IRS wants share of 9/11 grants

By Devlin Barrett
Associated Press

NEW YORK — The Internal Revenue Service has concluded that government grants given to small businesses in lower Manhattan after the Sept. 11 attacks are subject to federal taxes.

Charles Rossotti, who completes his tenure as commissioner of the IRS today, delivered his decision by letter to New York's congressional delegation.

However, he also said businesses that received assistance generally do not have to pay taxes on the full amount since they can claim deductible business expenses paid for with the aid money.

New York business owners and politicians criticized Rossotti's decision, calling it wrong and unfair to small business owners struggling to rebuild.

"This is inexcusable," Democratic Rep. Carolyn Maloney said. "We could have easily moved to correct this, but now it will be a struggle to get the House to overrule the IRS during next week's lame-duck session."

Democratic Sen. Charles Schu-mer said he will press for legislation to get around the decision if the IRS does not change its interpretation.

Sen. Hillary Rodham Clinton said she would try to make sure all the grant money would be used to rebuild struggling firms.

"We are trying to lift the burdens from these small businesses, not increase them," Clinton said.

Meyer Feig, president of the World Trade Center Tenants Association, said the IRS decision would force businesses to spend all of their grant money by the end of the year to reduce their tax burden, leaving them with less money next year.