Guideline for a Section 118 Information Document Request for Bioenergy Payments
This IDR seeks documents and information for the purpose of determining whether [Taxpayer] (or any of its subsidiaries or affiliates), during the years at issue, obtained from federal, state or local governmental units, or from any quasi-governmental units with authority delegated from a federal, state or local government, or from the public and/or from any public or private civic groups, or from nonshareholders any amounts in the form of, but not limited to, subsidies, grants, payments, support, rebates, incentives, credits, supplements, or reductions, etc. (referred to hereinafter as a “Payment” or “Payments,” solely for purposes of this IDR), that it did not report as gross income under IRC § 118 and/or any other tax provisions and/or any common law doctrines or principles.
For each entity (including [Taxpayer], its subsidiaries, and its affiliates) please respond to the following requests for documents and information:
- During the tax year ____, did such entity obtain or receive from any federal, state, or local governmental unit, from any quasi-governmental unit with authority delegated from a federal, state or local government, or from the public, and/or from any public or private civic groups, or from nonshareholders, “Payments” (as defined above)? If so, please list from whom the Payment was received, the form of the Payment, and the amount of the Payment.
- Of the Payments listed in item 1, identify which Payments were excluded from gross income on the federal income tax return(s) under IRC § 118, any other provisions of the Internal Revenue Code and/or its accompanying regulations, and/or any common law doctrines or principles. If none were excluded, stop here and do not continue. Otherwise, provide responses to the remaining questions.
Section 118(a) provides an exclusion from gross income for, in the case of a corporation, any contribution to the capital of the taxpayer. This section applies to capital contributions made by shareholders as well as to capital contributions made by persons other than shareholders such as governmental units and/or public or private civic groups.
- Please list each Payment identified in item 2 above and identify from whom the Payment was received, the form of the Payment, and the amount of the Payment. Also, if the same type of Payment was received in more than one year, how was the Payment reported in previous years and what was the first year in which you excluded the Payment from income.
- For each Payment excluded, describe how the excluded item was treated for book purposes.
a. Identify Schedule M-1/3 entries reflecting difference between financial and tax accounting treatment;
b. Provide supporting workpapers for Schedule M-1/3 entries.
- Provide your written explanation why the item was excluded from income. Include an explanation why the entity did not report the Payment(s) as gross income. The explanation should identify the case law, statutes, and other legal authority on which the entity relied in support of its position and explain how the authority supports that position.
- For each Payment excluded state the process by which the entity received or otherwise obtained the amounts and provide all documents related thereto including but not limited to any letters, term sheets, contracts, agreements, memoranda of understanding, promotional materials, applications (including all attachments) between Taxpayer and/or any of its subsidiaries and affiliates and the entity providing the payment.
- For each Payment excluded, provide an explanation how the Payment was calculated or determined (e.g., formula based, bargained for, standard grant amount, etc.)?
- For each Payment excluded, explain any conditions or requirements imposed by the entity that provided the Payment. If Taxpayer or any of its affiliates or subsidiaries was required to provide documentation, such as receipts, application, claim forms, contracts, etc., please provide copies of such documentation.
- For each excluded Payment:
a. Indicate whether Taxpayer or any of its affiliates or subsidiaries recorded a correlative basis reduction under IRC § 362(c) for federal income tax purposes.
b. To the extent a correlative basis reduction was made, identify the methodology used to determine which asset bases would be reduced.
c. Identify the assets the bases of which were reduced under IRC § 362(c) and by how much. Furnish the depreciation computations for each asset of which the basis was reduced and support with the following information:
i. Provide the specific fixed asset general accounts that were reduced;
ii. Identify the amount of the reduction to each general ledger account;
iii. Describe how this reduction flowed through to the tax return via the
d. If a correlative basis reduction under IRC § 362(c) was not made, please explain why not.
- For each excluded Payment:
a. Did Taxpayer or any of its affiliates or subsidiaries receive advice from outside counsel, accountants, auditors, investment bankers, consultants, or any other third party professionals (hereinafter “Outside Professionals”) in forming its position regarding the tax treatment of any Payment discussed above?
b. If so, for each excluded item state the advice provided, and state the fee arrangement, provide the engagement letter, and provide copies of all communications, discussing the tax treatment of the excluded item between Taxpayer and the Outside Professional(s), including but not limited to any legal opinions, comfort letters, analyses, memoranda, recommendations, and emails.
c. Did Taxpayer or any of its affiliates or subsidiaries receive advice from its internal legal or tax departments regarding the tax treatment of any of the Payments discussed above?
d. If so, for each excluded item state the advice provided, who provided the advice, and provide copies of all communications, discussing the tax treatment of the excluded item between Taxpayer and members of its internal tax and/or legal departments, including but not limited to any meeting minutes or notes, analyses, memoranda, recommendations, and emails.
e. If the advice between Taxpayer’s outside professional and internal departments differed, state the basis of the difference and the steps that Taxpayer undertook to reconcile the difference in forming its tax position.
f. State whether Taxpayer or any of its affiliates or subsidiaries relied upon the internal and/or the outside advice provided.
g. If any information responsive to this paragraph 10 is not provided, provide a comprehensive explanation of the reasons for withholding the information.