SECTION 2. BACKGROUND

Section 118(a) of the Code provides that in the case of a corporation, gross income does not include a contribution to the capital of the taxpayer.

Section 1.118–1 of the Income Tax Regulations provides that section 118 applies to contributions to capital made by a person other than a shareholder, for example, property contributed to a corporation by a governmental unit for the purpose of enabling the corporation to expand its operating facilities.

Section 362(c)(2) of the Code requires a basis reduction in a corporation’s property when the corporation receives money from a nonshareholder as a contribution to its capital.

ARRA appropriated money for the expansion of broadband capabilities in the United States. Title I, Division A of ARRA appropriated $2.5 billion to RUS for BIP. Title II, Division A of ARRA appropriated $4.7 billion to NTIA for BTOP.

BIP provides grants for six purposes: (1) Last Mile Remote Projects (LMRP); (2) Last Mile Projects (LMP); (3) Middle Mile Projects (MMP); (4) Satellite Projects (SP); (5) Technical Assistance

(TA); and (6) Rural Library Broadband (RLB). BTOP provides grants for four purposes: (1) Broadband Infrastructure (BI); (2) Comprehensive Community Infrastructure (CCI); (3) Public Computer Centers (PCC); and (4) Sustainable Broadband Adoption (SBA). See Notices of Funds Availability, 74 FR 33104 (BIP and BTOP), 75 FR 3792 (BTOP), and 75 FR 3820 (BIP).