On August 4th, the IRS issued guidance on the Employee Retention Credit (ERC) –
a refundable tax credit that has helped thousands of businesses avoid laying off employees
since the start of the pandemic. Unfortunately, the recent IRS guidance makes it so
that wages to business owners or their spouses only qualify for the ERC if the
business owner doesn’t have any living siblings, parents, or children.
I highly disagree with the IRS guidance. And apparently so does Congress.
Michigan Congressman Jack Bergman wrote to IRS Commissioner Charles P Rettig:
“I write to express my concerns with the recent IRS Guidance on the Employee Retention Credit under Section 3134 of the Code and on Miscellaneous Issues Related to the Employee Retention Credit (Notice 2021-49). Specifically, I object to language that prevents wages paid to a majority owner
of a corporation from qualifying under the Employee Retention Credit (ERC) solely if the owner
has a direct family member.
Section IV, Subsection D of Notice 2021-49 addresses whether wages paid to an employee who is a majority owner of a corporation, or to their spouse, may be treated as qualifying wages under the ERC. As written, this guidance excludes wages to majority owners or spouses only if “the majority owner has a brother or sister (whether by whole or half-blood), ancestor, or lineal descendant.” As a result, the only business owners that can take advantage of this credit are those who are orphaned and have no children or siblings. Meanwhile, those with families are cut off from this support, despite having
an equal or greater need for financial relief through the ERC.
The distinction made in your guidance is entirely illogical, goes against the intent of Congress, and arbitrarily punishes Americans with families. I, therefore, request further explanation as to the statutory rationale for this decision and urge you to take action as needed to correct this absurd bureaucratic move.”
The tax practitioner community is recommending that we hold off doing anything for
past 941 filings.
We were operating under the law.
And the probability of this decision being reversed is highly likely.
We have three years to amend any returns.
However, looking forward, we will no longer be calculating the ERC for any wages paid to the
majority owner, or family members.
Please feel free to call us with questions.
