Cuomo Administration Recently Announced $10 Million to Help Suffolk County Expand First-in-the-State Program
Water Quality Czar Requests County Comptroller Rescind Tax Forms Sent to Homeowners
Suffolk County’s Water Quality Czar today formally requested that the Suffolk County Comptroller John Kennedy rescind income tax liability forms issued by his office to homeowners who voluntarily installed new nitrogen reducing septic systems under a County grant program in 2018, unless and until the Comptroller obtains a binding opinion from the IRS indicating that the forms should go to homeowners instead of the installation companies that actually received funding under the program.
Peter A. Scully, Suffolk Deputy County Executive and Suffolk County Water Czar, said: “Suffolk County taxpayers are already facing a difficult income tax season as a result of Washington’s federal tax code changes that limit deductions of local property taxes. The last thing they need is for the County Comptroller’s actions to expose them to additional tax liability.”
The formal request that 1099 forms issued to homeowners in early February for installations completed in 2018 be rescinded comes in the wake of a media account in which the Comptroller stated that he now intends to request a letter ruling from the IRS on the issue after he ignored Counsel’s advice and sent tax notices to homeowners.
The County water quality program was designed so that the companies involved – not homeowners – receive both disbursements of funding under the program and the 1099 forms the County issues to report those disbursements to the IRS. A legal opinion by the County’s tax counsel advises that the 1099s should go to the companies that actually receive the funds, not homeowners.
In early 2018, the County Comptroller’s office sent the 1099 forms for individual system installations to both homeowners, designers and installers, for the same installations. In early 2019, the Comptroller’s office sent 1099s for installations completed in 2018 to homeowners only, and sent “corrected” forms for 2017 to companies which had received disbursements of funds from the County, stating that they hadn’t received any. In an article in today’s Newsday, the Comptroller indicated for the first time that he plans to seek a letter ruling from the IRS on the issue.
Suffolk County’s Septic Improvement Program, the first of its kinds in the State, provides grants to homeowners who choose to replace their cesspool or septic system with new nitrogen reducing septic systems. The program was established in 2017 using $2 million per year approved by voters in a 2014 referendum. Due to the success the County’s program, in early 2018 Governor Andrew M. Cuomo announced Suffolk County’s award of nearly 70 percent of the $15 million awarded statewide under the first year of the State’s Septic System Replacement Fund.
A full copy of the letter can be found below:
Dear Comptroller Kennedy,
As Suffolk’s Water Quality Czar, I write now with a sense of urgency in an effort to limit any further impacts to Suffolk County taxpayers resulting from the unilateral decision of your office to issue 1099 forms which could make grants under the Septic Improvement Program taxable for homeowners.
As you are aware, the program was carefully designed to make the grant process easy and affordable for homeowners. One important aspect of that effort was structuring the program to ensure that homeowners never receive disbursements of funds. Instead, grant funds are disbursed to companies which install nitrogen reducing septic systems, so that IRS reporting requirements should be met through the issuance of 1099-MISC forms to those companies, and not to homeowners. That aspect of the program was made clear at its inception, and all involved companies submitted required W-9 forms expecting to receive the 1099-MISC forms as planned.
In January 2018, however, without prior discussion, and without explanation, your office demanded that the Department of Health Services obtain a W-9 form from a homeowner who had participated in the program. Staff in the Department of Health Services subsequently learned that your office had issued 1099s for the 2017 tax year to both installers and homeowners for the same system installs. The reason why this double reporting occurred has not been explained.
In the wake of that action by your office, the County sought and obtained a legal opinion on the tax reporting issue from its tax counsel, which concluded and advised that 1099 G forms should not be issued to homeowners, and that 1099-MISC forms should be issued to companies receiving funds under the program, consistent with established program guidelines.
Over the past several weeks, the Department of Health Services has been made aware that your office had directed staff to issue 1099 G forms to individual homeowners who completed installations during the 2018 tax year, exposing those homeowners to potential tax liabilities. More recently, you have been quoted in the media as having indicated that you plan to request a letter ruling from the IRS on the matter.
Assuming that this report is accurate, it makes no sense to threaten homeowners with tax liability unless and until the IRS has indicated that issuing 1099s to homeowners is appropriate. For that reason, the purpose of this letter is to formally request that your office rescind the 1099s issued to homeowners pending receipt of the letter ruling you have indicated that you will seek from the IRS.
Given that the April 15, 2019 deadline for filing of 2018 income taxes is looming for Suffolk County taxpayers, who are already reeling from the impacts that changes to the federal tax code limiting deductions of property taxes are having on their personal finances, I would ask that your office take immediate steps to rescind the 1099s issued to homeowners, and to advise homeowners that such action is being taken.
Please confirm that such action will be taken on a priority basis. A careful and deliberate approach to the issue is important given the potential implications for the statewide $75 million New York State Septic System Replacement Program established by the State under the leadership of Governor Cuomo.
I look forward to working with you to ensure that Suffolk County taxpayers are protected against additional tax liability.
PETER A. SCULLY
Deputy County Executive
Hon. Andrew M. Cuomo, Governor
Hon. Thomas DiNapoli, Comptroller
New York State Senate Majority Leader Andrea Stewart-Cousins
New York State Assembly Speaker Carl Heastie
Hon. Steve Bellone, County Executive
Suffolk County Legislature
Suffolk County Supervisors Association
Kevin Law, Long Island Association
John Cameron, Long Island Regional Planning Council
Julie Tighe, New York League of Conservation Voters
Kevin McDonald, The Nature Conservancy
Adrienne Esposito, Citizens Campaign for the Environment
Bob DeLuca, Group for the East End