No assignment of railroad track maintenance credit between controlled-group members

IRS Chief Counsel: Railroad track maintenance credit

The IRS today publicly released a heavily redacted legal advice memorandum* concluding that, for purposes of the railroad track maintenance credit under section 45G, an attempted assignment of the credit between members of a group of taxpayers under common control must be disregarded. 20151601F (released April 17, 2015, and dated December 19, 2014)

Related content

Read the legal advice memo [PDF 120 KB].

*Field advice memo documents are prepared by IRS field attorneys in the Office of Chief Counsel, are reviewed by an Associate Office, and are subsequently issued to IRS field or service center employees. The memo cannot be used or cited as precedent..


The taxpayer was a holding company that apparently had ownership interests in several Class II or Class III railroad companies that owned railroad track that needed repairs and upgrades. The taxpayer and the railroads were not in the same consolidated group of corporations.

Section 45G provides a credit to a Class II or Class III railroad for a portion of the railroad track maintenance expenditures the railroad pays or incurs on its track, limited to $3,500 per mile of track owned by the railroad.

Section 45G permits a railroad with eligible track to assign miles of its track to certain other persons. If the assignee pays or incurs amounts that are considered to be railroad track maintenance expenditures on the assignor’s track, the assignee can claim the credit, limited to $3,500 per mile of assigned track.

The facts in the legal advice memo indicate that under a track maintenance agreement, the railroads assigned certain miles of their track to the taxpayer, and the taxpayer paid or incurred appropriate maintenance expenditures, and claimed the section 45G credit.

However, the taxpayer and the railroads were in a group under common control, a characterization that requires, generally, a more-than-50% common or direct ownership interest. The section 45G credit is computed as if all members of a group under common control are a single taxpayer, and then allocated among the members. Because the credit is computed on a group basis, Reg. section 1.45G-1(f)(8)(i) provides that transfers between members of the group are generally disregarded in determining the credit.

The IRS legal advice memorandum concludes, based on these common control rules, that the attempted assignment of the railroads’ track miles to the taxpayer must be disregarded. Thus, within the group, the only member that can claim a credit for the particular miles owned by the railroad is the railroad itself “since Taxpayer and Railroads are treated as a single taxpayer . . . , the assignment would in effect be allowing an assignment to oneself.”

KPMG observation

The effect of disregarding the assignment within the group apparently would be to allow the section 45G credit for those miles of track to be claimed only by the railroad that owned those miles of track. Presumably, the railroads did not have sufficient tax liability on their own tax returns to use the credits in the year they were generated, but the taxpayer did. While the various entities were under common control, they do not file a consolidated return, and each reports its own tax liability. The credits, while unused in the year they were generated, are available to be carried back one tax year and carried forward 20 years, until the person considered to own the credit has sufficient tax liability to use the credit.

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Request for proposal



KPMG's new digital platform

KPMG International has created a state of the art digital platform that enhances your experience, optimized to discover new and related content.