ERC and >50% shareholder

I have not noticed this subject being addressed for many weeks and since we're approaching the end of the second quarter when 941's will again be due, has anyone heard anything new regarding whether more than 50% shareholder's wages are eligible for the Employee Retention Credit? it's still hard to believe the IRS hasn't come out and officially addressed this [unless I missed seeing it].

What are some of you doing regarding this?

has anyone heard anything new regarding whether more than 50% shareholder's wages are eligible for the Employee Retention Credit? it's still hard to believe the IRS hasn't come out and officially addressed this [unless I missed seeing it].

I thought that FAQ #59 on the following page answered this. Maybe I'm mistaken.

https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-determining-qualified-wages-faqs

If I remember correctly, the consensus in this forum is that FAQ #59 addresses the ‘related individuals’ of the 50% shareholder. It does not specifically address how the determination on the 50% shareholder himself is to be made.

I confess I have not followed this subject and would be interested to see the consensus referenced above. But here's how I read the Code on this, section 51(i)(1)(A).

(i) Certain individuals ineligible
(1) Related individuals
No wages shall be taken into account under subsection (a) with respect ...
(A), if the taxpayer is a corporation, to an individual who owns, directly or indirectly, more than 50 percent in value of the outstanding stock of the corporation,...

I can't read that any way other than to make the >50% shareholder ineligible. Is the question about that, or is it hpw to apply

(determined with the application of section 267(c)),

Only to an entity other than a corporation, or to that and a corporation)?

#59 is poorly written and misleading in that it covers only relatives of the >50% shareholder but not the shareholder.

IRS still has not issued any additional guidance on this. Here are some links with good discussion on it:
viewtopic.php?f=8&t=20168&p=187560&hilit=ERC#p187560
viewtopic.php?f=8&t=21434&p=187045&hilit=ERC#p187045

The AICPA has even asked the IRS to issue guidance to clarify this issue. There obviously is not a definitive answer at this time.

https://www.aicpa.org/content/dam/aicpa/advocacy/tax/downloadabledocuments/56175896-aicpa-comments-erc-2-25-21.pdf

Nilodop wrote: I can't read that any way other than to make the >50% shareholder ineligible. Is the question about that, or is it hpw to apply

(determined with the application of section 267(c)),

Only to an entity other than a corporation, or to that and a corporation)?


In answer to Nilodop above, my question relates to an "S" corp. with a 100% shareholder and his/her wages. There are no other relatives in the corp. receiving any wages.

As an aside, can anyone advise me how to "gray out" another person's post? I posted part of Nilodop's reply here but I didn't know how to gray it out to show it was a prior post. Thanks!

As an aside, can anyone advise me how to "gray out" another person's post? I posted part of Nilodop's reply here but I didn't know how to gray it out to show it was a prior post. Thanks!

The easiest way is to click the "quote" button in the upper right hand corner of the post under the post #.

In answer to Nilodop above, my question relates to an "S" corp. with a 100% shareholder and his/her wages. There are no other relatives in the corp. receiving any wages.

Nilodop copied & pasted part of the law, leaving out the part about corps.

ERC is in sec 2301 of the CARES Act
https://www.congress.gov/bill/116th-con ... /748/text/
SEC. 2301. <<NOTE: 26 USC 3111 note.>> EMPLOYEE RETENTION CREDIT FOR EMPLOYERS SUBJECT TO CLOSURE DUE TO COVID-19.
(e) Certain Rules to Apply.--For purposes of this section, rules similar to the rules of sections 51(i)(1) and 280C(a) of the Internal Revenue Code of 1986 shall apply.

§51(i)(1)
https://www.law.cornell.edu/uscode/text/26/51
(i) Certain individuals ineligible
(1) Related individuals
No wages shall be taken into account under subsection (a) with respect to an individual who—
(A) bears any of the relationships described in subparagraphs (A) through (G) of section 152(d)(2) to the taxpayer, or, if the taxpayer is a corporation, to an individual who owns, directly or indirectly, more than 50 percent in value of the outstanding stock of the corporation, or, if the taxpayer is an entity other than a corporation, to any individual who owns, directly or indirectly, more than 50 percent of the capital and profits interests in the entity (determined with the application of section 267(c)),

§152(d)(2)
https://www.law.cornell.edu/uscode/text/26/152
(d) Qualifying relative
(2) Relationship
For purposes of paragraph (1)(A), an individual bears a relationship to the taxpayer described in this paragraph if the individual is any of the following with respect to the taxpayer:
(A) A child or a descendant of a child.
(B) A brother, sister, stepbrother, or stepsister.
(C) The father or mother, or an ancestor of either.
(D) A stepfather or stepmother.
(E) A son or daughter of a brother or sister of the taxpayer.
(F) A brother or sister of the father or mother of the taxpayer.
(G) A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.

In answer to Nilodop above, my question relates to an "S" corp. with a 100% shareholder and his/her wages. There are no other relatives in the corp. receiving any wages.
. And on those facts, I still say I can't read that any way other than to make the >50% shareholder ineligible..

Nilodop copied & pasted part of the law, leaving out the part about corps.
. True, before I caught my error, which I corrected before Slippery's post.

(i) Certain individuals ineligible
(1) Related individuals
No wages shall be taken into account under subsection (a) with respect to an individual who—
(A) bears any of the relationships described in subparagraphs (A) through (G) of section 152(d)(2) to the taxpayer, or, if the taxpayer is a corporation, to an individual who owns, directly or indirectly, more than 50 percent in value of the outstanding stock of the corporation...

Nilodop, I read the above differently than you. I read it as saying individuals related to a more than 50 percent shareholder are ineligible. I don't read that as saying the shareholder wages are ineligible.

That is the problem - people have different interpretations and we need clarification!

I read it as Seaside does.

Though the work opportunity credit has been around for 25 years. Are 51% s-corp owners eligible for that?

I have heard the IRS is aware of the problem and plans to issue guidance on it to clarify.

Until then, I will continue to contend that ERC is not available to >50% owners/spouses due to 267(c). A >50% owner is a relative of a >50% indirect owner (the owner's siblings, ancestors, and descendants are attributed ownership under 267(c)) and therefore a disqualified relationship for the ERC eligible wages.

Here are articles with full explanations of the problem:

https://evergreensmallbusiness.com/when ... on-credit/

https://www.currentfederaltaxdevelopmen ... areholders

https://www.tomtalkstaxes.com/p/tom-tal ... il-30-2021

Unless the IRS provides new guidance, we are stuck with 51(i) and 267(c) as they are written in the code and regs. That leaves no wiggle room to claim ERC for >50% owners.

And then you have this:
https://www.bradfordtaxinstitute.com/Co ... ation.aspx

You can google it and find it if you cannot see the full text. His opinion is that the wages of the owner are allowed.

Unfortunately Murray Bradford's article doesn't even address the problem itself of ownership attribution and 267(c). Hard to take it seriously if someone isn't willing to address the issue.

It seems a number of CPE educators are similarly situated - they had been saying owners/spouses were allowed for a while but then the 267(c) problem came to light - now they all are trying to save face but have no good arguments against the attribution problem itself.

It is impossible to apply "directly and indirectly in accordance with 267(c)" and still arrive at owner eligibility. To say owners get ERC, you have to ignore that part of the code entirely. I can't ignore attribution. So until the IRS comes to our rescue by interpreting "rules SIMILAR to 51(i)" means something DIFFERENT than 51(i), I will following the code as it is written. (Note: to date the IRS guidance has only repeated 51(i), so it seems they have been interpreting SIMILAR as THE SAME to date.)

I tried to warn you here. Now the IRS confirms in plain English:

https://www.irs.gov/pub/irs-drop/n-21-49.pdf