This means that the IRS will not assert that SGIGs are taxable to the taxpayer as long as the taxpayer does not attempt to claim depreciation deductions with respect to the portion of the smart grid property funded by the SGIG rather than its own investment.
The revenue procedure is effective March 10, 2010.