June 30, 2011 | By Keith Martin in Washington, DC

Grants paid by the US Department of Energy for projects that use clean coal technologies or capture carbon dioxide at industrial facilities do not have to be reported as income, the IRS said in April.

Grants must usually be reported as income.

However, the IRS said these grants do not have to be reported if they are made under its Clean Coal Power Initiative-Round 3 or under the FutureGen 2.0 program, but only if the grant recipient has a legal right to retain ownership of its inventions.

The grant recipient must also be a corporation.

If it is a partnership, then the grant will be taxable. That’s because the IRS used as its theory for waiving tax on the grants that they are capital contributions to a corporation by someone who is not a shareholder. There is no similar concept of a person who is not a partner making a capital contribution to a partnership.

The IRS announcement is Revenue Procedure 2011-30.

Keith Martin