Early in 2001, the Internal Revenue
Service released its new rules on contributions
in aid of construction
(CIAC). CIAC provides water utilities
a method of tax-free financing for plant
improvements, but only if the transactions
are structured to be consistent with the new
rules. If a utility fails in some way to properly
configure the transaction, it may be
exposed to an unexpected tax liability.
In some cases, the liability could be
quite large.
The CIAC rules affect all economically
regulated water utilities operating in the corporate
form. Even though the rules can be
quite beneficial to water utilities, few articles
have covered these financial management
issues. This article attempts to fill that void by
providing utility managers with information
necessary to discuss and maximize the use of
nontaxable CIAC financing without inadvertently
triggering income tax complications.
Because these rulings are new, issued in
2001, the management and advisors of
regulated investor-owned water companies
must become acquainted with them to provide
service at the lowest cost. Kermode
provides a detailed overview of the requirements
and accounting procedures for the new
regulations. The article covers the sometimes
complex characteristics of CIAC and also
addresses in more depth the four types of
transactions that result in a qualified transfer
of CIAC. Includes 3 references, tables.
| Edition : | Vol. 94 - No. 3 |
| File Size : | 1
file
, 310 KB |
| Note : | This product is unavailable in Ukraine, Russia, Belarus |
| Number of Pages : | 7 |
| Published : | 03/01/2002 |
