On August 10, the IRS issued Revenue Procedure (Rev. Proc.) 2021-33 to supplement information in the three employee loyalty credit (ERC) notices issued earlier this year. The tax process also provides a safe haven for the processing of the Paycheck Protection Program (PPP) loan forgiveness and “ERC-Coordinated Grants” in the definition of gross receipts in order to qualify for the. ‘ERC.
Before discussing the impact Rev. Proc. 2021-33 may have, a few definitions are in order. In short, a tax proceeding is an official statement of a proceeding published in the Internal Revenue Bulletin. This affects the rights or duties of taxpayers or other members of the public under the Internal Revenue Code (IRC) and related laws, treaties and regulations, or – although not necessarily affecting the rights and duties of the public – should be a matter of public knowledge.
A notice is a public statement that may contain directions involving substantial interpretations of the IRC or other provisions of the law. For example, notices can be used to tell what the regulations will say in situations where the regulations may not be published in the immediate future.
Rev. Proc. 2021-33 reiterates the rules that payroll dollars used for PPP loan cancellation cannot be used for the purpose of claiming ERC. It also amplifies the rules set out in three previous opinions (opinion 2021-20, opinion 2021-23 and opinion 2021-49) related to the request for credit. The Rev. Proc. goes on to define the Closed Site Grants and Restaurant Revitalization Grants as “ERC Coordinated Grants”.
Under IRS regulations for IRC sections 448 (c) and 6033, gross revenue must always reflect these programs for tax purposes; however, the new Rev. Proc. provides a safe harbor to exclude these programs from gross revenue for the purposes of determining eligibility for the ERC. The Safe Harbor created in this Rev. Proc. must be applied consistently to be considered valid, therefore, all record keeping requirements remain in effect. The safe harbor is chosen by simply excluding the amount of the PPP loan cancellation and ERC-coordinated grants from gross revenue when determining eligibility to claim the ERC.
So what is the newest Rev. Proc. mean? In short, this is good news! Prior to this Rev. Proc., The only guideline available was in the IRC sections requiring that an organization include these funds in the gross revenue calculation and, in many cases, would render an organization ineligible to apply for the credit. Rev. Proc. 2021-33 removes this hurdle, and as long as the treatment remains consistent, organizations in need of funds can now be eligible for the credit even if they would not have qualified under regular building rules. This income procedure applies for the purposes of determining employee retention credit eligibility for salaries paid after March 12, 2020 and before January 1, 2022. It will be in effect for all 2021 deposits.
For more information on employee retention credit, contact Jennifer Rohen at [email protected] or 314-925-4326. For more information on CliftonLarsonAllen LLP, visit CLAconnect.com.