IRS requiring Long Island residents to pay income tax on grants used for home environmental improvements

EAST ISLIP, N.Y. — On Tax Day, some Long Island residents are making a plea to the IRS. They say they made environmental improvements to their homes, but are being required to pay income tax on the grant money used for the upgrades.

As CBS2’s Carolyn Gusoff reported, critics called it unfair double taxation.

“You kind of want to leave the Earth just as you got it or a little bit better for your kid’s future,” said Louis Castronova from East Islip.

That’s why Castronova upgraded an old polluting cesspool.

Instead of nitrogen-filled waste seeping into the ground, “The water that’s going into the ground now is crystal clear water, denitrified,” according to Joe Densieski, owner of Hydroaction.

The $30,000 upgrade was made possible by a grant to the installer, who paid taxes on it. Castronova was shocked to learn the grant also counts as taxable personal income.

“It just hurt. It’s like we’re almost being punished for making it a greener planet,” Castronova said.

Mark Bernardo from West Hampton also got taxed on an upgrade.

“If it puts you in a higher bracket, it’s tough, it’s very tough,” Bernardo added. “There was no money that we received. But what we got and what the community got and what the county got was a cleaner septic system.”

“What these homeowners are facing here today is simply double taxation,” Suffolk County Executive Steve Bellone said. “Homeowners and installers are both paying taxes on the same money.”

The IRS said it cannot comment on individual tax matters. But this question is impacting a category of taxpayers – more than 3,000 people have applied for the grants. The agency said it’s communications speak for themselves.

In 2020, it ruled the grant is taxable personal income. In future communications, it appears, the agency was reconsidering based on additional information. But then, it closed the case without making a change.

Now another tax-filing season has come and gone.

“The agency got it wrong the first time and sadly the definition of a difficult bureaucracy is one that can’t self-correct, even when they know they’re wrong,” said Kevin McDonald of Nature Conservancy.

Environmental groups said the tax burden is hampering much-needed participation.

“The more of these upgrades we can do, the cleaner our water is going to be,” said Adrienne Esposito of Citizens Campaign for the Environment.

In a statement, Sen. Chuck Schumer said:

An innovative and award-winning environmental program, Suffolk County Executive Bellone’s Septic Improvement Grant Program is an important tool to beat back the nitrogen pollution that plagues our waterways and threatens public health and safety. I once again urge the IRS not to consider the grant funding – money which the participating homeowners themselves never touched – as personal income and urge them instead to take corrective action and provide relief to Suffolk County residents.

Since the grants are for water protection, Bellone said they shouldn’t be taxed at all. He’s asking Treasury Secretary Janet Yellen to intervene.

Nearly 400,000 Long Islanders have aging septic systems.