IRS bill on shelter grants could include penalties and interest

Friday, December 24th 2004, 4:09 pm
By: News On 6

OKLAHOMA CITY (AP) _ Congressmen from Oklahoma have vowed to fight an Internal Revenue Service ruling that federal grants for storm shelters are taxable.

The IRS has also said that some people who received the grants may also have to pay penalties and interest.

Rep. Ernest Istook, R-Okla., who sits on a committee that oversees the IRS budget, said he was shocked by the agency's ruling.

``I don't think we're going to let this happen,'' he said Thursday. He chairs the House's Transportation and Treasury Subcommittee.

``Congress certainly didn't intend to tax people on their disaster benefits,'' Istook said. ``And I'm sure as word of this gets out, a lot of other members of Congress will want to fix this, just as I do.''

The Federal Emergency Management Agency began advising counties, cities and towns across Oklahoma this week that they will have to issue 1099 tax forms for grants awarded this year and notices of taxes being due for other rebates issued since 1999.

The state Department of Emergency Management previously released booklets saying the grants were not taxable.

Midwest City homeowner David Seidner got one such brochure in 2000 when he received $2,000 to help build a safe room in their new house. Their old home was destroyed in the May 1999 tornadoes.

``I wouldn't have used the grant if I would've known it would have been taxed,'' Seidner said.

Rep. Tom Cole, R-Okla., shared Seidner's frustration and promised to file a bill to stop enforcement of the IRS ruling.

``It makes no sense for the government to tax federal money for this purpose,'' Cole said in a prepared statement. ``Shelters save lives, mitigate damages and make sense. Taxing the very grants to make that possible does not.''

Istook said IRS Commissioner Mark Everson has promised him the grants wouldn't be targeted for tax collection until the confusion is settled.

``I want to get this straightened out before anyone has to file their taxes and be required to file any amended returns,'' Istook said.

Statewide, 7,541 grants totaling $17.5 million have been distributed. The rebate program was introduced after Moore and south Oklahoma City were devastated by one of the costliest storms in state history.