New ERC Guidance

If we COULD attribute to dead relatives, then you could go all the way back to Noah with attribution rules and we ALL would be related and disqualified!

Thankfully there can be only one layer of attribution to living relatives so this is somewhat limited.

Here is my template again in case it helps anyone to figure out the attribution rules:
https://twitter.com/danchodan/status/13 ... 0964578308

I'm going to quit and become a writer. There has to be a murder mystery in all of this.

The ERC very well could lead to a murder mystery. From what I understood, one has to be an orphan to qualify for the ERC. If a client's relatives all of a sudden die, then we, tax professionals, know why: it's because of the ERC.

I'm going to quit and become a writer. There has to be a murder mystery in all of this.

The ERC very well could lead to a murder mystery. From what I understood, one has to be an orphan to qualify for the ERC. If a client's relatives all of a sudden die, then we, tax professionals, know why: it's because of the ERC.

From what I understand, if the orphan was abandoned and the biological parents were living, then no ERC, even if said orphan had no idea they were still alive. Thankfully deceased family doesn't count.....

Yes, right on ... even more of an incentive to become a murder mystery writer ... An unexpected twist for the abandoned orphan claiming the ERC ... while his biological parents are found alive and well. Can't wait to read that book.

Yes, what a bloody mess!

If we COULD attribute to dead relatives, then you could go all the way back to Noah with attribution rules and we ALL would be related and disqualified!

Thankfully there can be only one layer of attribution to living relatives so this is somewhat limited.

Here is my template again in case it helps anyone to figure out the attribution rules:
https://twitter.com/danchodan/status/13 ... 0964578308

Template is amazing. Thank you!

Well, I just emailed all of my Congress people. It is hard to believe that they intended the law to work like this, just like the PPP fiasco! What a mess all of this has become!

Do you want to post the letter you sent here. I may use it on my Congressman and Senators!!!

Jon, trust me, I don't think you would like my language!

I've just had a call from Sen. Tillis' office. I wrote to him a few weeks ago asking him to support the preparer competency act and the call was relating to that. He asked if there was anything else, so I took my chance. He has had several calls about this notice. I told him that surely Congress and the Executive branch can get together and decide which way to jump on this. I pointed out it offends Smith's canons of equity and certainty. Certainty, because this is very late in the day and equity because - well do I really need to spell it out? I also made the point that I don't care which way they jump - we just need equity amongst persons and early clarity. I suggested the infrastructure bill would be a good vehicle, although it is late in the day. He thought that is not an entirely lost cause.

Seriously, anyone who is aggrieved about this should write to their congresspeople. I daresay every year I write at least once and I have had telephone calls or e-mails asking for clarification several times.

Good Job SumwunLost. My Senator is Raskin. Since the pandemic I’ve become a thorn in his side it seems. At some point one just becomes overwhelmned, I think I hit that point about a month ago. Still, the notice was so long coming, the direction regarding qualifying, applying and then allocating with PPP, the %’s depending on the year and whether those are compared to 2019 or 2020. I think ERC has been the final straw. some of my collegeaues have basically ignored it. And now they come out with this poorly written “guidance”. If Sen. Tillis calls you that’s great, meantime, I guess I’ll have to hit Raskin up again!

SumwunLost - glad to hear Sen. Tillis is listening. he is my Senator too. When this Notice 2021-49 was published I immediately corresponded with his office, in addition to Senator Burr and my House Representative (Rouzer). Thus far I have only heard from Rouzer's office (via email)

It is so easy to be jaded and assume that taking the time to correspond with the Congress is a waste of time. But it is greatly encouraging to hear of some (minor) success stories that at least they are actually listening.

I am truly encouraging all who feel this Notice 2021-49 is not only not Congress' intent but also truly late ... to reach out to all of their Representatives and Senators.

Here at our local level what I am hearing is the loss of the ERC for the smallest of small businesses (especially having to return refunds already received) could be the last straw that causes some to close their businesses.

Sen. Burr always replies via USPS. His office has telephoned me a couple of times. When I moaned about the PPS ID verification, I spent forty minutes on the ‘phone with a pleasant, well-informed gentleman. It was a proper discussion.

Sen Tillis sends a standard response but it is not immediate, then they follow up with an e-Mail or ‘phone call.

When I was in Rep. Price’s district, his office always replied by email and the response never came across as canned.

Point is that I feel I have always been listened to. The more professionals that write to our congressional representatives, the more likely it is that they will do something about it.

SumwunLost - glad to hear Sen. Tillis is listening. he is my Senator too. When this Notice 2021-49 was published I immediately corresponded with his office, in addition to Senator Burr and my House Representative (Rouzer). Thus far I have only heard from Rouzer's office (via email)

It is so easy to be jaded and assume that taking the time to correspond with the Congress is a waste of time. But it is greatly encouraging to hear of some (minor) success stories that at least they are actually listening.

I am truly encouraging all who feel this Notice 2021-49 is not only not Congress' intent but also truly late ... to reach out to all of their Representatives and Senators.

Here at our local level what I am hearing is the loss of the ERC for the smallest of small businesses (especially having to return refunds already received) could be the last straw that causes some to close their businesses.

You are both so right. Many times it is a lack of understanding small business and the way taxes work and impact them. Most aren’t accountants and appreciate hearing our perspective. After PPP2 opened up several of my sole proprietors who received very small PPP-1 loans - which took them forever to get - applied immediately as the stated position by the SBA was the intent was to serve small business clients only the first 20 days. Shortly after the 20 days was up the rules regarding how SP’s could calculate their allowable loan amount changed. This meant several thousand more for several of them. However, because they had already received the funds the loans were closed and not eligible for increase. I wrote to Raskin’s office regarding what I believed to be an unfair application of the new provision by SBA. A response came about 1 week later from an aide who was very smypathic and interested in exactly how the new calculation vs. the old could impact a small business owner. She agreed the process sounded like it was not properly implemented. I never heard back from her though. I did watch a hearing where a rep. for the AICPA spoke before the committee and listed the problems with PPP2 of which the re-application using the new method to calculate was one. After the AICPA spoke a decision was made to revise some of the rules but not the ability to apply for an increased amount if the funds had already been received. Anyway, just an example, but also I don’t feel the organizations that are supposed to advocate for us as small and solo tax professionals and our clients are doing such a good job. It’s every man/woman for themselves.

If we COULD attribute to dead relatives, then you could go all the way back to Noah with attribution rules and we ALL would be related and disqualified!

Thankfully there can be only one layer of attribution to living relatives so this is somewhat limited.

Here is my template again in case it helps anyone to figure out the attribution rules:
https://twitter.com/danchodan/status/13 ... 0964578308

Template is amazing. Thank you!

Glad to share it. Sec. 51(i)(1) and 267(c) are tough to apply from scratch. Since I had already done this work, wanted to help others that needed to.

Everybody: this is what the tax code says. This isn't new information, just newly put together in one place VERY CLEARLY by the IRS. Many got to this same place early this year when the problem came to the forefront. The IRS became aware of the confusion then when it became a big topic and the AICPA wrote them saying it was uncertain.

Nowhere does the law or any committee report say "owners get ERC." So unless you are a mind reader, the intent argument doesn't fly. Congress included related party disallowance via 51(i)(1) - that was the intent. If you want to lobby Congress to change this, feel free. But don't pretend that the IRS got it wrong here.

“But don't pretend that the IRS got it wrong here.”

Is anyone “pretending”?

Particularly since the new law could have been written, in light of the IRS notice, to state something like “a controlling owner’s wages are not included in eligible wages unless the owner has no living siblings, ancestors, or descendants” - say what? Hence, confusion.

“But don't pretend that the IRS got it wrong here.”

Is anyone “pretending”?

Particularly since the new law could have been written, in light of the IRS notice, to state something like “a controlling owner’s wages are not included in eligible wages unless the owner has no living siblings, ancestors, or descendants” - say what? Hence, confusion.

Sure, Congress could have written the law disqualifying owners directly. Instead they just referenced 51(i)(1). IRS isn't making some bold, new interpretation here. The IRS is just laying out how the code works when you apply it. You can blame Congress for writing an odd law that results in a "no living relatives loophole" - but loopholes pop up in the code all the time. This is nothing new and certainly isn't the IRS's fault. They are just explaining the law as Congress wrote it.

A colleague spoke to the Chief counsel shortly after the notice was received.

He actually apologized but said that they had to write this notice based on the IRC code. For purposes of the attribution rules you don’t have to look to Aunts or Uncles or cousins. Although not written, they wouldn’t attribute deceased relatives to this rule.

No for ERC for owner’s wages if:

the owner has a newborn

Owner's parent is in a nursing home

Owner has a sibling and doesn’t talk to that sibling

An orphan wage’s wouldn’t count if the parents are still alive and he/she doesn’t know who his/her parents are.

Owner's wages qualify for ERC if:

Owner's entire family including ancestors were all killed and the owner never had any children, then he/she might be the lucky one to be able to claim the ERC on his/her wages.

I'm not so sure the intention was exactly as the IRC stated. Remember PPP non deductible expenses.

If we COULD attribute to dead relatives, then you could go all the way back to Noah with attribution rules and we ALL would be related and disqualified!

Thankfully there can be only one layer of attribution to living relatives so this is somewhat limited.

Here is my template again in case it helps anyone to figure out the attribution rules:
https://twitter.com/danchodan/status/13 ... 0964578308

Template is amazing. Thank you!

Glad to share it. Sec. 51(i)(1) and 267(c) are tough to apply from scratch. Since I had already done this work, wanted to help others that needed to.

Everybody: this is what the tax code says. This isn't new information, just newly put together in one place VERY CLEARLY by the IRS. Many got to this same place early this year when the problem came to the forefront. The IRS became aware of the confusion then when it became a big topic and the AICPA wrote them saying it was uncertain.

Nowhere does the law or any committee report say "owners get ERC." So unless you are a mind reader, the intent argument doesn't fly. Congress included related party disallowance via 51(i)(1) - that was the intent. If you want to lobby Congress to change this, feel free. But don't pretend that the IRS got it wrong here.

The CARES Act doesn't come out and say owner's don't get ERC either. 51(i)(1) refers to A through G of Section 152(d)(2) in which (H) states "individual other than the spouse", 267(c) is confusing given 152(d)(2) so I think a case could be made the CARES Act did not intend to exclude owner's necessarily. Especially in light of the fact that the majority of small businesses in this country are excluded from taking the credit because it is a family business, and they have family, living family.

The taxpayer base, as usual, is left to head-scratching, and wondering how the heck these laws are written. Clearly there is intent behind the law, just zero transparency as to how congress got there.

Many intentional “loopholes” abound with full knowledge of congress (backdoor ROTH IRAs, FICA savings with s corps, etc), and taxpayers can take advantage of these with proper planning. I would call this situation more of a “penalty”.

As an example of why practitioners are ... confused... pandemonium abounded with the original PPP law - where apparently congress did NOT know how to write into law what a host of congress folks publicly stated was the “intent”. It took a new...act of congress...to fix that problem.

In this case, IMO, it was good of the IRS to clarify it’s interpretation of the rules.