PUBLIC LAW 94-455—OCT. 4, 1976 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 a contribution in aid of construction, " (B) where the contribution is in property which is other than water or sewerage disposal facilities, such amount meets the requirements of the expenditure rule of paragraph (2), and "(C) such amounts (or any property acquired or constructed with such amounts) are not included 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 expended for the acquisition or construction of tangible property described in section 1231(b)— "(i) which was the purpose motivating the contribution, and " (ii) which is used predominantly in the trade or business of furnishing water or sewerage disposal services, "(B) the expenditure referred to in subparagraph (A) occurs before the end of the second taxable year after the year in which such amount was received, and ij "(C) accurate records are kept of the amounts contributed and expenditures made on the basis of the project for which the contribution was made and on the basis of the year of contribution or expenditure. "(3) DEFiNrnoNS.—For purposes of this section— "(A) CONTRIBUTION IN AID OF CONSTRUCTION.—The term 'contribution in aid of construction'shall be defined by regulations prescribed by the Secretary; except that such term " shall not include amounts paid as customer connection fees (including amounts paid to connect the customer's property to a main water or sewer line and amounts paid as service charges for starting or stopping services). "(B) PREDOMINANTLY.—The term 'predominantly' means 80 percent 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 such utility which is not required to provide water or sewerage disposal services to members of the general public in its service area. "(4)
90 STAT. 1913
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DISALLOWANCE OF DEDUCTIONS AND INVESTMENT CREDIT;
ADJUSTED BASIS.—Notwithstanding any Other provisiou of this Subtitle, no deduction or credit shall be allowed for, or by reason of, the expenditure which constitutes a contribution in aid of construction 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." (b) CONFORMING AMENDMENT.—Section 362(c) (relating to special 26 USC 362. rule for contributions to capital) is amended by adding the following new paragraph immediately after paragraph (2): "(3)
EXCEPTION FOR CONTRIBUTIONS IN AID OF CONSTRUCTION.—
The provisions of this subsection shall not apply to contributions in aid of construction to which section 118(b) applies." (c) EFFECTIVE DATE.—The amendments made by tins section apply to contributions made after January 31, 1976.
Ante, p. 1912. 26 USC 118 note.
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