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.

Division A, Title IV of ARRA requires the Secretary of Energy to provide facility funding awards to manufacturers of advanced battery systems and vehicle batteries that are produced in the United States, including advanced lithium ion batteries, hybrid electrical systems, component manufacturers, and software designers. $2 billion was made available for grants for the manufacturing of advanced batteries and components.

The Initiative provides grants for seven Areas of Interest: (1) Cell and Battery Manufacturing Facilities; (2) Advanced Battery Supplier Manufacturing Facilities; (3) Combined Applications for Areas of Interest 1 and 2; (4) Advanced Lithium ion Battery Recycling Facilities; (5) Electric Drive Component Manufacturing Facilities; (6) Electric Drive Subcomponent Manufacturing Facilities; and (7) Combined Applications for Areas of Interest 5 and 6. See Funding Opportunity Number DE-FOA–0000026 (March 19, 2009). This guidance may be accessed electronically at: http://www.netl.doe.gov/business/solicita- tions/archive/main-FY09.html#00026