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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
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Experience:  10 years experience
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I am, I think, to receive a federal government grant from an

Customer Question

I am, I think, to receive a federal government grant from an agency of or a hired contractor of the federal government. if I really do get the money I asked for can I pay tax on the after I receive it ?
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi, My name's Lane ... I can help you here ... Essentially you report this as revenue (along withyour expenses of course) for the tax year received ... so, yes you'll pay the tax the following april. (actually as you pay your estimated taxes, but will likely not know how this affects your bot***** *****ne until received)


Bear with me and I'll type up the complete answer

Expert:  Lane replied 1 year ago.

The guidance that IRS finally provided (below) is for CERTAIN types of grants... they will look at this as a case by case issue, but unless you are covered here, the starting point is that the additional revnue is just that revenue that will (all other things being equal) increase taxable profit for the year you actually receive the dollars. (Making taking tax losses more difficult and raising any eventual gains)


Run your specifics agains the situations below to see if this MAY be considered a capital contributionm where you can, rather than recognize the income, lower your basis - thereby reising capital gains and making


On November 12, 2010, the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) released Revenue Procedure 2010-45 and Revenue Procedure 2010-46, providing guidance to taxpayers regarding the federal income tax treatment of grants made by the United States government.


Section 118(a) of the Internal Revenue Code1 provides that a corporation's gross income does not include certain non-shareholder contributions to the capital of that taxpayer. However, in the case of such a non-shareholder contribution to capital, Section 362(c)(2) requires a basis reduction in the corporation's property. The revenue procedures provide that the IRS will not challenge a corporation's treatment of specific federal grants as a non-shareholder contribution to the capital of the corporation under Section 118(a), provided that the corporation properly reduces the basis of its property under Section 362(c)(2) and the regulations thereunder.

To date, Treasury and the IRS have issued a total of four revenue procedures providing similar "safe harbor" treatment under Section 118(a) for certain federal grants:

  • Rev. Proc. 2010-46 (Department of Transportation grants under the High-Speed Intercity Passenger Rail Program and for capital investments in surface transportation infrastructure)

  • Rev. Proc. 2010-45 (Department of Energy grants under the Electric Drive Vehicle Battery and Component Manufacturing Initiative)

  • Rev. Proc. 2010-34 (broadband grants from the Department of Agriculture and the Department of Commerce)

  • Rev. Proc. 2010-20 (DOE Smart Grid Investment Grants).

Treasury and the IRS appear to have adopted the approach of addressing specific federal grant programs on a particularized basis, rather than issuing broad-based guidance. Although the four revenue procedures provide welcome guidance for those taxpayers whose grants are covered by the safe harbor, federal and state governments have provided many grants that are not so covered.

Expert:  Lane replied 1 year ago.

But regardless of whether you lower basis or recognize as income.. the taxable event will be for the tax year that you receive the funds.


Please let me know if you have any questions at all, before rating me


If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars or faces on your screen, and then clicking “submit") ... Otherwise JA doesn't credit me for the work here.


Thank you!


I hold a law degree, (Juris Doctorate), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986.