Long Islanders Seek IRS Clarification Over Income Tax Liability for Septic System Replacement Grants

Suffolk County, New York, has been a model for tackling nitrogen pollution from onsite wastewater systems. Now, local grants to upgrade treatment systems are producing another consequence for homeowners: larger tax bills.

The county occupies the eastern tip of Long Island and is home to the wealthy communities known commonly as the Hamptons. Wastewater treatment at many county homes depend on cesspools. During the last couple of years, the county has been offering grants to replace cesspools with nitrogen-reducing systems. At the same time, the county and several municipalities passed laws requiring low-nitrogen systems for new construction and building expansions.

As tax season approached, homeowners received 1099 forms telling them they have additional tax liability this year because they received thousands of dollars in grant payments.

“I said that’s ridiculous,” Dorothy Minnick, 69, tells the Newsday newspaper. “I didn’t make that income. I’m being penalized for doing something good for the environment.”

Tim Sheehan, who lives on Shelter Island, on the north side of Long Island, says he could face a tax bill $3,000 larger. “We were told from the outset the county grant would not be taxable income for us as homeowners.”

The tax anxiety can be traced to County Comptroller John Kennedy, whose office mailed the required IRS forms to taxpayers.

By early spring, 69 advanced systems have been installed in the county at an average cost of $20,523. The county capped its initial grants at $10,000, and some municipalities offer thousands more in grant money to help cover more of the cost. More than 1,500 people have applied for grants.

A legal opinion from the county’s tax counsel says homeowners should not be liable for additional tax if they received a grant. That opinion cited two IRS cases about business grants. An opinion from the county attorney’s office says homeowners would not face tax consequences if grant money was paid directly to installers. Anthony Basile, associate professor of accounting and taxation at Hofstra University and a practicing CPA, was quoted in news reports as saying the tax form should go to the contractor and not the homeowner.

Arguments about the tax bills are ongoing.

Also on New York’s Long Island, the Sag Harbor Village Board has passed a law requiring low-nitrogen onsite systems for all new homes and for existing buildings, including commercial buildings, if their area is expanded by at least 25%. There was no opposition to the proposed law at a public hearing. The law took effect April 1. Also this spring, members of the Westhampton Village Board held initial discussion about a similar law.

The Catskill Watershed Corp. has an $86 million, 10-year contract with New York City to repair or replace failing septic systems. The contract continues a program that began in 1997. People whose septic systems have failed or are likely to fail are eligible for reimbursements. There is no cap on payments. Under the new contract, wastewater systems for nonprofit organizations and local governments will be included. Small businesses and homes are already covered.

Michigan

Commissioners in Kalkaska County may eliminate the septic tank inspections now required before a home can be sold. One commissioner in favor of dropping the requirement is Patty Cox, who is also the county liaison to the District Health Department No. 10.

“If you look at it, there are so many exceptions to the rule, and it creates an undue wait to sell their property,” she tells television station WWTV in Cadillac. She says she is concerned about the environment but believes individual municipalities should deal with onsite inspections.

The inspection rule dates to 2008, but it does not require inspections in 11 situations such as when a property is not occupied, if a home is new or if the property transfer is between members of the same family.

A public hearing is planned. The county is located in the northwest part of Michigan’s Lower Peninsula.

Montana

After years of evidence that human waste is leaking into Montana lakes, the state Legislature is on the edge of requiring a formal study of the problem. A joint resolution introduced by Sen. Fred Thomas, R-Stevensville, would set up an interim study committee that would have until September 2020 to compare the state’s septic system permit system to other states, look at alternative onsite technologies and recommend ways to encourage their use. Research would be reported in 2021.

During a recent presentation, lake scientist Jim Elser said wastewater treatment improvements and other actions have helped reduce phosphorus levels in Flathead Lake in the northwestern part of the state, according to the Billings Gazette newspaper.

Minnesota

Polk County has a cost-sharing program available to property owners who have failing septic systems or systems violating county codes. County grants will pay 75% to 90% of repair costs up to a maximum of $12,000. Who receives these grants will be based on household income, condition of the existing system and its proximity to critical surface waters.

Missouri

Taney County continues a free pumpout program in 2019. This is the sixth year for the program that provides free pumpouts to homeowners. To qualify, homeowners must have a septic system attached to a single-family residence, cannot have a tank that is part of a centralized wastewater system and cannot have had a free pumpout in the last four years. The program is paid for by the county’s 0.5% Wastewater Capital Improvement Sales Tax and each year serves about 500 properties. Less than 1% of the annual tax revenue is needed to fund the service.

Idaho

A study by the state Department of Environmental Quality concludes leaking septic tanks are causing part of the water-quality problem in Lindsay Creek on the eastern side of the city of Lewiston and a tributary to the Clearwater and Snake rivers. The department plans to start a watershed advisory group.

To find the presence of septic system leakage, researchers looked at the amounts of caffeine and artificial sweeteners in water. Caffeine can be removed by properly functioning septic systems, but the sweeteners acesulfame and Splenda are not. Because sweeteners are used only in products intended for human consumption, their presence means some of the water tested came from human sources.

There are more than 800 septic tanks in the Lindsay Creek watershed.



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