Schumer: Reverse IRS tax hikes for new septic systems in Suffolk

Senate Majority Leader Chuck Schumer said Monday he would seek to overturn a 2020 decision by the Internal Revenue Service that provided tax hikes equal to thousands of Suffolk homeowners who received grants to replace aging sewer systems.

The grant program was launched by the US Department of Agriculture in 2017 and is still ongoing. It’s part of an effort to encourage Long Island homeowners to upgrade their sewer systems to reduce nitrogen pollution in groundwater and local waterways. The IRS has ruled that the grants should be considered taxable income, although homeowners do not derive any financial benefit from the modernization and Suffolk pays the grants directly to contractors.

During a news conference Monday in East Islip, Schumer (DN.Y.) announced a possible workaround for the “illogical” IRS decision. If the USDA determines that the program benefits the environment, the grants would be excluded from taxable income, he said.

“These are middle-class people. They work hard. You can’t afford it [the tax hike]”, he said. “That’s not fair. That is not right.”

The USDA did not immediately respond to requests for comment Monday, and it was unclear if the department would honor Schumer’s request. Separate legislation would be needed to retrospectively reimburse homeowners for the tax hike, Suffolk officials said.

East Islip’s Louis Castronova said he received a grant to upgrade his sewage system in 2020 after his cesspool collapsed. The improvement, he said, cost him more than $4,000 in tax increases.

“You’re sitting there and you’re like, ‘Wow, that could have been used in my kid’s education,'” said Castronova, a building inspector for Islip Town.

The IRS said in its 2020 decision that the money is counted as income because homeowners perform “administrative or supervisory functions of the payment,” including through the selection of the contractor used, and the grants are not given based solely on need.

The IRS did not respond to requests for comment Monday.

In a letter to USDA Secretary Tom Vilsack Monday, Schumer said the IRS code requires payments under conservation programs designated by the USDA primarily to conserve land and water resources and protect the environment to be from gross income of a recipient could be excluded.

Suffolk has 360,000 aging cesspools and septic tanks, environmentalists said. To date, more than 1,000 septic systems have been installed under the Suffolk program and some 3,200 homeowners have applied for grants of between $10,000 and $20,000, officials said.

“This program was specifically designed to help Long Island’s working class,” said Adrienne Esposito, executive director of the Citizens Campaign for the Environment. “It should be good for our wallets, good for the environment and good for the sustainability of our island.”

Suffolk County Executive Steve Bellone said the program is “absolutely critical to our plan in Suffolk County for decades to come to solve the water quality problem once and for all.”

Bellone, who noted that homeowners in the county are seeing increases in their tax bills since 2020, said if the IRS doesn’t reverse course. the program could stop.

“It’s the biggest problem of our time here,” he said. “If we don’t conserve the impacts on water quality here, protect and push back; if we don’t protect this water quality, we won’t have a prosperous future on Long Island.”

Rep. Tom Suozzi (D-Glen Cove) and Sen. Kirsten Gillibrand (DN.Y.) pushed for legislation last year to reverse the IRS ruling. But the amendment included in President Joe Biden’s Build Back Better bill died in the Senate.

Robert Brodsky is a breaking news reporter who has worked at Newsday since 2011. He is a graduate of Queens College and American University.

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