Rev. Rul. 76-395

Advice has been requested whether, under the circumstances described below, home rehabilitation grants received by certain low-income homeowners are includible in their gross incomes under section 61 of the Internal Revenue Code of 1954.

Pursuant to the provisions of chapter 69, 42 U.S.C. sections 5301 through 5317 (Supp. 1975), added by the Housing and Community Development Act of 1974, a city applied for and received a grant for a community development program. The stated objective of chapter 69 is the development of viable urban communities, by providing decent housing and a suitable living environment and expanding economic opportunities, principally for persons of low and moderate income.

Under the city's community development program, home rehabilitation grants of up to $3,500 are made to certain homeowners who reside in a defined area of the city. To qualify for a grant, the individual must own and occupy a home and the annual income of the individual's household must not exceed $5,000. The recipient must agree to permit the city to inspect the home, screen and approve contractors, and inspect the contractors' work. The city provides assistance to protect the recipient from over-charges and poor workmanship. The grant funds must be utilized primarily for the correction of critical code violations, defined as those that endanger the health, safety, and welfare of the household, such as a defective furnace, defective plumbing, or illegal electrical wiring. Any remaining funds must be used first to correct noncritical code violations, such as scaling paint and floors requiring finishing, then to correct deficiencies that may soon become code violations, such as an old roof, and finally to make general property improvements.

Section 61(a) of the Code and the Income Tax Regulations thereunder provide that, except as otherwise provided by law, gross income means all income from whatever source derived.

The Internal Revenue Service has consistently held that payments made under legislatively provided social benefit programs for promotion of general welfare are not includible in an individual's gross income. See, for example, Rev. Rul. 74-205, 1974-1 C.B. 20, concerning replacement housing payments received under the Housing and Urban Development Act of 1968 and the Uniform Relocation Assistance and Real Property Acquisitions Policies Act of 1970, and Rev. Rul. 75-271, 1975-2 C.B. 23, concerning mortgage assistance payments received under section 235 of the National Housing Act.

Accordingly, in the instant case, the home rehabilitation grants received by low-income homeowners are in the nature of general welfare and are not includible in their gross incomes.