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Group Calls on Congress to Clarify Retention Credit Guidance

AUG. 26, 2021

Group Calls on Congress to Clarify Retention Credit Guidance

DATED AUG. 26, 2021
DOCUMENT ATTRIBUTES
  • Authors
    Lee, Curtis, Jr.
    Hettick, Kathy
    Jeane, Jessica L.
  • Institutional Authors
    National Society of Accountants
  • Cross-Reference
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2021-33298
  • Tax Analysts Electronic Citation
    2021 TNTF 165-10

August 26, 2021

The Honorable Ron Wyden
Chairman
U.S. Senate Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

The Honorable Richard Neal
Chairman
U.S. House Committee on Ways and Means
1102 Longworth House Office Building
Washington, DC 20515

The Honorable Mike Crapo
Ranking Member
U.S. Senate Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

The Honorable Kevin Brady
Ranking Member
U.S. House Committee on Ways and Means
1102 Longworth House Office Building
Washington, DC 20515

RE: Congressional Intent for IRC Section 3134 Employee Retention Credit

Dear Chairmen Wyden and Neal, and Ranking Members Crapo and Brady,

The National Society of Accountants (NSA) works for the tax and accounting professional, serving as an advocate and facilitator of communication between our members, the IRS, and Congress. In this letter, we express our concerns with recent IRS guidance issued in Notice 2021-49 on the Employee Retention Credit (ERC) under section 3134 of the Internal Revenue Code, as added by section 9651 of the American Rescue Plan Act (ARPA), (P.L. 117-2).

NSA appreciates the trying economic times we have all endured over the past 18 months and the efforts Congress has taken to mitigate negative employment implications. The IRS's guidance under Notice 2021-49, however, would go against congressional intent and negatively impact small businesses.

Notice 2021-49 provides definitions under IV. D. Related Individuals that wages paid to certain related individuals are not eligible for the ERC. The Notice applies the broad attribution rules under IRC section 267(c) to disqualify compensation to ancestors and lineal descendants and is inconsistent with prior ERC legislation. This attribution rule includes: brothers and sisters (whole or half); spouse; ancestors (parents, grandparents, etc.); and, descendants (children, grandchildren, etc.). This rule excludes from ERC the compensation paid to all these family members regardless of what position they hold in the company or the amount of compensation. The additional negative impact in applying the constructive ownership rules to small family-owned businesses is that qualified wages do not include wages paid to a majority owner if they have any living relatives.

The outcome in the Notice is likely attributable to the IRS's literal reading of the APRA legislation. The IRS guidance provides inequitable and negative impact to small family-owned businesses that commonly employ extended family. These employees may not have any direct ownership. For example, a family owned restaurant may employ grandchildren as waitstaff. These young adults have no ownership or influence over the business but their compensation will be excluded from the ERC. These small, family-owned businesses are the backbone of the United States economy especially in this post-COVID recovery and are now not able to access the ERC, or worse yet, pay it back.

NSA urges Congress to act quickly to clarify and resolve the conflicting guidance issued and take the necessary actions needed for the IRS to apply the intent of the original legislation that does not exclude small family owned businesses from taking the credit. Time is of the essence to allow all stakeholders (taxpayers, practitioners, and IRS) to efficiently and accurately file and process ERC related returns. Delayed action will continue to place an enormous burden on small businesses and tax and accounting professionals as well as further congest an already overwhelmed IRS.

Thank you for your consideration of this important matter. We welcome the opportunity to discuss these issues further. Please direct any inquiries or information related to this letter to NSA's Director of Public Policy Jessica L. Jeane at 571-982-7360 or jjeane@nsacct.org.

Sincerely,

Curtis Lee, Jr., ATA, ATP
President

Kathy Hettick, EA, ABA, ATP
Chair, Federal Taxation Committee

Jessica L. Jeane, J.D.
Director of Public Policy
NSA
Alexandria VA

DOCUMENT ATTRIBUTES
  • Authors
    Lee, Curtis, Jr.
    Hettick, Kathy
    Jeane, Jessica L.
  • Institutional Authors
    National Society of Accountants
  • Cross-Reference
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2021-33298
  • Tax Analysts Electronic Citation
    2021 TNTF 165-10
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