1099G Taxable/Non-Taxable grants

[Terry D EA]

Client received a 1099G with amounts in box 6 which are identified as taxable grants. Ths is a fellowship grant that I feel is not taxable becasue it meets the condition below. With that said, does anyone know if there is a requirement to report the amounts from the 1099G as non-taxable? I don't get an option in the software to identify what the grant funds were for or if they are taxable or not. The instructions for form 1099G say not to report fellowship grants but to follow the instructions for form 1099MISC which states fellowship grants do not have to be reported anywhere. So, is form 1099G part of the income matching system? The only other thing that makes me wonder is if this has been reported wrong by the agency issuing the grant.

 

You must include in gross income:

• Amounts used for incidental expenses, such as room and board, travel, and optional equipment.
• Amounts received as payments for teaching, research, or other services required as a condition for receiving the scholarship or fellowship grant. However, you do not need to include in gross income any amounts you receive for services that are required by the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program.

[Terry D EA]

I am moving this back to the top of the list. I would like some other's opinions please.

[kcjenkins]

Terry, we can't be sure without knowing more details that you do know, but it does sound as if, based on your stated facts, it's not taxable.  To avoid a CP2000, I'd put it on, then take it back off on Line 21 as "Error in reporting non-taxable Grant".

[Terry D EA]

KC thanks for the reply and I still feel this is non-taxable. The 1099G payer is "The National Institute of Health" which falls real closely under the description in my original post. I can't give you any more details that what I have already. I do want to avoid the CP2000 and do need to amend 2013 as we claimed it as income then. I have offered to do this pro-bono based on the apparent mistake last year so I want to be sure.

[kcjenkins]

Go for it! 

[MsTabbyKats]

I d put it in.....then take it out as "NIH Grant-Non-Taxable"just to cover all bases.

Anything in writing, IMHO, should be accounted for.....just in case.

[Terry D EA]

Forgive me for being a little dense here. I'm not following the method of putting it in and then take it out. Where do I do this? Line 21 other income? Then where do you show it coming out at?

[Terry D EA]

Everything I read leads me to believe there is no reporting requirement with this type of grant. Pub 970 worksheet indicates NOT to report amounts received from NIH type grants or fellowships. I realize this worksheet is for determining the taxable portion of any other type of fellowship or scholarship and I am not sure the reporting to the client was in error. It appears it is up to the TP to determine what amounts are taxable and if it is a NIH grant then it is not taxable at all and should not be included in income. I am trying to prevent a CP2000 and need all the documentation I can get to amend last year.

 

I looked at including the grant amount on line 21 and then making a write-in adjustment on line 36 of the 1040 but the grant does not fall under any of the categories for a write-in adjustment.

Edited March 14, 2015 by Terry D

[MsTabbyKats]

I would put it in on Line 21...and take it out on Line 21.

[RitaB]

Forgive me for being a little dense here. I'm not following the method of putting it in and then take it out. Where do I do this? Line 21 other income? Then where do you show it coming out at?

Enter the positive amount on the appropriate line of the Line 21 worksheet, then enter a description on one of the blue lines down there on the worksheet and enter the negative amount. Print the worksheet, cause if you're like me, you'll forget what happened.

[Catherine]

Enter the positive amount on the appropriate line of the Line 21 worksheet, then enter a description on one of the blue lines down there on the worksheet and enter the negative amount. Print the worksheet, cause if you're like me, you'll forget what happened.

I annotate *everything* because no matter how crystal clear it is now, it will be dense mud next year.  Heck, it will be dense mud next *month* for that matter.

[RitaB]

I annotate *everything* because no matter how crystal clear it is now, it will be dense mud next year.  Heck, it will be dense mud next *month* for that matter.

OMG, yes! And when a client waits a month to pick up you don't sit there going "Uh, WTH did I do there?"

[Terry D EA]

I would put it in on Line 21...and take it out on Line 21.

 

Thanks for the answers. I am using OneDesk software and in some scenarios it does not allow manual type entries and I was not sure how, or even if it would, would generate a statement reflecting the entries. I did find a way to enter the 1099G which does go to line 21 and then was able to do a manual entry entering the same number as negative with the NIH explanation. Now I am hopeful that a CP2000 will not be generated.

 

I agree notes and post-it notes are a plus. I normally keep all the documents for the returns that I am working on in a jumbo zip lock bag. A post-it note works great for identifying the need for missing forms, info or other items. Also, works great for documenting where I left off and what needs to be finished.

[jklcpa]

If you entered both on a line 21 worksheet though, the 1040 will report -0- on line 21 and the worksheets aren't transmitted with the e-file. Are you planning on attaching an explanation, or possibly creating a pdf of the worksheet to e-file along with the return?  Or filing on paper?

 

ETA - I played with a dummy return in Drake and if there is more than one entry on line 21 it creates a supporting statement, so maybe that would be e-filed with the return, I don't know.  Terry, can you tell if the supporting statement goes with the e-file in OneDesk like ATX users can see the forms and other data that are included in e-file?

Edited March 15, 2015 by jklcpa
added the ETA

[Terry D EA]

Thanks Judy for bringing this up. OneDesk does generate a statement that shows both entries with the amount of zero on line 21. I will call tomorrow to see what forms are e-filed. As far as I can tell, I can't see what forms get e-filed. I really think this is the last year that I will use OneDesk. I's not bad software but just too many things I don't like and this is one of them.

Edited March 15, 2015 by Terry D

[Terry D EA]

Here is some news. The spouse in this situation has called, (she left her husband to inform me and question the grant) and now tells me that this grant is a fully taxable fellowship grant and does not fall under a NIH grant. I did question her extensively about the paperwork with the grant and sure enough it is taxable. I guess their confusion was everyone who works or does research and is a part of this project all use turbo-tax and have always included the funds in taxable income. I did the same thing from the get-go. They complained about paying the State of Maryland and not NC. Okay, NC gives credit for taxes paid to another State. Yes rates are different but there is not a huge difference in the bottom line. No one else on her team files anything with Maryland. This is a government grant issued by Maryland and I am still not sure that Maryland doesn't have to be done. Nice to find out all of this after I have burned the candle out doing research. If she would have only called a week ago.

[kcjenkins]

There are always one or two of those every season, so hopefully that's your last one.  

[Lion EA]

Did he perform services in Maryland?

[Terry D EA]

No. All research is done in NC

[Lion EA]

So, a NC return with NC income.

[Terry D EA]

Exactly, thanks