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@11Buster wrote:

we have clients who received "COVID-related" local (city) grant money here in CA,

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That is taxable on the Federal return.  Grants are taxable unless they fall under a SPECIFICALLY exempted program, such as PPP, EIDL, and Shuttered Venue grants. 

Not sure which of the other "COVID-related" programs yours fall under, but here is an example that shows they are taxable:

https://www.irs.gov/newsroom/cares-act-coronavirus-relief-fund-frequently-asked-questions

As for California, I have no idea.