2009 Form 1099-G

[mircpa]

Hello Everyone

Have a client who received 1099-G from local town with 16K on line 6 Taxable Grants for improvements on commercial real estate with a rider from payer as long as they remain owners of this property for minimum of 3 years, they would not have to repay, if they decide to sell before this time they would pay them back with penalty. My understanding is this would be shown as other income and also increases basis of real estate, do we also have to show this as contingent liability if they decide to sell before 3 years ?

thanks to all who responds

[kcjenkins]

Not on tax return, of course, but on financial statements it would be.

[mircpa]

I just got down on phone with IRS practitioner's hotline. They want to me include in other income and increase basis of property and through this way want to match 1099-G amount. Local payer town told my client this will add to value of building and it is not income. I am confused. Can somebody point to any circular, memo regarding this.

[mircpa]

This is follow up to topic. I spoke to 2 different IRS agents from tax law group. Both of them confirmed this has to be shown as other ordinary income and increase in basis of property with same amount, if in case they have to repay this amount to amount some time in future before 3 years, then it could be written off against ordinary income.