if a city gives a piece of land to corporation A for free, does A need to pay tax on it?

Question

What is the related IRC?

Answer 1

It depends, but generally no. See IRC Section 118 and there was a 6th Circuit court case with Federated Department Stores in 1970 or so that is on point (don't ask how I remember that stuff).

But the case concluded that a corporation does not realize gross income if it receives land or other property from a government, civic group, or developer as an inducement to locate its business in a particular community pursuant to section 118.

I think theres a PLR out there dealing with the FAA also.

Just note, if the Corp gets to exclude the land from gross receipts, then it takes a zero basis in the land.

Answer 2

Yes it's taxable. The exclusion of taxes paid by the recipient of a gift only applies to bona-fide gifts between individuals. If a city were to give away land there would have to be some expectation of some benefit to the city in return, even if that benefit were only the return of the land to the real estate tax rolls. As such it could not be classified as a gift and therefore would be taxable to the recipient as income.

TITLE 26, Subtitle A, CHAPTER 1, Subchapter B, PART I, § 61 (Gross income defined)

TITLE 26, Subtitle A, CHAPTER 1, Subchapter A, PART II, § 11 (Tax on Corporations)

Answer 3

Yes.