New guidance from the Internal Revenue Service tries to clear up questions some transportation companies may have about pandemic-related federal grants.

The agency has published a series of frequently asked questions aimed at giving these companies a better idea of what is taxable and what isn’t when it comes to Treasury grants they may have received during the COVID-19 pandemic.

Grants from the Department of the Treasury were authorized by the Coronavirus Economic Relief for Transportation Service (CERTS) Act, which was part of the Consolidated Appropriations Act of 2021.

The legislation allows federal grants to qualified to companies providing transportation services that suffered annual revenue losses of 25% or more due to the pandemic. Qualified services include eligible motorcoach companies, school bus companies, and passenger vessel companies.

The IRS says the grants are generally meant to offset payroll costs stemming from the pandemic, although grant money can also be used for some operating expenses. This means a grant can be used to pay for services or equipment the company had to acquire in order to protect their employees and customers from the coronavirus; grants can also be used to repay debt the company incurs to maintain its payroll.

Any grant funds not used for an eligible activity within a year of their receipt, however, go back to the Treasury Department.

The IRS’s Frequently Asked Questions on the topic answer two major questions for transportation companies with grants:

Are the grants taxable?

Yes, the receipt of a CERTS Act grant is not excluded from the recipient's gross income under the Code and therefore is taxable.

Are costs for which the grants are used deductible?

Yes, the costs are deductible to the extent that they are otherwise deductible under the law. The tax law generally permits the payment of wages, salaries, and benefits to employees and other amounts paid to carry on a trade or business to be deducted as ordinary and necessary business expenses.

For more on tax relief for companies affected by COVID-19, see the IRS website at IRS.gov.

Source: IRS provides answers for certain transportation companies eligible for Treasury grants