Taxability of state and local government COVID grants

[11Buster]

Does anyone have any updated reliable information regarding the above as there seems to be a lot of differing opinions out the there as to what is taxable under current tax law for fed and CA?

[qbteachmt]

There hasn't been a lot of change, since the grants were released in 2020. It really depends on the specific grant and who issued it.

I bookmarked this:

https://gpwcpas.com/grant-credit-loan-and-other-relief-comparison-chart/

[11Buster]

This is fine as same article I had read, however, we have clients who received "COVID-related" local (city) grant money here in CA, so confusing, as usual.

[qbteachmt]

"we have clients"

Business? Individual? School? Medical professional?

"who received "COVID-related" local (city) grant money here in CA,"

City grant funds through the State? What for? The client applied, and the city granted, and all of this is Named, and Specified. That's how this works and has worked, all this time.

Example: Medical professionals got grants for PPE.

Schools got grants for HVAC.

Your CA client might be getting the Golden State payment.

You need to get, and/or give us, the missing details. Then you would know what to search on. In general, as you likely have already found, these are Taxable unless you can find the specific exclusion.

[qbteachmt]

Here is the explanation of the most common grant under what you asked, given that your client has CARES grant and not an ARP:

https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-government...

And here's what the IRS tells you:

https://www.irs.gov/newsroom/cares-act-coronavirus-relief-fund-frequently-asked-questions

And here are links for some of the other grants:

https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-government...

For example, the timeliness of SBA grants or USDA grants are not CARES grants, but people get the confused.

[11Buster]

As mentioned previously, these are grants given to our local city businesses by both the city and county in which they are situated.  The  funds must be spent on, similar to PPP requirements, payroll, unpaid utilities, inventory or supplies required to safely reopen their business, etc.

[11Buster]

Thanks but unfortunately I have already viewed these links as they really say nothing about receiving local COVID related grant money.

[TaxGuyBill]

---

@11Buster wrote:

we have clients who received "COVID-related" local (city) grant money here in CA,

---

That is taxable on the Federal return.  Grants are taxable unless they fall under a SPECIFICALLY exempted program, such as PPP, EIDL, and Shuttered Venue grants. 

Not sure which of the other "COVID-related" programs yours fall under, but here is an example that shows they are taxable:

https://www.irs.gov/newsroom/cares-act-coronavirus-relief-fund-frequently-asked-questions

As for California, I have no idea. 

[qbteachmt]

"Thanks but unfortunately I have already viewed these links as they really say nothing about receiving local COVID related grant money."

Yes, they do. They specifically cover the $150 billion given to the States to give through their various governmental departments and organizations, to businesses. They state everything.

And you can always read the CARES Act yourself.

And you still haven't told us what this grant was for, nor what sort of entity applied for and received it. That means you keep telling us the resources are not good enough, but you never state Why it isn't good enough or what you can't find about your specific grantee.

We really cannot help without more details.

For instance, I have had this website bookmarked for this very reason:

https://commerce.mt.gov/Coronavirus-Relief/Awarded-Grants

[qbteachmt]

Here is a copy of some specific text found in the IRS links you've been given:

Q. If governments use Fund payments as described in the Fund Guidance to establish a grant program to support businesses, would those funds be considered gross income taxable to a business receiving the grant under the Internal Revenue Code (Code)?

A. Yes. The receipt of a government grant by a business generally is not excluded from the business's gross income under the Code and therefore is taxable.

It doesn't get plainer than this. But, again, some of the purposes are tax exempt explicitly, such as the SVO (Shuttered Venue Operators). These are distributed and administered by SBA, and are non-taxable grants. RRF (Restaurant Revitalization Fund) is also administered by SBA, and is non-taxable.

Which is why I asked who issued the grant. You stated City and County, but is that City? County? City Health Department? County Health Department? Public Works, such as Water grant?

[11Buster]

They are funds received by both the city and county in which the business is situated under an allocation form the CARES Act to the "City of Lemoore/Kings County COVID-19 Small Business Assistance Program.

Per what you have provided below, appears fully taxable to federal and most likely on state return.

[qbteachmt · Accepted solution]

"and most likely on state return"

See if your client is on this list:

https://static.business.ca.gov/wp-content/uploads/2021/09/SBCRG-Final-Awards-List-as-of-9-17-21.xlsx

If so, that's the grant they got. The earlier link I gave:

https://gpwcpas.com/grant-credit-loan-and-other-relief-comparison-chart/

Tells you:

These grants are taxable for Federal.
Any expenses paid with this grant are deductible.

These grants are not taxable for California.

Here is a Spidell forum post:

https://www.caltax.com/forums/topic/is-ca-grant-taxable-lendistry/

This link has three Funding groupings: Financial Assistance, Loans and Grants:

https://www.sco.ca.gov/covid19ReliefAndAssistanceSM.html

Here is the link for Kings County:

https://www.countyofkings.com/home/showpublisheddocument/24041/637316316900500000

Here is the grant notice flyer:

https://www.countyofkings.com/home/showpublisheddocument/24045/637316343600670000

Here is the notice of availability:

https://www.countyofkings.com/home/showpublisheddocument/24041/637316316900500000

And: "Lendistry has been designated by the state to act as the intermediary for the Program to disburse the grant funds."

https://www.grants.ca.gov/grants/california-small-business-covid-19-relief-grant-program-round-5/

https://hanfordsentinel.com/news/lemoore-offers-small-business-assistance-grant/article_6f4b945d-a41...

All of this helps you know what sort of grant they got and what it is for and how it is treated, because now you have the sources and the facts.

[qbteachmt]

Here is Nov 17, 2021 IRS update and notice on this issue:

https://www.irs.gov/newsroom/irs-provides-answers-to-states-and-local-governments-on-taxability-and-...

IR-2021-231, November 17, 2021

WASHINGTON — The Internal Revenue Service today provided answers regarding Coronavirus State and Local Fiscal Recovery Funds (SLFR Funds). These funds give eligible state and local governments a substantial infusion of resources to meet pandemic response needs.

The answers are in FAQs (FS-2021-16) and detail the tax consequences for individual recipients and the reporting requirements for the states and local governments and employers, as applicable.

Some SLFR Fund recipients may have to report certain payments as income and may owe tax depending on the purpose of the payment. Today's FAQs also provide answers regarding payments used to assist with childcare or other basic needs.

States and local government administrators will find answers regarding their filing requirements, including when Forms 1099 need to be filed.

These FAQs are being issued to provide general information to taxpayers and tax professionals as expeditiously as possible.

More information about reliance is available.

[Kathleen1]

I don't see anywhere in this thread or in the gpwcpas or caltax links where it addresses whether the expenses are deductible for California on the California Relief Grant.  Did I miss it?

[11Buster]

I don't think it was ever addressed as most of the time in this thread was spent with links to determine what grant somebody got, which wasn't ever the question.

[qbteachmt]

"with links to determine what grant somebody got, which wasn't ever the question."

It's where you need to Start. It is the First Question. Then, you follow what applies for State and Fed tax treatment for that specific grant. Too many tax preparers have this backwards and your client needs to help you know this.

[qbteachmt]

"I don't see anywhere in this thread or in the gpwcpas or caltax links where it addresses whether the expenses are deductible for California on the California Relief Grant. Did I miss it?"

It is at the CPA link:

CA Relief Grant

Eligible applicants were scored based on COVID-19 impact factors. Grants were awarded based on the following: $ 5,000 For annual gross revenue between $1,000 and $100,000 $15,000 For annual gross revenue between $100,000 and $1 million $25,000 For annual gross revenue between $1 mil. and $2.5 million https://www.californiasbdc.org/covid-19-relief-grant Round 3 for applying for this program closed on March 11, 2021. The Round 4 application window spans from March 16, 2021 – March 23, 2021. Applicants who applied in any round are automatically transferred for consideration to the next round. The funding for this program has been expanded. Therefore, as of the date of this posting, grants will continue to be awarded to eligible applicants who applied during the application windows.

These amounts do not need to be paid back.

These grants are taxable for Federal. Any expenses paid with this grant are deductible. These grants are not taxable for California.

[qbteachmt]

Same info from the SCO.CA links already provided:

Small Business COVID-19 Relief Grant Program (State)

Provides competitive micro grants ranging from $5,000 to $25,000 to eligible small businesses and nonprofits affected by COVID-19 and the related health and safety restrictions.

Grants are available to California-based businesses operating since at least June 1, 2019 that have been affected by COVID-19.Small businesses with $1,000 to $100,000 in annual gross revenue are eligible for a $5,000 grant. Businesses with revenue between $100,000 and $1 million are eligible for $15,000. Businesses with revenue greater than $1 million up to $2.5 million are eligible for a $25,000 grant.

Program information: www.careliefgrant.com.

Application period has closed.

[qbteachmt]

If this is what your client got, there is the same info, still available.

[Kathleen1]

This link says the California Relief Grants are taxable for Federal and the expenses are deductible.  It then says they are not taxable for California, but does not address if the expenses are deductible. I suppose I could presume that therefore the expenses are not deductible for California.  But with Covid, it seems like nothing can be presumed.

[11Buster]

Yes, we all now know (per qbteachmt's extensive research and reply(s) today) about the taxability aspect (hence I wrote question "solved" nearly 3 months ago, however, nothing ever mentioned about deductibility of same expenses.  I would assume, perhaps, much live the EIDL grants of up to $10k, amounts rec'd non-taxable, we still deducted all expenses.

[qbteachmt]

"however, nothing ever mentioned about deductibility of same expenses."

Did you read this line:

"Any expenses paid with this grant are deductible."

[qbteachmt]

Weren't the issues that the Feds considered grants non-taxable income, but at first, wanted to disallow the expense deductions? CA wanted to tax the grant income and would allow the expense deductions; then passed the bill to exempt the income from taxes. The IRS then released guidance that the expenses are still allowed as deductions.

It's been a while, and your State might be passing newer legislation to impact 2021, of course.

[accoun5]

Thanks-In what screen the Lacerte 2021 S Corp module do you enter the California Small Business COVID-19 Relief Grant?

[qbteachmt]

Here is a great listing of CA grants and loans and tax treatment:

https://gpwcpas.com/grant-credit-loan-and-other-relief-comparison-chart/

You will be able to use that to be more specific as which grant this is. You asked about:

California Small Business COVID-19 Relief Grant

But I don't see that combination of words. I see:

CA Relief Grant

and

Small Business debt relief

But not in combination. And unfortunately, right now, the Search results function here is not working, as can be read in the Intuit announcement linked at the top of the web pages:

https://proconnect.intuit.com/community/community-basics/discussion/intuit-faqs-we-couldn-t-find-tha...

[Bunnybear]

I have a client received Restaurant Revitalization Fund (RRF) which is under ARPA. Do you happen to know how the RRF should be recorded on tax form 1120S? Thanks a lot!!

[qbteachmt]

@Bunnybear 

Did you click this link (and bookmark it for later):

https://gpwcpas.com/grant-credit-loan-and-other-relief-comparison-chart/

RRF is there.

[DTNY07]

I just came across this for one of my California business clients.  I am a NY CPA, so I don't have a lot of them.  Thanks for posting this info.  They had the small business relief grant.  

[qbteachmt]

Glad it helped. It's been a real moving target between Feds and various State programs, and existing programs that were in the timeframe of covid grants, but really have nothing to do with the pandemic or recovery. It's nice of that CPA firm to keep updating that same table, too.