It depends. Generally grants to individuals for education and research type projects are not considered income to the individual, unless it is exchanged for services performed.
Grants to businesses are usually taxable.
However, if the purpose of the grant was to start the LLC, then a portion of the income generated from the grant funds might be offset by the related start up expenses and/or amortization of those expenses.
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This is a restricted grant as in whatever that is left at the end of the year is returned back to the University. I guess the primary question is should the funds from the grant be reported in Form 1065? If so, where would it be reported (what income category)? Also, should I still input the expenses if all the expenses were paid from the grant funds?
You posted your query in the Education section. Yet you state the grant was for a business. What does this have to do with education? More details on that may help readers with providing you the information you seek.
Also, since you mentioned a 1065, that means the business is either a partnership or a multi-member LLC. Which is it? Are all partners living breathing humans? I ask, because it's perfectly possible for a partner to be another business, which would be a non-living, non-breathing owner in the partnership.