Safe Harbor Now Available to Employers Claiming the Employee Retention Credit
Taxpayer-favorable guidance was issued by the Department of Treasury and the Internal Revenue Service that affects employers claiming the Employee Retention Credit (“ERC”) if you also have any of the following:
- Forgiven Paycheck Protection Program (“PPP”) loans
- Shuttered Venue Operator grants
- Restaurant Revitalization grants
Specifically, Rev. Proc. 2021-33 provides a safe harbor that allows you to exclude these above-listed items from the definition of gross receipts, solely for determining eligibility for the ERC.
Statement Clears Up Confusion
This revenue procedure addresses the confusion around whether or not the receipt of a PPP loan or the forgiveness of a PPP loan is included in gross receipts to determine if your are eligible for the ERC under the gross receipts test. Based on previous regulatory guidance, most professionals advised that the forgiveness of a PPP loan, although nontaxable, was included in gross receipts consistent with the treatment of tax-exempt earnings. For tax-exempt organizations, the statute was interpreted by some to require inclusion of loan proceeds as part of gross receipts.
Safe Harbor Helps Employers Qualify for ERC
Treasury has now provided that an employer does not have to include either the receipt or the forgiveness of a PPP loan in gross receipts, because to do so would frustrate the intent of Congress to allow PPP borrowers to claim the ERC. The same conclusion applies to grants made to Shuttered Venue Operators and to certain restaurants and food vendors under the Restaurant Revitalization Program. Taxpayers make an election to exclude such amounts from gross income by not including the amounts in the gross income calculation.
Note that the rule preventing taxpayers from using the same wages for the ERC and PPP loan forgiveness or as expenditures for grants received has not changed. Because any wage can only be used in one of these programs, documentation of the specific wages claimed is of paramount importance.
If you included such amounts in income for the gross receipts test, you should review your calculations to determine if exclusion of such amounts would enable you to qualify as an eligible employer for an ERC.
Learn more about the Employee Retention Credit and receive guidance to qualify for the credit by contacting your Cherry Bekaert advisor or Martin Karamon, Tax Principal and leader of Cherry Bekaert’s ERC Services Team.