Grant funds reported on 1099-MISC as Nonemployee Comp

[gfizer]

Client files Form 4835, Farm Rental. Received grant funds from local goverment entity to build agricultural fencing on his farm. The government entity has reported the grant funds to the taxpayer on 1099-MISC as nonemployee compensation. If I report this as "other income" on Form 4835 wil this trigger questions from the IRS about why SE tax was not paid?

[BulldogTom]

Possibly. Are the fences his? or the local government? Did you capitalize them? Was it mandatory that he take the fences, or did he apply for the grant? It might be subject to SE tax depending on how it went down. Because if he got an asset for his business, the way he would get basis in it would be to take the value into income.

Lots of questions, not sure what the answer is.

Tom

Lodi, CA

[gfizer]

Yes, the fences are his. They will be depreciated and he will opt out of any bonus depreciation. This is a program made available to local farmers by application to the fiscal court for the purpose of providing funds for farm improvements. It is my understanding that the money is available on a first come-first serve basis to those who apply.

[BulldogTom]

Sounds like income to the business to me, and the 1099Misc with non-employee comp sounds correct. If you can find a way to get it to Line 21, I would like to hear it. This was and is a business transaction, and his business got the benefit. Someone else can chime in if they think I have this analyzed inproperly.

Tom

Lodi, CA

[mircpa]

I also have similiar case with a taxpayer client. It is 6 member LLC which owns real estate was provided with local town grant of 90K for building development with a rider they should keep ownership for 5 years. I need to know to know if this would be subject to self employment taxes or i can include as other income on line 5 on 1120S.

Can someone who has experience please help in this matter