Are Broadband Grants Taxable?

Casey Lide of Keller & Heckman wrote a recent blog that warns that federal grant funding might be considered as taxable income by the Internal Revenue Service (IRS). This would be a dreadful outcome for any taxable entity that receives the grant funding since it would create a huge tax liability that would have to somehow be covered outside of the grant funding. This would not affect just the big telecom and cable companies but also the many small telephone companies and cooperatives which are also taxable. This is very distressing news for a corporation that has already accepted grant funding from the CARES Act or from American Rescue Plan Act (ARPA) funds because they might be facing an unexpected tax liability. One of the problems we have currently in dealing with these kinds of issues is that the IRS is running several years behind and won’t have yet dealt with a tax return from a corporation receiving recent the latest infrastructure grants. As a further word of warning, this same issue would apply to anybody accepting state infrastructure grants. A state would have to take positive action to forgive the grant from state income taxes, but that would not shield state grant revenue from federal tax liability. Any taxable entity that has already received funding, or anybody thinking about taking funding, should reach out to legislators on the issue. It may turn out that Congress might be the only one who can fix this – they certainly didn’t intend for anybody building rural broadband to incur a huge tax penalty. If this doesn’t get resolved, many of the carriers who are planning on using grants to solve the rural broadband gap might have to drop out of the pursuit of grants.

[Doug Dawson in President of CCG Consulting.]