                                        PRECEDENTIAL

      UNITED STATES COURT OF APPEALS
           FOR THE THIRD CIRCUIT


                     No. 19-2603



    COMMISSIONER OF INTERNAL REVENUE,
                          Appellant

                           v.

         BROKERTEC HOLDINGS, INC.
                    F.K.A.
      ICAP US INVESTMENT PARTNERSHIP




           Appeal from the Decision of the
               United States Tax Court
                 Docket No. 17-03573
      Tax Court Judge: Honorable Julian I. Jacobs



                Argued April 23, 2020

Before: AMBRO, SHWARTZ, and BIBAS, Circuit Judges

             (Opinion filed: July 28, 2020)
Michael J. Desmond
Holly Porter
Internal Revenue Service
1111 Constitution Avenue, N.W.
Washington, DC 20224

Richard E. Zuckerman
  Principal Deputy Assistant Attorney General
Travis A. Greaves
  Deputy Assistant Attorney General
Judith A. Hagley (Argued)
Gilbert S. Rothenberg
Francesca Ugolini
United States Department of Justice, Tax Division
950 Pennsylvania Avenue, N.W.
P.O. Box 502
Washington, DC 20044

      Counsel for Appellant

Theresa M. Abeny
David B. Blair (Argued)
Robert L. Willmore
Crowell & Moring
101 Pennsylvania Avenue, N.W.
Washington, DC 20004

      Counsel for Appellee




                              2
                OPINION OF THE COURT



AMBRO, Circuit Judge

       States often provide economic incentives, such as tax
breaks or grants, to businesses willing to relocate, with the
understanding that these businesses will create new jobs and
otherwise improve the state’s economy. This tax case involves
one such incentive program, under which the State of New
Jersey provided cash grants, without any restrictions on how
that cash could be used, to companies willing to relocate or
expand there and create a certain number of high-paying jobs
in the State.

       At issue is whether those grants are “contribution[s] to
the capital of the [company]” under Section 118 of the Internal
Revenue Code, 26 U.S.C. § 118(a), as it existed at the relevant
time, such that they are excluded from the company’s taxable
income. The Tax Court held that they are, concluding that $56
million in cash grants to a financial services company,
Appellee BrokerTec Holdings, Inc. (“BrokerTec”), were
contributions to its capital, not taxable income. We reverse and
hold that—because the State did not restrict how BrokerTec
could use the cash, and because the grants were calculated
based on the amount of income tax revenue that the new jobs
would generate—the grants were taxable income, not
contributions to capital. 1


       1
        As we note below, Congress has since amended § 118
to exclude from the definition of a contribution to capital
contributions by governmental entities.




                               3
                               I.
        The relevant facts—as found by the Tax Court
following a bench trial—are undisputed. In 1996, the State of
New Jersey created the Business Employment Incentive
Program (the “Incentive Program”) to “grow New Jersey’s
economy and revitalize its cities through providing financial
. . . assistance to businesses,” specifically cash grants for
companies willing to relocate or expand to New Jersey.
BrokerTec Holdings, Inc. v. Comm’r, No. 3573-17, 2019 WL
1545724, at *3 (T.C. Apr. 9, 2019). For a company to be
eligible for Incentive Program grants, three conditions must be
satisfied: (1) the relocation or expansion would create a net
increase in employment in the State; (2) the project would be
economically sound and of benefit to the people of New Jersey
by increasing employment and strengthening the State’s
economy; and (3) the receipt of the grants would be material to
the company’s decision to undertake the relocation or
expansion. See N.J. Stat. Ann. § 34:1B-126.

       Beyond these criteria, the Incentive Program was
discretionary. A company seeking grants could apply to New
Jersey’s Economic Development Authority (the “Development
Authority”), which administered the Incentive Program. It
would evaluate applications using various criteria, including
the number, type, and duration of new jobs to be created; the
type of contribution the business could make to the long-term
growth of the State’s economy; the amount of other financial
assistance the business would receive from the State; and the
total amount of money the company would invest in the
project.
       A company receiving the grants would be required to
maintain a minimum number of employees and remain at the
new location for a certain time period. But no restrictions were
placed on how the company could use the grant money. The




                               4
amount the company would receive was a set percentage of
state income taxes withheld from the wages of the company’s
employees at the new location. That percentage varied from
30% to 80% of tax withholdings. Larger grants would be
provided to businesses creating jobs in certain municipalities
in particular need of investment as well as businesses in certain
targeted industries. The grants would not be paid until the
recipient had completed the project and begun to pay wages,
and until it could be confirmed that the amount of state income
tax withheld from those wages had met or exceeded the amount
of the proposed grant. This ensured that the grants would
generate more revenue for the State than they cost.

       The grant recipients here are two subsidiaries of
BrokerTec: Garban Intercapital North America, Inc.
(“Garban”) and First Brokers Holdings, Inc. (“First Brokers”).
Garban’s offices in the World Trade Center were destroyed,
and First Brokers’ nearby offices were rendered uninhabitable,
in the attacks of September 11, 2001. Seeking new office
space, BrokerTec learned about the Incentive Program and,
soon after the attacks, submitted applications to the
Development Authority to relocate both Garban and First
Brokers across the Hudson River to New Jersey.
        BrokerTec certified it would employ a combined 720
full-time workers at its relocated office spaces. It also noted
that it would make more than $47 million in improvements to
the raw office space it was leasing, as well as acquire more than
$25 million in technology, furniture, and other equipment. But
it was not required under the terms of the Incentive Program to
make those expenditures to receive grants. What was required
was that it create a minimum number of jobs, and hence a
minimum amount of income tax revenue, for the State.
      In 2002, BrokerTec’s applications were approved, and
both Garban and First Brokers entered into agreements with




                               5
the Development Authority for a 10-year period of Incentive
Program grants. Garban’s grants would amount to 80% of its
employees’ state income tax withholdings, and First Brokers’
would amount to 70%, as it created fewer jobs than Garban.
       The State began to make grant payments in 2004, after
BrokerTec had started to pay employees. Over the next
decade, Garban received over $147 million, and First Brokers
received $22 million, for a total of approximately $170 million.
It used those funds to purchase stock in a wholly owned
subsidiary, ICAP Holdings (USA), Inc., as “part of a series of
transactions designed to expand [its] business into other
trading markets.” BrokerTec Holdings, Inc., 2019 WL
1545724, at *6.
       During the four tax years at issue here, 2010 to 2013,
BrokerTec’s tax returns (consolidated with the returns for its
subsidiaries, Garban and First Brokers) excluded
approximately $56 million in Incentive Program grant
payments as non-taxable, non-shareholder contributions to
capital under 26 U.S.C. § 118. The Commissioner of Internal
Revenue concluded that the grants were taxable income and,
accordingly, issued BrokerTec a deficiency notice for the
difference in taxes. It petitioned the Tax Court for review.
       The Tax Court held a bench trial at which it heard from
witnesses—including Development Authority staff—and
considered the parties’ stipulations. Following the trial, the
Court issued an opinion agreeing with BrokerTec that the
grants were capital contributions and thereby excluded from
taxable income. See BrokerTec Holdings, Inc., 2019 WL
1545724, at *7–15. The Court reasoned that, because New
Jersey provided the Incentive Program grants to BrokerTec as
an inducement for it to relocate its business there, they “fall
squarely within the four corners” of a Treasury Regulation
interpreting § 118. Id. at *13. That Regulation provides, as an




                               6
example of a contribution to capital, “the value of land or other
property contributed to a corporation by a governmental unit
or by a civic group for the purpose of inducing the corporation
to locate its business in a particular community.” 26 C.F.R. §
1.118-1 (emphasis added). The Court added that, consistent
with this regulation, “[t]he circumstances surrounding the
[Incentive Program grant] payments [were] substantially
similar to those” in Brown Shoe Co. v. Commissioner, 339 U.S.
583 (1950), and Commissioner v. McKay Products Corp., 178
F.2d 639 (3d Cir. 1949), both of which involved relocation
incentives provided to businesses by local governments or
community groups. BrokerTec Holdings, 2019 WL 1545724,
at *15. Thus, the Court concluded, the Incentive Program
grants “manifest the definite purpose of enlarging the working
capital of [BrokerTec]” and were therefore contributions to
capital, not taxable income. Id. The Commissioner appeals to
us.

                              II. 2

        We first consider the appropriate standard of review.
BrokerTec contends that the Tax Court’s conclusion that New
Jersey intended to make a contribution to BrokerTec’s capital
is a factual finding, and hence subject to review under the
deferential clear-error standard. The Commissioner responds
that, “to the extent that the Tax Court found as a factual matter
that New Jersey intended to make a capital contribution, that
conclusory determination is nevertheless subject to plenary
review because the court focused on the wrong facts and
erroneously viewed the law.” Reply Br. 4.



       2
         The Tax Court had jurisdiction under 26 U.S.C.
§§ 6213(a), 6214, and 7442. We have jurisdiction to review
the Tax Court’s decision under 26 U.S.C. § 7482(a)(1).




                               7
       The Tax Court’s conclusions as to motive and intent are
generally factual findings, subject to clear-error review. See
Bedrosian v. United States, 912 F.3d 144, 151 (3d Cir. 2018)
(“[W]e have held that the Tax Court’s determination of
willfulness in tax matters is reviewed for clear error.” (citation
omitted)); Smith v. Comm’r, 305 F.2d 778, 780 (3d Cir. 1962)
(reviewing for clear error the Tax Court’s conclusion that a
payment was intended as a gift, turning on a finding as to the
transferor’s motive). But “[e]ven when we review a trial
court’s primarily factual determination under a deferential
standard of review, we nonetheless have a duty to ‘correct any
legal error infecting [the] decision.’” Bedrosian, 912 F.3d at
152 (alteration in original) (quoting U.S. Bank Nat’l Ass’n ex
rel. CWCapital Asset Mgmt., LLC v. Vill. at Lakeridge, LLC,
138 S. Ct. 960, 968 (2018)); see also Bose Corp. v. Consumers
Union, 466 U.S. 485, 501 (1984) (holding that the clear-error
standard “does not inhibit an appellate court’s power to correct
errors of law, including . . . a finding of fact that is predicated
on a misunderstanding of the governing rule of law”).

       For the reasons set out below, we agree with the
Commissioner that the Tax Court’s finding was predicated on
a misunderstanding of Internal Revenue Code § 118 as well as
the Treasury Regulation and cases interpreting the statutory
provision. Specifically, the Tax Court appears to have
understood these authorities to hold that, where a government
provides a company cash as a relocation inducement, its intent
to contribute to the company’s capital is shown—even where
the government places no restrictions on how the cash can be
used nor calculates the amount of cash provided on the basis of
the company’s investment in capital assets. In doing so, the
Tax Court misperceived the law.




                                8
                              III.
       The Internal Revenue Code sets out a broad definition
of “gross income,” providing that, except where excluded by
another provision, it “means all income from whatever source
derived.” 26 U.S.C. § 61(a). In light of this broad definition,
the Supreme Court has held that “exclusions from income must
be narrowly construed.” Comm’r v. Schleier, 515 U.S. 323,
328 (1995) (citation omitted).

        The exclusion at issue here, 26 U.S.C. § 118, provided
at the relevant time that, where the taxpayer is a corporation,
“gross income does not include any contribution to the capital
of the [corporation].” § 118(a). The section does not define
“contribution to . . . capital,” but, as the Treasury Regulation
interpreting § 118 makes clear, it includes not only
contributions from the corporation’s shareholders, but from
others as well, including government entities. See 26 C.F.R.
§ 1.118-1 (noting that “Section 118 also applies to
contributions to capital made by persons other than
shareholders,” including those by “a governmental unit or a
civic group”). 3 In determining whether a transfer is income or
a contribution to capital, we consider “the intent or motive of
the transferor,” not “the use to which the assets transferred
were applied, [n]or . . . the economic and business

       3
        In 2017, however, Congress amended § 118 to exclude
from the definition of “contribution to . . . capital . . . any
contribution by any governmental entity . . . (other than a
contribution made by a shareholder as such).” 26 U.S.C.
§ 118(b)(2); Tax Cuts & Jobs Act, Pub. L. No. 115-97,
§ 13312, 131 Stat. 2054, 2132–33 (2017). But because the tax
years at issue here precede the passage of this legislation, it
does not apply. The Treasury Regulation, 26 C.F.R. § 1.118-
1, has not yet been amended to reflect this change to the Code.




                               9
consequences for the transferee corporation.” United States v.
Chi., Burlington & Quincy R.R. Co. (“CB&Q”), 412 U.S. 401,
411 (1973) (emphases added).

       About this much the parties agree. They disagree,
however, as to what circumstances indicate a transferor’s intent
to make a contribution to capital. As noted above, the Tax
Court relied—as BrokerTec does here—on the Treasury
Regulation, which sets out examples of when a transfer is a
contribution to capital and when it is not:

       For example, the [contribution-to-capital]
       exclusion applies to the value of land or other
       property contributed to a corporation by a
       governmental unit or by a civic group for the
       purpose of inducing the corporation to locate its
       business in a particular community, or for the
       purpose of enabling the corporation to expand its
       operating facilities. However, the exclusion
       does not apply to any money or property
       transferred to the corporation in consideration
       for goods or services rendered, or to subsidies
       paid for the purpose of inducing the taxpayer to
       limit production.

26 C.F.R. § 1.118-1 (emphasis added).

        As noted above, the Tax Court concluded that New
Jersey’s Incentive Program grants “fall squarely within the
four corners” of the Regulation because the grants were made
to induce BrokerTec to relocate there. BrokerTec Holdings,
Inc., 2019 WL 1545724, at *13. The Commissioner argues
that this oversimplifies the analysis and that, while a relocation
inducement provided by the state may be a contribution to
capital, it is not necessarily so. He maintains that even
relocation-inducement payments must meet two tests: (1) the




                               10
payments must, in some way, be restricted to use as capital,
and not be available for the payment of operational expenses
(like wages) or dividends; and (2) the payments may not be
direct compensation for services rendered by the company.
The Commissioner derives these two tests, respectively, from
the first two “characteristics” of a non-shareholder contribution
to capital set out by the Supreme Court in CB&Q: (1) the
contribution “certainly must become a permanent part of the
transferee’s working capital structure”; and (2) “[i]t may not be
compensation, such as a direct payment for a specific,
quantifiable service provided for the transferor by the
transferee.” 412 U.S. at 413. 4

       The Commissioner maintains the Incentive Program
grants fail both tests. As to the first test, the payments were

       4
           The Supreme Court identified three other
“characteristics” of a non-shareholder contribution to capital
under § 118: (3) “[i]t must be bargained for;” (4) “[t]he asset
transferred foreseeably must result in benefit to the transferee
in an amount commensurate with its value;” and (5) “the asset
ordinarily, if not always, will be employed in or contribute to
the production of additional income and its value assured in
that respect.” CB&Q, 412 U.S. at 413.

        While CB&Q refers to these as “characteristics,” the
mandatory language in the first four—“must” and “may not”—
indicates that these are requirements for a transfer to be a
contribution to capital. See AT&T, Inc. v. United States, 629
F.3d 505, 513 (5th Cir. 2011) (holding that “for a court to hold
that a transfer was a capital contribution, each of the first four,
and ordinarily the fifth, characteristics [from CB&Q] must . . .
be satisfied”).




                                11
unrestricted and could be used for any purpose. While they
could be used to acquire a capital asset, they could also be used
to pay operating expenses like wages, or even to pay dividends.
Moreover, the amount of the grants was not calculated based
on the amount of capital investments BrokerTec agreed to
make; rather they were calculated based on the amount of
wages it paid to its employees. As for the second test, the
Commissioner argues that the Incentive Program grants were
compensation for services BrokerTec provided to New
Jersey—namely, additional income tax revenue generated by
its employees.

       BrokerTec responds that the Commissioner’s tests
misstate the law. The first test, it contends, would require that
a grant’s use be limited to the acquisition of “hard assets” such
as machinery or other property, a limitation neither the
Treasury Regulation nor the cases support. BrokerTec Br. 26,
46. As to the second test, BrokerTec maintains that, where a
government provides grants to encourage economic
development and the benefits that come with new jobs and
increased tax revenue, the benefits are indirect and speculative,
such that they cannot be considered compensation for services
rendered.

       We agree with the Commissioner’s first argument, and
thus need not consider the second. 5 To be a non-shareholder
contribution to capital, even a relocation inducement “must
become a permanent part of the transferee’s working capital

       5
          The Commissioner offers two other arguments in
support of reversal that we also need not reach here: (1) that
the fourth and fifth CB&Q characteristics were not present, and
(2) that BrokerTec is barred from contesting the Tax Court’s
conclusion regarding New Jersey’s intent by the “duty of
consistency,” Reply Br. 21–22.




                               12
structure.” CB&Q, 412 U.S. at 413. And, as discussed in
greater detail below, a review of the Supreme Court’s and our
cases preceding CB&Q indicates this is not so where, as here,
cash grants were provided without any restrictions on their use.

                              IV.
        The Supreme Court first considered whether a
government payment to a corporation was a non-shareholder
contribution to capital in Edwards v. Cuba Railroad Company,
268 U.S. 628 (1925). There, the Cuban government paid a
railroad company to construct and operate a railroad line in
Cuba—specifically, $6,000 per kilometer, which amounted to
about one-third of the cost of construction. Id. at 629–30. In
addition, the government also provided the company with
buildings and equipment. Id. at 630. The Commissioner
argued that the cash payments were income. Id. at 632. The
Supreme Court rejected this argument, concluding that the cash
payments, along with the buildings and equipment, were
contributions to the railroad’s capital. See id. at 633. As it
explained, that “[t]he subsidy payments were proportionate to
mileage completed . . . indicat[ed] a purpose to reimburse [the
company] for capital expenditures.” Id. at 632. The Court
added that nothing in the agreements between the railroad and
the government “indicate[d] that the money subsidies were to
be used for the payment of dividends, interest or anything else
properly chargeable to or payable out of earnings or income.”
Id. at 633.

       The Commissioner contends that Edwards supports his
position that, to constitute contributions to capital, government
payments must, in some way, be restricted to use as capital and
cannot be available for use in paying dividends or operating
expenses. We agree. While the Cuban government did not
explicitly restrict the use of the cash payments, the Court
specifically noted that the payments amounted only to “one-




                               13
third of the cost of the railroad,” id. at 630, indicating that they
were a “reimburs[ment]” for capital expenditures, id. at 632,
rather than “money subsidies . . . to be used for the payment of
dividends, interest or anything else properly chargeable to or
payable out of earnings or income,” id. at 632–33.

        Seven years later, in Texas & Pacific Railway Company
v. United States, 286 U.S. 285 (1932), the Supreme Court had
nearly the opposite facts as those in Edwards. The case
involved payments made to a railroad company by the federal
Government, under a statute that placed the railroad under
government control during wartime. Id. at 287–88. The statute
“guarantee[d] a ‘minimum operating income’ [to the railroad
company] for six months after relinquishment of federal
control.” Id. at 288 (citation omitted). In contrast to the
payments by the Cuban government in Edwards, the Court
explained, the federal Government’s payments “were to be
measured by a deficiency in [the railroad company’s] operating
income,” and “might be used [by the railroad company] for the
payment of dividends, of operating expenses, of capital
charges, or for any other purpose within the corporate
authority, just as any other operating revenue might be
applied.” Id. at 290. Thus, the Court concluded, the payments
were not contributions to capital but income to the railroad.
See id.

       Read together, Texas & Pacific Railway and Edwards
suggest that unrestricted government payments to a company
reveal an intent to provide the company additional income
rather than a contribution to the company’s capital. Plus,
calculating payments based on the company’s income, rather
than on the amount of some capital investment made by the




                                14
company, further indicates an intent to provide income rather
than a contribution to capital.

        In 1943, the Supreme Court first took up a case
illustrating the second characteristic of a contribution to capital
later described in CB&Q—that it not be compensation for
services rendered. See Detroit Edison Co. v. Comm’r, 319 U.S.
98, 99–103 (1943). It involved an electric utility company that
would extend electric lines to certain areas only where the
customers in those areas paid the costs for the extension. Id. at
99. Funds that a customer paid for this purpose would go into
the utility company’s general fund but would not be earmarked
specifically for construction of the lines. Id. at 100. The Court
rejected the utility’s argument that the customers’ payments
were non-shareholder contributions to capital, explaining that,
because “[t]he payments were to the customer the price of
service,” they were income to the utility company. Id. at 103.

       Neither Edwards, Texas & Pacific Railway, nor Detroit
Edison involved payments made to induce a company to
relocate—like the grants at issue here. But even before the
Supreme Court had occasion to apply those principles in such
a case, we did so in Commissioner v. McKay Products Corp.,
178 F.2d 639 (3d Cir. 1949). There townspeople formed a
nonprofit company and raised funds to bring an industry to the
town. Id. at 640. The nonprofit purchased a factory building
and offered it for use by a company, McKay Products, agreeing
to deed the factory over once it had paid out $5 million in
wages. Id. at 640 n.2. McKay Products argued the factory was
a contribution to its capital, rather than income, and we agreed,
distinguishing Detroit Edison as a case in which the “payments
were part of the price of the service.” Id. at 643.

      Less than a year after we decided McKay Products, the
Supreme Court took up the same issue in Brown Shoe Co. v.
Commissioner, 339 U.S. 583 (1950). Community groups in




                                15
twelve different towns sought to have Brown Shoe establish a
factory, or enlarge an existing one, within the community. Id.
at 586. And to that end, the community groups provided
inducements to Brown Shoe, including both land and cash for
the production or enlargement of a factory. Id. The Court cited
McKay Products approvingly, and distinguished Detroit
Edison on the same basis, explaining that the communities had
not paid Brown Shoe for services rendered. Id. at 589–91.
Rather, they “could [not] have anticipated any direct service or
recompense whatever, their only expectation being that [their]
contributions might prove advantageous to the community at
large.” Id. at 591. “Under these circumstances,” the Court
concluded, “the transfers manifested a definite purpose to
enlarge the working capital of the company.” Id.

       In our case, the Tax Court concluded—and BrokerTec
argues—that McKay Products and Brown Shoe support the
position that the Incentive Program grants were contributions
to BrokerTec’s capital because they were relocation
inducements. See BrokerTec Holdings, Inc., 2019 WL
1545724, at *13–14 (concluding that the facts of McKay
Products and Brown Shoe are “strikingly similar” in that in
both “the localities sought to induce the taxpayers in question
to move to their respective localities”); BrokerTec Br. 25–26
(“Brown Shoe teaches . . . [that] location inducement grants
like these are contributions to capital.”). But, importantly,
neither McKay Products nor Brown Shoe involved cash grants
that were entirely unrestricted in use and calculated on the basis
of wages paid rather than on the basis of the amount spent to
relocate. McKay Products involved the contribution of a
factory, rather than cash, and thus the contribution was of a
capital asset. See 178 F.2d at 642. And while Brown Shoe
involved the contribution of both land and cash without any
explicit restriction on its use, the Court specifically noted that
“[i]n every instance the cash received by [the company] from
a community group was less than the amount expended by it




                               16
for the acquisition or construction of the local factory building
and equipment.” 339 U.S. at 587. We agree with the
Commissioner that this was an implicit restriction: the
company in Brown Shoe “was effectively required to invest the
funds (or a like amount) in its permanent working capital
structure.” Comm’r’s Br. 31.

       In sum, the cases from which the first CB&Q
characteristic was distilled—Edwards, Texas & Pacific
Railway, McKay Products, and Brown Shoe—support the
Commissioner’s position that unrestricted cash grants,
calculated on the basis of the recipient’s payment of wages, are
not contributions to capital but rather are supplements to the
company’s income.

                               V.

        Our reading of these cases is also consistent with more
recent decisions from two of our sister circuits. See AT&T, Inc.
v. United States, 629 F.3d 505 (5th Cir. 2011); United States v.
Coastal Utils., Inc., 483 F. Supp. 2d 1232 (S.D. Ga. 2007),
aff’d, 514 F.3d 1184 (11th Cir. 2008) (per curiam adopting the
district court’s opinion in full). At issue in both cases were
payments made by the federal and state governments to
telephone companies that provided service to certain high-cost
and low-income users in an effort to enable the companies to
provide services to those users while remaining competitive in
the market. AT&T, 629 F.3d at 507; Coastal Utils., 483 F.
Supp. 2d at 1234. In both cases the Court concluded that the
government payments were not contributions to the company’s
capital but taxable income. AT&T, 629 F.3d at 520; Coastal
Utils., 483 F. Supp. 2d at 1250–51. In so holding, they
reasoned that the government payments were not restricted to
use as capital, and they were calculated based on operational
expenses. See AT&T, 629 F.3d at 517 (explaining that, “like
the payments at issue in Texas & Pacific Railway, the




                               17
[government payments at issue] can be used for the payment
of a wide variety of expenses,” and “[t]herefore, the . . .
payments are not excludable from . . . income as
nonshareholder contributions to capital under 26 U.S.C.
§ 118”); Coastal Utilities, Inc., 483 F. Supp. 2d at 1243
(“Because the amount of payments takes into consideration a
wide range of operational expenses, the payments are not
solely for capital purposes.”).

       BrokerTec argues that Coastal Utilities and AT&T are
distinguishable because neither case involved government
payments to induce a company to relocate, like the Incentive
Program grants. We disagree. They illustrate that, for
government payments to “become a permanent part of the
transferee’s working capital structure,” as required by CB&Q,
412 U.S. at 413, they must in some way be designated for use
as capital—whether by an explicit restriction on the use of the
funds, or by tying the amount of funds to the amount of a
capital investment required of the company. Otherwise, the
government payments are merely intended as supplements to
income. That rule applies regardless whether the payments
were made to encourage the recipient to provide service to
additional customers, as in AT&T and Coastal Utilities, or to
induce the recipient to relocate, as in McKay Products, Brown
Shoe, and this case. The Tax Court failed to appreciate that
this rule applies even in the case of relocation-incentive
payments.

                               VI.

       Having concluded that the Tax Court’s decision was
based on a misperception of the law, we must “decide whether
to remand the case to that court for clarification of the basis of
its determination or, alternatively, whether to decide the
primarily factual issue ourselves.” Bedrosian, 912 F.3d at 152.
“In general, the proper course will be remand unless the record




                               18
permits only one resolution of the factual issue.” Id. (internal
quotation marks omitted).
       When viewed in light of the law as set out above, the
record here permits only one resolution: New Jersey’s
Incentive Program grants to BrokerTec were intended as a
supplement to its income rather than as a contribution to its
capital. It is undisputed that New Jersey placed no restriction
on how the Incentive Program grants could be used: they could
be used to make capital improvements, but they could also be
used for operational expenses such as paying wages, or even
paying dividends to shareholders. And it also undisputed that
the amount of the grants was not tied to the amount of capital
improvements BrokerTec would make.              Indeed, while
BrokerTec indicated in its Incentive Program applications that
it would make $72 million in capital investments (in the form
of improvements to office space, and the acquisition of
technology and furniture), the total amount of Incentive
Program grants was based on a percentage of income tax
withholdings generated by BrokerTec’s employees and totaled
approximately $170 million. In light of these facts, BrokerTec
cannot show that New Jersey intended the Incentive Program
payments to “become a permanent part of [BrokerTec’s]
working capital structure.” CB&Q, 412 U.S. at 413.

                        *   *   *    *   *

       For the reasons set out above, we reverse the ruling of
the Tax Court.




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