A lack of guidance from the IRS is leaving tax-exempt higher education institutions uncertain about whether they can benefit from the employee retention credit under recent COVID-19 relief legislation.
“The current guidance is somewhat limited. . . . We have been expecting the IRS to issue additional guidance on this credit, but to date, that has not happened,” Marilyn Farley of KPMG said during an April 28 webcast to discuss the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136).
Farley pointed to one requirement for the employee retention credit: that operations be fully or partially suspended as a result of a government order. Although higher education institutions would probably qualify because of the widespread shutdown of campuses, Farley said tax practitioners and clients are waiting for the definition of the term ”partially suspended.”
With many higher education employees having had their jobs interrupted, including professors, janitors, and university fundraising associates, there were additional gray areas in terms of documenting lost wages that qualify for the employee retention credit.
“Hopefully within the next few days the guidance will be issued, and that will allow us to have a little more clarity around some of the unknowns,” Farley said.
Another issue is how the CARES Act interacts with the Tax Cuts and Jobs Act of 2017. The CARES Act allows five-year carrybacks for net operating losses, but the TCJA requires exempt organizations with multiple trades or businesses to calculate unrelated business taxable income separately for each one. As a result, these organizations would be prevented from using losses to offset gains.
Preston Quesenberry of KPMG’s Washington National Tax practice said during the webcast that the CARES Act provision complicates section 512(a)(6) of the TCJA and leaves unclear whether or how NOLs generated from the separate trades or businesses can be carried back.
Although the IRS released proposed regs under section 512(a)(6) on April 23, Quesenberry said they don’t address how the five-year carryback from the CARES Act works with the siloing requirement.
“We don’t have any guidance on this issue at all, how you should work with the two together,” Quesenberry said, adding his own opinion that a nonprofit group’s siloed UBTI should be able to be carried back against aggregate UBTI for years when section 512(a)(6) of the TCJA wasn’t in effect.
“That’s just what I think seems reasonable,” Quesenberry said.