IRS rejects tax refunds on early septic grants
It appears not everyone who paid federal taxes on grant money received from Suffolk County to upgrade their septic systems will get a refund.
In 2019, Suffolk County Comptroller John M. Kennedy Jr. requested an IRS ruling on whether he should send 1099 forms to those who received grants. The result for several thousand people who had the grants was that they would have to list the money they received from the grants on their IRS income tax filings.
In December 2022, following years of pressure from county and federal officials to reverse the policy, the IRS did, and those who had paid thought they would be getting refunds.
That’s not the case for two Shelter Island residents among 59 county residents who were early recipients of the grants. The IRS now said an amended income tax return that would generate a refund had to have been submitted within three years of the original tax filing.
Those 59 who were taxed on grants from 2018 are not going to qualify for the refunds.
Following several years of battling, Suffolk County officials prevailed in reversing the original decision to tax the grants. They argued that upgrading the septic systems is essential to improving water quality. Taxing the grants was resulting in fewer applicants and abandonment of efforts to replace aged systems.
A flurry of emails have ensued between municipal and county officials to try to find a special exception for the 59 Suffolk County taxpayers affected by the latest ruling.
Shelter Island resident Susan Cincotta is among those who received grants from Suffolk County and the town in the early days of the program.
She informed Shelter Island Deputy Supervisor Amber Brach-Williams, who operates the A & A Williams accounting firm, that as one of the first to install an I/A system on her property, she had her application for a refund rejected.
“I’m trying to dispute it and realize others may also be in this position,” she said. “The IRS is denying the refund because of the expired statute of limitations.”
“Please help others like myself by letting those in power know this is a protest worth an extension and refund,” she said.
Ms. Brach-Williams said she has been “concerned” the IRS might rescind its approval of rebates affecting those outside of the allowable period to amend a tax return.
She communicated her concern to Ms. Cincotta and several others, including Kevin McDonald, Conservation Project Director for Public Lands at The Nature Conservancy; Congressman Nicholas LaLota’s aide Peter Ganley; and Justin Jobin, an environmental scientist who operates Coastal Wastewater Solutions and has been a consultant to the Suffolk County government on water quality issues.
Deputy County Executive for Administration Peter Scully, in an email to Ms. Cincotta and others, said the County Attorney’s Office has “flagged this issue” after a coordination call with IRS Counsel.
Given the three-year statute of limitations to modify or amend a tax return, Mr. Scully said he was told by the IRS counsel the agency has no administrative discretion and lacks legal authority to modify the amendment establishing the requirement that an amended return had to be filed within three years of the original tax filing.
