By Katia Hatter, Staff Writer

Pols: 9/11 Grant Tax Will Hurt NYC

The Internal Revenue Service’s decision to tax Sept. 11 recovery grants will damage lower Manhattan businesses still suffering from the terrorist attacks, and slow New York City’s recovery, politicians and business owners charged yesterday.

With an estimated $1 billion in recovery grants, about $200 million could be returned to the federal government by hundreds of businesses and residents this year, they claimed.

“While the grants given could never makes these individuals and businesses in my district whole after the incalculable losses they suffered, these funds have been an important first step,” said Rep. Carolyn Maloney, an East Side Democrat. “To then take back what we’ve given them via taxation is just plain cruel.”

"If the IRS had discretion to determine whether or not the funds were taxable, they should have used it...if not – they should have come to Congress immediately, for clarification." —Carolyn Maloney (D)

Karoon Capital Management Inc., a World Trade Center tenant, reported losses of approximately $2.5 million as a result of the terrorist attacks.

The financial services company received $33,000 in recovery grants, according to company president Kayvan Karoon, but heard about the IRS’ tax decision too late to save some grant money to pay the taxes.

“I fail to see the logic of one agency of the government giving money and the other agency taking it away,” said Karoon, who moved his offices temporarily to New Jersey, but is now settling in Midtown Manhattan.

In mid-March, the IRS issued its final decision to leave most business grants subject to taxation, while excluding most residential grants from taxation. That left only two weeks to adjust for businesses with taxes due March 31, several business owners charged.

That decision took many professional tax preparers off-guard, said Manhattan accountant Jim Grimaldi, who helped Maloney’s office prepare a case study of the small businesses impacted by the decision.

Claiming that Congress never intended the grants to be taxed, Maloney and Rep. Jerrold Nadler (D-Manhattan) sent a letter yesterday to U.S. House Speaker Dennis Hastert and U.S. Senate Majority Leader Bill Frist, urging them to support proposed legislation to make the grants tax-free.

“We can’t comment on proposed legislation,” said IRS spokesman Kevin McKeon. “We issued that guidance based on the tax code that’s out there. If they change the law, sure, absolutely, we’ll do whatever Congress and the President tell us to.”

Copyright 2003, New York Newsday