Broadband Grants May Be Taxable Income

Broadband grants awarded under programs established by the American Rescue Plan Act (ARPA) and the Infrastructure Investment and Jobs Act (IIJA) could be subject to federal corporate income tax, effectively requiring corporate recipients of grant funds to return 21 percent of it to the federal government. While the IRS has in the past declared a “safe harbor” from taxation for certain broadband grants (specifically, BTOP and BIP grants, in 2010), doing so now could be more challenging due to statutory changes adopted as part of the 2017 Tax Cuts and Jobs Act. If not conclusively addressed, the taxation issue could significantly blunt the positive impact of broadband grants made under ARPA and the IIJA, including the massive $42 billion infusion forthcoming under the BEAD program. Entities expecting to receive grant funds would need to budget for the tax bill, potentially requiring a reduction in the scope of their project. Entities might also consider structuring a project so that grant funds are received by tax-exempt entities. here's a high-level overview of these issues.