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Schumer says IRS should not ' tax people when they get grants to fix their homes'

In Patchogue Wednesday, Sen. Chuck Schumer holds up

In Patchogue Wednesday, Sen. Chuck Schumer holds up a tax form sent to homeowners who got nitrogen-removing septic systems in Suffolk County. Credit: Newsday/David Schwartz

Sen. Chuck Schumer on Wednesday called for the Internal Revenue Service to quickly rule that homeowners don't have to pay taxes on Suffolk grants they receive for new nitrogen-removing septic systems.

Standing in the Patchogue backyard of Josephine and Howard Brennan — who unexpectedly had to pay $1,500 in taxes on a $10,000 grant this year after getting a federal tax form from the county — Schumer said the IRS should clarify the issue.

"I'm here to demand answers and get the IRS to fix the problem," Schumer said, comparing it to taxing someone for the cost of road repairs in front of their house. "We're all on the same side. The IRS should not tax people when they get grants to fix their homes."

An IRS spokesman said, “Federal law prohibits the IRS from commenting on specific taxpayer matters,” including tax issues involving public entities, like county governments. The spokesman could not say how long a ruling would take. 

Earlier this year, Suffolk County Comptroller John M. Kennedy sent tax forms to dozens of homeowners who had received $10,000 to $20,000 grants as part of the county's Septic Improvement Program, the start of an effort to curb nitrogen coming from unsewered homes and the signature environmental policy of County Executive Steve Bellone. The county's outside law firm, Harris Beach, had said the tax forms should go to the installers instead of the homeowners, but Kennedy said the opinion was insufficient.

Installers and designers of the systems said they already pay taxes on the grant checks, which are made out to them. Schumer said having homeowners pay again would result in people paying double to the federal government.

Bellone, a Democrat, is seeking a third term in November and is being challenged by Kennedy, a Republican.

Bellone, in a statement, said the county's program “was carefully and purposely designed so that installation companies, not homeowners, receive the grant funding and report those disbursements to the IRS as income ... the county is optimistic that the IRS will confirm that grants should not be considered taxable income to homeowners.”

Kennedy's campaign manager, Dean Murray, said Kennedy supports the septic improvement program. He noted that Kennedy's office in an April 2018 letter asked for the county to clarify  with the IRS to whom the tax forms should go. Kennedy in March requested a formal opinion from the IRS, which advocates said could take months.

Schumer (D-N.Y.) said he's "not getting into finger pointing" about who was at fault, noting there was a political race going on.

Josephine Brennan, a retired teacher, said she and her husband decided to install the $26,000 septic system after reading about the environmental benefits.

"We love the environment," she said as she described feeding ducks in her backyard, which backs up to water. When she received the tax forms, "We were shocked."

She said when she took the 1099 form to her tax preparer, she was told the additional $10,000 grant would be counted toward her gross income — and bumped them up to the next tax bracket.

Environmental advocates have said the tax uncertainty is threatening the future of the nascent county program. High nitrogen levels have been blamed for harmful algal blooms that hurt shellfish stocks, degrade wetlands and lower oxygen levels in Long Island’s bays, rivers and Long Island Sound.

Schumer, who said his office had been getting calls from constituents, said a simple letter from the IRS should suffice, rather than requiring a "long, formal ruling."

Thomas Montalbine, president of Bay Shore-based Roman Stone Construction, which manufactures the Norweco Singulair system, said the tax issue has created uncertainty in the program, as the economy and program are starting to take off.

"All of a sudden the 1099 issue comes up, we don't know whether to step on the gas pedal or not," he said.

SEPTIC IMPROVEMENT PROGRAM

Suffolk County's grant program has 1,731 applicants, six of whom have withdrawn their applications since the IRS issue emerged. The county has issued 396 grants, installed 102 systems to date through the programs, and another 121 are pending.

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