Taxpayer operates a gas station/repair shop as sole proprietor reporting his operations on Sch C under his business FIN#. In 2005 he quits selling gas (but continues with the repair business) and pursuant to IL EPA he has to have the underground tanks removed. He enters into a contract with a state approved company to handle the removal. As part of the contract he signs a power of attorney with the disposal company assigning all rights to reimbursement from IL EPA to the contractor and pays a fee of $ 5000 to the contractor in 2006. The contractor bills the business $ 15620 in May 2005 for his services. The bill is forwarded to IL EPA for payment. In 2007 IL EPA issues a check to the taxpayer in both his individual name & business operating name, but using his SS#. At the end of the year he receives a 1009G for the payment which is listed in box 6 as “taxable grant”. Question, how should he report this transaction on his 2007 return? Line 23 of 1040? Sch C ? Does he have a right to “offset” the income with a deduction for the assignment to the contractor? A copy of the check shows that the only endorsement was by the contracting company. I am concerned that since the 1099G was issued under the taxpayer’s SS# that the IRS will be looking for this item to be reported directly on his 1040, say line 23, although it probably should have been issued under the business name only using FIN#. I would appreciate your thoughts.
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