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County executive ‘optimistic’ on IRS and septic grants

At a rally held at a Patchogue family’s home last Wednesday, U.S. Senator Chuck Schumer (D-NY) urged the IRS to rule on the county’s Septic Improvement Program in favor of the homeowner — and soon.

“Suffolk homeowners, already taxed by nitrogen, shouldn’t also get a bill from the IRS for trying to address it,” Mr. Schumer said in the backyard of Josephine and Howard Brennan’s home, according to a Newsday article.

After installing a $26,000 nitrogen-removing septic system for environmental benefits — in part using a $10,000 grant — the couple was surprised to get a 1099 tax form in the mail from the county comptroller’s office requiring them to pay $1,500 in federal taxes on the grant, the article said.

Mr. Schumer said the IRS must solve the problem that families voluntarily enrolled in the SIP are facing. He said, too, that the IRS must address confusion surrounding whether these grants will be considered taxable income, according to a press release. Already, six of the program’s 1,731 applicants for the SIP have withdrawn their applications and more are considering doing so in light of the delayed ruling.

“Because of outdated systems,” Mr. Schumer said, “nitrogen across the island seeps into our waters and contributes to environmental damage and the county is doing the right thing by mitigating it with this septic grant program.”

The program works to replace outdated, failing wastewater treatment systems and cesspools on Suffolk properties as part of County Executive Steve Bellone’s Reclaim Our Water Initiative. The new systems dramatically improve the quality of groundwater. As reported in March, eight installations were completed in 2017, 49 countywide in 2018 and 15 in Southold and Riverhead towns as of March 19. As of May 29, 102 total systems have been installed, 396 grants have been issued and 121 are pending.

To offset the costs of these systems, which vary between $20,000 and $22,000 on the North Fork and $24,000 and $26,000 on the South Fork, county grants valued at up to $20,000 and state grants valued at up to $10,000 with a 3% interest loan over 15 years are being offered.

Early grant recipients, though, were informed in January that they must pay federal taxes on the value of the grant allotments. The office of County Comptroller John Kennedy, who is running against Mr. Bellone for Suffolk County Executive, has been mailing 1099s to grant recipients. Mr. Kennedy said back in January that the county executive’s office ignored his advice to seek an opinion from the IRS. Now, Mr. Bellone’s office is saying in a press release that “along with homeowners, county legislators, environmental advocates and industry leaders,” they have called upon Mr. Kennedy “to rescind income tax liability forms issued by his office to homeowners.”

“ … Facing so much confusion and under the threat of big bills from the IRS,” Mr. Schumer said last Wednesday, “this progress could cease, and I am here to say that cannot happen. I am here to make it clear for Uncle Sam: you aren’t losing out on any money when a Suffolk homeowner participates in this grant program, because the local contractors are paying the tax. And I am here to add that we cannot turn a win-win into a lose-lose.”

Mr. Schumer said the IRS should not penalize homeowners for upgrading their systems and attempting to improve environmental conditions — especially when federal taxes are being paid for by the companies that install the systems.

“It’s almost double taxation because the homeowner’s paying money on the grant, and the contractors are still declaring this as income and we have it in writing from every contractor,” said Justin Jobin of the SIP at a Mattituck-Laurel Civic Association meeting in late April. At that meeting, Mr. Jobin said SIP members expect the IRS ruling within two to three months.

One month later, Mr. Bellone released a statement saying that the program “was carefully and purposely designed so that installation companies, and not homeowners, receive the grant funding and report those disbursements to the IRS as income.” He said that since the program is voluntary, the county decided to protect homeowners from any potential tax liability. He expressed optimism in the IRS’ potential ruling in favor of the homeowner, but it is still unclear when the decision will be released.

“Under privacy and non-disclosure law,” an IRS media liaison wrote in an email, “it is against the law for the IRS to comment on or discuss a tax entity’s tax information with the IRS.”

Mr. Jobin was not immediately available for comment.

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