Guidance on Reimbursement for Tax Liability Incurred by a Utility for Relocation
September 5, 2019
Question: If a utility incurs tax liability because of a relocation reimbursed with Federal-aid highway funds, is such tax liability reimbursable?
Answer: Questions regarding Federal income tax liability, including questions associated with changes to section 118 of the Internal Revenue Code (IRC) made by Pub. L 115-97, title I, § 13312(a), Dec. 22, 2017 (131 Stat. 2132), should be referred to the Internal Revenue Service (IRS). Such questions can be directed to the IRS, Office of Chief Counsel, Passthroughs and Special Industries, Branch 5. Please see contact information, below:
IRS, Office of Chief Counsel, Passthroughs and Special Industries, Branch 5
- Phone - (202) 317-4137
- Fax - (855) 591-7867
Regarding the reimbursement of a tax liability, should the IRS determine that the relocation creates a tax liability for the utility, the tax payment made by the utility due to the utility's relocation may not be reimbursed with Federal-aid highway funds. In summary, the federal income tax paid by the utility is not eligible for reimbursement with Federal-aid highway funds, based on the analysis below.
1. For-Profit Utilities:
- A. States that have substantively adopted or incorporated the Federal Acquisition Regulation (FAR) cost principles (48 CFR Part 31) or a similar State-adopted cost standard for cost reimbursement:
The FAR disallows costs associated with payment by a commercial organization of Federal income taxes. See 48 CFR 31.205-41(b)(1). To the extent that a State relies upon the FAR cost principles, or a similar State-adopted cost standard for cost reimbursement, any Federal income tax paid by a utility for the value of relocation costs reimbursed with Federal-aid is not eligible for reimbursement.
B. States that have not adopted the FAR, or a similar cost standard:
Pursuant to 23 CFR 645.117(d)(1), overhead and indirect construction costs not charged directly to work order or construction accounts may be allocated to the relocation provided the allocation is made on an equitable basis. All such costs shall be eligible for Federal reimbursement consistent with the provisions of the FAR. Therefore, as Federal income tax liability paid by a commercial organization is not reimbursable under the FAR, this is an unallowable cost.
- A. States that have substantively adopted or incorporated the Federal Acquisition Regulation (FAR) cost principles (48 CFR Part 31) or a similar State-adopted cost standard for cost reimbursement:
- 2. Non-Profit Utilities:
Pursuant to government-wide cost principles, 2 CFR 200.470(b)(1)(iii), any Federal income taxes paid by a non-profit are unallowable.
This Guidance on Reimbursement for Tax Liability Incurred by a Utility for Relocation will be included in the upcoming revision of the Program Guide: Utility Relocation and Accommodation on Federal Aid Highway Projects, Sixth Edition (2003).