GRANTS that a state entity paid to people whose homes were destroyed by a natural disaster to help them buy new homes had to be reported as income, the IRS said in a private ruling. The state argued that its citizens receiving grants should not have to report them either because the grants are effectively a reduction in the purchase price of the new home or else a “general welfare”exception applies.The IRS said they are not a reduction in the cost of the home because each buyer, in fact, pays the full purchase price and they do not qualify for the “general welfare”exception because the grants are not limited to low-income buyers. The state also had to report the payments to the IRS on information returns at year end, the IRS said.
The ruling is 201004005. The agency made it public on February 1.