Design new Universal Service Fund funds in a tax-efficient manner

Recommendation #67

FCC Chapter: 8.4

Status: In progress

The Federal Communications Commission should design new Universal Service Fund funds in a tax-efficient manner to minimize the size of the gap.

In certain circumstances, the Department of Treasury's Internal Revenue Service treats governmental payments to private parties for the purpose of making capital investments to advance public purposes as contributions to capital under section 118 of the U.S. Internal Revenue Code. Such treatment allows recipients to exclude the payments from income, but reduces depreciation deductions in future years. Ultimately, the impact of taxes incurred may depend on the specific details of how the support is distributed, as well as the profitability of the service providers that receive support.