New ERC Guidance

Wow! Worse than I expected.
https://www.irs.gov/pub/irs-drop/n-21-4 ... 2C1JahIKHU

Per Page 30, if owner has a child who is not even employed by the corporation, the owner's wages are not eligible for ERC.

Tips are qualified wages
The deduction is disallowed in the same year as the qualifying wages.

In the event that the majority owner of a corporation has no brother or sister (whether by whole or half-blood), ancestor, or lineal descendant as defined in section 267(c)(4) of the Code, then neither the majority owner nor the spouse is a related individual within the meaning of section 51(i)(1) of the Code and the wages paid to the majority owner and/or the spouse are qualified wages for purposes of the employee retention credit, assuming the other requirements for qualified wages are satisfied.

This is the most ridiculous result I have ever read in my life. I am amazed anyone at the IRS could actually put this in writing with a straight face. There is absolutely no logical reason for an individual with no relatives to qualify for the credit which another individual who just happens to have an uncle living in a cave near the base of Mt. Everest for the last 50 years doesn't qualify. And I know taxes and logic don't need to go together but this is just plain wrong.

Nightsnorkeler, I agree! It is absolutely crazy! No logic whatsoever!

Ridiculous result, due to poorly written law, write your Representatives and Senators!

I'm going to quit and become a writer. There has to be a murder mystery in all of this. So if I bump off all my family, I qualify? But if I decide I'd rather they keep living, I don't? Will a childless couple sue a tax practitioner for not having advised a divorce?

Seriously, does anyone else think we will get another one or two notices like this , along the lines of the PPP forgiveness? I agree with lckent. We should pester our congresscritters. Personally, I don't care which way they jump - just make it equitable amongst persons.

So if someone has already filed for Q2 and now understands that they claimed too much, what’s your plan? You can’t amend because they haven’t been processed especially q1 2020 amended ones. Send the check back with an amended later? Fix it on the q3?

Wow! Worse than I expected.
https://www.irs.gov/pub/irs-drop/n-21-4 ... 2C1JahIKHU

Per Page 30, if owner has a child who is not even employed by the corporation, the owner's wages are not eligible for ERC.

So grateful for this forum. Just looked at the guidance and was thought I was going crazy. No one else is talking about this yet, so I needed to see if anyone else was as dumbfounded as me.

There is no way any of that guidance stands up. It doesn't even make sense. So If I'm married its qualifying wages, but if we have a kid it isn't? Oh boy...

So if someone has already filed for Q2 and now understands that they claimed too much, what’s your plan? You can’t amend because they haven’t been processed especially q1 2020 amended ones. Send the check back with an amended later? Fix it on the q3?

Personally I am continuing with the position I took last year in December...owners qualify. I fully expect congress to realize what is happening here and make a change just like they did for PPP expenses. IRS will then update their guidance and as Ralphie said at the end of A Christmas Story "all will be right in the world".

And if that doesn't happen I will do all I can to defend my clients' position if they are forced to defend it. No changes on this end no matter what this absurd Notice says.

Time to brush up on attribution rules:

https://yourtaxmatterspartner.com/when- ... r-the-erc/

https://yourtaxmatterspartner.com/when- ... r-the-erc/

Dan, I think most of us are aware of the attribution rules. However, it is very difficult to believe that this was the actual intent of Congress when the law was passed.

So does this mean that I am also supposed to list every single member of my family on Schedule B-1 of a partnership that I am a 50% owner of? And Schedule G of the 1120? I'm going to have to call all of my nieces, nephews, aunts, and uncles some of whom I've never even met to ask them for their SSN's so I can give them a K-1 with no activity allocated to them, but listing them as 50% owners. Then every one of them will need to explain this every time they want to buy or refinance a house.

Attribution rules are there for a reason but this is a complete disaster of an interpretation of when, why, and how they should be applied.

Attribution rules are there for a reason but this is a complete disaster of an interpretation of when, why, and how they should be applied.

It's the only interpretation available based on the law that was passed.

Don't blame the IRS, blame the people who wrote the law.

It's the only interpretation available based on the law that was passed.

This is where I disagree. Attribution rules should be applied ONCE to the individuals who directly own stock or membership interests. The IRS wants us to go at least one step further to bounce them back to me again. If we apply the attribution rules the way the IRS suggests here, then virtually everyone who is not completely without a family member could end up being related. Think about it...they say that if I am a 50% owner and I have a sister then she is also a 50 % owner. Fine that makes sense. But now they go a step further and say that I am related to a 50% owner so I don't qualify for the credit. This is where the concept blows apart.

Well let's see...my sister is married so all of her husband's family are now 50% owners as well. And his brother is married and she has aunts, uncles, and siblings, so all of them are 50% owners. One of her uncles has an unrelated individual living with him so that person also is an indirect owner of my company. And all of that person's relatives. And their relatives. And their relatives.

Six degrees of separation tells me that virtually every person in the US and possibly the world will now be an indirect owner of my rinky-dink little company. This is absolutely not the way that attribution rules are supposed to work. Apply the rule once to the owner(s) and then stop.

Agreed. The intent of Congress was to limit related party wages - so intent doesn't help you there. Did they forsee the complex tax code implications and attribution rules? - well, of course not. That doesn't mean it isn't the law. Intent argument cuts the opposite direction.

The tax code is what it is here. The IRS is simply directing us to the code and providing examples to explain it in practice. This is not new IRS interpretation as they did elsewhere in this same notice where they interpreted congressional intent to make certain provisions work. The IRS interprets nothing here. They just state how to apply the law.

It's the only interpretation available based on the law that was passed.

This is where I disagree. Attribution rules should be applied ONCE to the individuals who directly own stock or membership interests. The IRS wants us to go at least one step further to bounce them back to me again. If we apply the attribution rules the way the IRS suggests here, then virtually everyone who is not completely without a family member could end up being related. Think about it...they say that if I am a 50% owner and I have a sister then she is also a 50 % owner. Fine that makes sense. But now they go a step further and say that I am related to a 50% owner so I don't qualify for the credit. This is where the concept blows apart.

Well let's see...my sister is married so all of her husband's family are now 50% owners as well. And his brother is married and she has aunts, uncles, and siblings, so all of them are 50% owners. One of her uncles has an unrelated individual living with him so that person also is an indirect owner of my company. And all of that person's relatives. And their relatives. And their relatives.

Six degrees of separation tells me that virtually every person in the US and possibly the world will now be an indirect owner of my rinky-dink little company. This is absolutely not the way that attribution rules are supposed to work. Apply the rule once to the owner(s) and then stop.

This is not true. Attribution rules of 267(c) only can apply once. "Reattribution" is not allowed (or else, yes we all would be related). This ERC guidance however is only attributing ownership once - then it applies a relationship test. Ownership does not get attributed twice. You will not see that in any of the IRS examples here or in the 267(c) regs. Reattribution is limited under 267(c)(5).

So I'm a 100% owner. My ownership is attributed to my son. Now I have a disqualified relationship to a >50% owner. Only one attribution of ownership has occurred.

Totally agree with all points raised here. Not only will 2020 941 need to be amended, another 941x if previously filed AND the 2020 tax returns if filed. Seriously, this is (to keep it clean) nonsense that makes NO sense. What a waste of time and money. And how many small businesses have some family connection? The IRS (and Congress) have just excluded a good many small businesses with this, apparently, ridiculous credit. Sorry for the rant but talk about government waste and abuse. It's no wonder so many of my colleagues have decided to throw in the towel and retire this year.

It's the only interpretation available based on the law that was passed.

This is where I disagree. Attribution rules should be applied ONCE to the individuals who directly own stock or membership interests.

Attribution does not work that way -- it is absolutely not limited to only the direct owners of stock/membership interests. Under your theory, if a person hires their child to work for the 100% owner's S corporation, the child would not be considered a >2% owner for the purposes of medical premiums on W-2 and other fringe benefits, because the child does not have a direct ownership.

Totally agree with all points raised here. Not only will 2020 941 need to be amended, another 941x if previously filed AND the 2020 tax returns if filed. Seriously, this is (to keep it clean) nonsense that makes NO sense. What a waste of time and money. And how many small businesses have some family connection? The IRS (and Congress) have just excluded a good many small businesses with this, apparently, ridiculous credit. Sorry for the rant but talk about government waste and abuse. It's no wonder so many of my colleagues have decided to throw in the towel and retire this year.

Personally, I would hesitate to immediately file a bunch of amendments in case that there is subsequent legislation.

missingdonut I would agree, however, at this stage that is the direction we headed. Personally, I'm on hold with ERC, was just beginning the process of filing clients 2020 amendments. Unfortunately, the 941's for q1 and q2 2021 have been filed. Of course with 2021 there is no filed tax return to potentially require amending.

Thankfully, a colleague spoke with the IRS Chief Counsel and was told the IRS wouldn't attribute deceased relatives to the rule.

I foresee this heading to tax court at least once in the future.

the IRS wouldn't attribute deceased relatives to the rule.

How kind of them.