IRS Releases Guidance
The Internal Revenue Service (IRS) has issued guidance on the taxability of Coronavirus State and Local Fiscal Recovery Funds established under the American Rescue Plan Act (SLFR Funds) used to pay utility bills during the pandemic. Under the new guidance, payments received under SLFR Funds is not considered gross income and thus not taxable income. The IRS states that this is because these payments were made by a state/local government to individuals and were intended to pay for personal expenses incurred during the COVID-19 pandemic, a qualified disaster. As such, they are considered qualified disaster relief payments under section 139 of the Code and are excluded from gross income. The revenue procedure is effective as of Nov. 8, 2021 and applies to qualified expenses paid after Jan. 21, 2020.

To further clarify and explain the new guidance, the IRS issued a “Frequently asked questions for states and local governments on taxability and reporting of payments from Coronavirus State and Local Fiscal Recovery Funds (SLFR)”.  Of particular importance for local governments, on this issue, was whether a state/local government that uses SLFR Funds to pay utility bills on behalf of individuals, has an obligation to file a 1099-MISC form. The guidance states that since the payment(s) is not considered gross income, no 1099-MISC form or other information return is required to be filed with the IRS or furnished to the beneficiary. In October, CASA sent a letter to the Treasury Department requesting such taxability guidance be put forward, and we are happy to report out on this favorable response.