In Chief Counsel Advisory (CCA) 201106008, issued December 3, 2010, the Office of Chief Counsel of the IRS stated that because the American Recovery and Reinvestment Act of 2009 (the Recovery Act) did not specifically exclude Tax Credit Assistance Program (TCAP) grants from gross income, and the grants are not excluded for income tax purposes by any provision of the tax code, TCAP grants are includable in a recipient’s gross income for federal income tax purposes. In the case of a TCAP grant, the recipient will normally be a partnership or corporation.
For tax payers using the cash receipt and disbursement accounting method, the grant is not includable in gross income until the taxpayer may actually draw down on the funds. When the owner has access to the funds, the grant amount becomes taxable income. Taxpayers using the accrual method of accounting must take the grant into income when the project owner and the state agency execute the TCAP written agreement, unless the TCAP agreement provides that the grant is due at another time.
Owners who have received TCAP grants for the development of a project should discuss tax liability issues relating to the grant with their accountant.