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OTR Tax Notice 2021-05 Tax Treatment of Grants Awarded Through the DC Small Business Recovery Microgrants Program

Wednesday, April 14, 2021

The District of Columbia enacted legislation amending D.C. Code § 47-1803.02 to exclude the following microgrants made by the District to businesses and from District gross income:

  • Public health emergency small business grants awarded pursuant to section 2316 of the Small and Certified Business Enterprise Development and Assistance Act of 2005; and
  • Public health emergency grants authorized pursuant to section 16(m)(1) of the Advisory Neighborhood Commissions Act of 1975, effective March 26, 1976 (D.C. Law 1-58; D.C. Official Code § 1-309.13(m)(1)).

See Coronavirus Omnibus Emergency Amendment Act of 2020, effective May 14, 2020 (D.C. Act No. 23-0317), Coronavirus Support Temporary Amendment Act of 2020, effective October 9, 2020 (Law No. 23-0130), Coronavirus Support Emergency Amendment Act of 2021, effective March 17, 2021 (D.C. Act No. 24-0030).

The amount received by businesses and individuals pursuant to these grants may be subject to federal income tax and included in federal gross income. The purpose of this notice is to give guidance to businesses and individuals on how to report and exclude the amount of these grants from District gross income on their District income or franchise tax returns for tax year 2020.

1.    Form D-20 Corporation Franchise Tax Return:

  • Do not include the amount of the grant on Line 10 of Form D-20. This is the line you would report the amount of the grant if it was taxable by the District. Therefore, Line 10 on your Form D-20, will be different from Line 10 of federal Form 1120. Report the difference between Line 10 of your federal Form 1120, and Line 10 of your D-20, on Schedule E, Line 9 of Form D-20. Submit the 1099G showing the amount of the grant.

2.    For Form D-30 Unincorporated Business Franchise Tax Return:

  • Do not include the amount of the grant on Line 10 of Form D-30. This is the line you would report the amount of the grant if it was taxable by the District. Report the amount of the grant on Schedule H of Form D-30. Submit the 1099G showing the amount of the grant.

3.    For Form D-40 Individual Income Tax Return:

  • The amount of the grant should be included in the federal Adjusted Gross Income that is reported on the federal Form 1040 to Line 4 of Form D-40. Therefore, complete and submit Schedule I which is a Schedule for Additions to and Subtractions from federal Adjusted Gross Income. Use Line 13 of Schedule I to report the amount of the grant. The total additions to and subtractions from federal Adjusted Gross Income captured by Schedule I are carried over to Form D-40. Submit the 1099G showing the amount of the grant.

4.    For Form D-65 Partnership Return of Income:

  • Do not include the amount of the grant on Line 8 of Form D-65. This is the line you would report the amount of the grant if it was taxable by the District. Therefore, Line 7 on your federal Form 1065 (the line for “Other Income”) will be different from your Line 8 (“Other Income”) on Form D-65. Submit the 1099G showing the amount of the grant.

5.    For Form D-41 Fiduciary Income Tax Return:

  • Complete Calculation B on page 6 of the D-41 Instruction Book. Add the amount of the grant to the amount obtained for Calculation B and enter the total on Line 4(b) of Form D-41. This means the amount of Line D of Calculation B will be different from the amount entered on Line 4(b) for Form D-41. Submit the 1099G showing the amount of the grant.

For additional information, please contact OTR’s Customer Service Center at [email protected] or (202) 759-1946.