Nearly 18 months into the pandemic, the IRS continues to issue guidance on the employee retention credit, a credit that was adopted in March 2020 and has been addressed in a number of articles on the Tax Withholding & Reporting Blog, most recently on August 3, 2021.

The latest guidance takes the form of Notice 2021-49 and Revenue Procedure 2021-33, which together address a range of topics, including how employers should treat cash tips for purposes of determining the amount of qualified wages, whether the credit may be claimed with respect to the same wages for which the employer receives the Code Section 45B credit, how the related individual rules work for determining qualified wages, and whether employers are required to file amended tax returns if they claim the employee retention credit retroactively.  The Service has also outlined a safe harbor that employers may apply to exclude from gross receipts the amount of the forgiveness of any PPP loans or the amount of shuttered venue operator grants or restaurant revitalization grants. Continue Reading IRS Issues Additional Guidance on Employee Retention Credit

The bipartisan infrastructure bill introduced in the Senate earlier this week includes a provision that would end early the employee retention credit, which was codified in Section 3134 of the Internal Revenue Code by the American Recovery Plan Act earlier this year.  The Section 3134 credit, which took effect on July 1 but mirrors the credit originally adopted in the CARES Act and enhanced last December, is currently scheduled to expire at the end of 2021.  However, the infrastructure bill would preclude employers, other than Startup Recovery Businesses established during the COVID-19 Pandemic, from claiming the credit for wages paid after the end of the third quarter.  Startup Recovery Businesses would remain eligible for the credit through the end of 2021.

According to the Joint Committee on Taxation, the early termination of the credit is expected to save $8.2 billion.  To remain eligible for the credit in the fourth quarter, employers generally must experience a 20% decline in quarterly gross receipts in the third or fourth quarter of 2021 compared to the same quarter in 2019 or continue to experience full or partial suspension of their trade or business.  We will continue to monitor the legislation to see if the provision is included in the final bill.

The Supreme Court, today, denied New Hampshire’s motion for leave to file a bill of complaint challenging Massachusetts’ COVID-related tax regulations.  The decision comes little more than a month after the Acting Solicitor General of the United States filed an amicus brief urging the court to deny the motion.  In addition to New Hampshire, the decision will leave New Jersey and other states (nearly fourteen states had filed amicus briefs urging the Court to take the case) disappointed.  The case was seen as an indirect threat to New York’s convenience of the employer rule, which operates similarly to the temporary regulations adopted by Massachusetts.  See earlier coverage here and here. Continue Reading Supreme Court Denies New Hampshire’s Challenge to Massachusetts Telecommuter Tax Rule; Convenience of the Employer Lives to See Another Day

[This is a guest post by Ed McClellan and Thomas Reilly that was originally published on June 2, 2021, in Covington’s Global Policy Watch Blog.]

 In mid-May, the Biden Administration officially threw its support behind a minimum global corporate income tax rate of at least 15%.  The U.S. proposal would be limited to the world’s 100 largest companies – those with revenues of over $20 billion.  The proposal would not depend on the company’s nationality (the U.S. has made clear that it would not support any proposals that discriminate against U.S. multinationals) and, since it would apply to digital services companies as well as to those selling tangible goods, would not be specific to any one sector. Continue Reading A Proposed Global Minimum Corporate Income Tax Rate

In February, a U.S. Tax Court opinion in Anikeev v. Commisioner  addressed challenging issues regarding the IRS’s existing policy with respect to the taxation of credit card rewards and other rebates.  The case involves Mr. and Mrs. Anikeev, each of whom held a Blue Cash American Express Card (“Blue Card”) during 2013 and 2014, on which they accumulated a substantial amount of reward dollars through the use of their cards.  At issue in Anikeev is whether the reward dollars were taxable income to the Anikeevs.  Basing its decision on longstanding IRS policy, the court determined that the overwhelming majority of the rewards were not taxable to the Anikeevs, although the decision does address how the Service could potentially reform its policy regarding credit card rewards to prevent the same result in the future. Continue Reading Making a Point: Tax Court’s Anikeev Decision Challenges Longstanding IRS Policy on Credit Card Rewards

[This post was originally published as an Alert by Covington Financial Services.]

On Thursday, April 1, 2021, the Financial Crimes Enforcement Network (“FinCEN”) released an advance notice of proposed rulemaking (“ANPR”), presenting the public with its first opportunity to comment on the beneficial ownership disclosure requirements in the Corporate Transparency Act (“CTA”), a key component of the Anti-Money Laundering Act of 2020 (“AMLA”).  The ANPR focuses on procedures and standards for beneficial ownership reporting by covered companies, and on the design and use of FinCEN’s planned beneficial ownership database.  The ANPR does not address expected modifications to the customer due diligence (“CDD”) requirements of financial institutions, which will be the subject of a separate rulemaking process.  Comments on the ANPR are expected to be due on May 5, 2021 — i.e., 30 days after the ANPR is slated for publication in the Federal Register.

This alert summarizes key issues in the ANPR, as relevant both to financial institutions and to reporting companies. Continue Reading FinCEN Releases Advance Notice of Proposed Rulemaking on Beneficial Ownership Disclosure Requirements

On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (the “ARPA”) into law.  The ARPA includes clarifying language regarding the scope of Form 1099-K (Payment Card and Third Party Network Transactions) reporting for third party payment networks and a change to the de minimis reporting standard applicable to third party settlement organizations (“TPSOs”) effective for returns required to be filed for 2022. Continue Reading American Rescue Plan Act Clarifies Scope of Form 1099-K Reporting and Reduces De Minimis Threshold

Almost a year after the employee retention credit was adopted as part of the Coronavirus, Aid, Relief, and Economic Security Act (“CARES Act”), and nearly a month after the final Form 941, Employer’s Quarterly Federal Tax Return, claiming the credit for 2020 was due, the IRS issued Notice 2021-20 (the “Notice”).  This is the final article in our three-part series looking at how the IRS’s guidance on the employee retention credit has changed over the past ten months.  This article focuses on how Notice 2021-20 builds on previous IRS guidance to narrow the scope of the credit and limit its availability.  Part I focuses on the statute and approach the IRS took in interpreting statute when the IRS issued frequently asked questions (“FAQs”) in April 2020. Part II focuses on the initial signs of trouble for employers that first appeared in the updated FAQs in June 2020.

The Notice is the proverbial effort to close the barn door after the horse is out of the barn–and in this case, clear across the pasture.  Although much of the guidance in the Notice reflects the (“FAQs”) that were posted to the IRS website beginning last April and that have been revised multiple times since, the Notice continues the trend that began last June of narrowing the availability and the amount of the employee retention credit—and in some instances, narrowing it in a way not contemplated by the permissive statutory language. (For our complete coverage of the employee retention credit and IRS guidance, click here.) Continue Reading A Look at IRS Guidance on the Employee Retention Credit: Part III—The IRS Seeks to Close the Barn Door

On March 10, 2021, the House passed the fifth major COVID-relief legislation, the American Rescue Plan Act (the “Act”), which it originally passed last week before its amendment and passage by the Senate on March 6.  President Biden is expected to sign the Act on Friday, March 12, 2021.

The Act adopts a new payroll tax credit that is similar to the employee retention credit, which was originally enacted as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and amended by the Consolidated Appropriations Act, 2021 (the “CAA”).  The new credit will be in effect from July 1, 2021, through December 31, 2021.  In addition, the Act significantly increases the exclusion for employer-provided dependent care assistance for 2021, and makes prospective changes to extend the availability of paid leave credits similar to those originally adopted as part of the Families First Coronavirus Response Act (the “FFCRA”) and that are set to expire on March 31.  Finally, the Act will extend the deduction limitation under section 162(m) to additional employees. Continue Reading American Rescue Plan Act Goes to Biden for Signature: Includes Changes to Employee Retention Tax Credit, Employer-Provided Dependent Care, Paid Leave Credits, and Deduction Limitations for Executive Compensation

Almost a year after the employee retention credit was adopted as part of the Coronavirus, Aid, Relief, and Economic Security Act (“CARES Act”), and nearly a month after the final Form 941, Employer’s Quarterly Federal Tax Return, claiming the credit for 2020 was due, the IRS issued Notice 2021-20 (the “Notice”), providing guidance on the credit.   This is the second of three articles in our series looking at how the IRS’s guidance on the employee retention credit has changed over the past ten months.  This article focuses on the first signs of trouble for employers that appeared in the frequently asked questions (“FAQs”) when they were updated in June 2020.  The first article focuses on the approach the IRS took in the FAQs when initially issued in April 2020.  The final article focuses on how Notice 2021-20 builds on those FAQs, and their June revisions, to narrow the scope of the credit and limit its availability.

Perhaps having come to believe that its approach to reading the statute as reflected in the FAQs—an approach entirely consistent with the language and purpose of the legislation—opened the barn door too wide, the IRS began to limit the availability of the credit as it made revisions to the FAQs.  In June 2020, the IRS revised a number of FAQs providing additional guidance on what constitutes a “partial suspension.”  (See earlier coverage.)  Much of that guidance narrows the types of orders that constitute a partial suspension.  For example, FAQ 30 was revised to indicate that an employer who maintains both essential and non-essential operations is considered to have a partial suspension if its non-essential operations are suspended as a result of a governmental order.

However, that relatively straightforward reading of the statute was accompanied by a new IRS-imposed requirement that the non-essential operations must constitute “more than a nominal portion” of the business.  Similarly, changes to FAQ 34 require that many types of governmental orders must have more than a “nominal effect” on the employer’s business operations.  The examples suggest that orders restricting the ability of a business to serve customers may not have more than a nominal effect, even if customers are required to wait outside in a line because of restrictions on the number of customers that may be served.  (Apparently, the IRS believes that the patience of customers during a pandemic is unlimited and it should be assumed that all would-be customers will wait as long as necessary, however long that may be.)

In making these revisions, the IRS did not define or offer any insight into what constitutes a “nominal portion” of a business or a “nominal effect” on business operations.  Perhaps more important, the IRS did not point to any statutory support for instituting this new “more than nominal” requirement in its informal guidance.

Tomorrow, we will look at the latest IRS guidance on the employee retention credit, Notice 2021-20.