CARES Act Funds: Requirements for Issuing 1099-G Statements to Beneficiaries

Published: January 13, 2021

Cities that used Coronavirus Relief Funds (CRF) to provide grants and forgivable loans will need to issue Form 1099-G to qualifying recipients. These are due to recipients by Jan. 31, 2021, and must be filed with the IRS by March 1, 2021.

CRF aid was provided as part of the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Get answers to FAQs regarding CARES Act funds and Form 1099-G

Q1. If governments use CRF payments, as described in the U.S. Treasury’s Fund Guidance, to establish a grant program to support businesses, would those funds be considered gross income taxable to a business receiving the grant under the Internal Revenue Code (Code)?

Q2. If governments use CRF payments, as described in the Fund Guidance, to establish a loan program to support business, would those funds be considered gross income taxable to a business receiving the loan under the Code?

Q3: If the city transferred CARES Act funds to another unit of government, does the city have to issue a 1099 to another governmental entity?

Q4: Where can I find instructions for issuing 1099s?

Q1. If governments use CRF payments, as described in the U.S. Treasury’s Fund Guidance, to establish a grant program to support businesses, would those funds be considered gross income taxable to a business receiving the grant under the Internal Revenue Code (Code)?

A1. Yes. The receipt of a government grant by a business generally is not excluded from the business’s gross income under the Code and therefore is taxable. However, a grant made by the government of a federally recognized Indian tribe to a member to expand an Indian-owned business on or near reservations is excluded from the member’s gross income under the general welfare exclusion.

Learn more from the IRS website

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Q2. If governments use CRF payments, as described in the Fund Guidance, to establish a loan program to support business, would those funds be considered gross income taxable to a business receiving the loan under the Code?

A2. Generally, the receipt of loan proceeds is not included in gross income. However, if the government forgives all or a portion of the loan, the amount of the loan that is forgiven is generally included in gross income of the business and is taxable unless an exclusion in section 108 of the Code or other federal law applies. If an exclusion applies, an equivalent amount of any deductions, basis, losses, or other tax attributes may have to be reduced in accordance with the Code or other federal law.

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Q3: If the city transferred CARES Act funds to another unit of government, does the city have to issue a 1099 to another governmental entity?

A3: No. Generally, Internal Revenue Code Section 115 excludes from gross income any income derived from the exercise of or administration of any public function. The identity of an entity as a government is based on constitutional, federal, and state law, as well as on court decisions.

Local governments are generally political subdivisions of states and differ from state and federal governments in that their authority is not based directly on a constitution. Each state constitution describes in detail a procedure for establishing local governments. In most cases the state legislature must approve the creation or incorporation of a local government. The local government then receives a charter defining its organization, authority, and responsibilities, including the means for electing governing officials.

Local government units bear a variety of names, such as city, county, township, village, parish, district, etc. The legal significance of these terms may vary from state to state.

Read “What Are Government Entities and Their Federal Tax Obligations?” on the IRS website

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Q4: Where can I find instructions for issuing 1099s?

A4: Instructions for issuing 1099s are available on the IRS website.

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