CARES Act funds

[Zac Fross]

If I received Federal Care Act Funds in 2020 and returned them to my State in this year will they need to correct the dollar amount on the 2020 1099-G?

[qbteachmt]

I would. Here is the topic for your receiving entities:

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

And it's box 6 that you used, and would issue a corrected 1099-G for that same tax year.

[qbteachmt]

Dang it; I forgot to copy your original question text. Did you Edit this? It seemed you were the 1099-G provider, but now you are not?

[Zac Fross]

Yes, it was required to be edited by my manager. We are struggling with the workload this is going to cause because of the volume of the Federal Care Act Funds that were returned to our State. Sorry for the inconvenience this may have caused and Thank you for your timely response.

[qbteachmt]

The State has a contact person for you to work with, perhaps by Region. You should contact them to find out how they are going to handle corrected reporting, that an audit resulted in returned funds.You're not the only party that this happened to, I'm sure.

I assume you are on accrual basis, and they would be reporting the audited difference as collectible from you. And for your fiscal year, they might be going to report your return of funds as a 2021 event, even though you see it as a liability in 2020 due to the audit.

I support towns and other local governmental entities.

[rbynaker]

I also saw the original question. 🙂

Just shooting from the hip, you can't be expected to rewrite history.  If a grant was returned by 12/31/20 then it should not be reported on a 1099 for 2020.  You had the month of January to get that accounting done.  For folks in that situation you likely need to amend.  But granted in 2020 and returned in 2021 is probably taxable to the recipient in 2020 and a claim of right repayment in 2021.

See "Repayments" starting on page 34 of Pub 525 (2020):

https://www.irs.gov/pub/irs-pdf/p525.pdf

If the amount was less than $3,000 then there may be no tax benefit to the repayment in the subsequent year.  I'm having trouble feeling sorry for the "tried to cheat my local government, got caught, and had to pay more tax" people though.

Rick

[qbteachmt · Accepted solution]

"If a grant was returned by 12/31/20 then it should not be reported on a 1099 for 2020."

I know that the national news commented on large employers taking SBA grants, PPP, etc, and then returning them. The public Cares funds disbursed through the county and States are different, though. The grants were taxable, already. That's why an issuing entity might use a corrected 1099-G. But the receiving entity cannot force nor expect this, and now that the perspective is flipped, you would contact the grantor. They might have turned the disqualified portion into Debt, until repaid.

[qbteachmt]

There might not have been any intent to get funds not qualified for, though. I've had this web page open for nearly a year:

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

Because I have been monitoring the release of the $11m MT stated would be given for Live Entertainment grants. It sat at $10.33m something for the longest time, but I see it's dropped about $30k. Either people realize they didn't need it, or they got audited and they didn't meet the qualifications upon review, or they knew that and applied, anyway.