IRS Provides Safe Harbor on ERC PPP Loan Forgiveness Gross Receipts Test
The IRS released Revenue Procedure 2021-33 today. This guidance essentially allows any taxpayer that is calculating gross receipts to determine if those gross receipts for each quarter in 2021 are at least 20% lower than the same quarter of 2019. If you meet that requirement, then you qualify for the Employee Retention Credit (ERC) which we have posted on many times.
The rules for calculating gross receipts normally would include PPP loan forgiveness in the calculation of gross receipts. However, the procedure allows a “safe-harbor” to the taxpayer to elect to not include PPP loan forgiveness as part of gross receipts. If the taxpayer elects to use this provision, then they must be consistently apply it.
Let’s look at an example:
Sue Farmer received PPP loan forgiveness in the second quarter of 2021. Her gross receipts for that quarter including PPP loan forgiveness was $250,000. Her gross receipts for the same quarter in 2019 was $200,000. The normal rules indicate she does not have a 20% reduction in gross receipts. However, if Sue elects the safe-harbor, her gross receipts for this quarter are now $150,000, therefore, she has a 25% reduction in gross receipts and will qualify for the ERC in the second quarter.
Note that since she now qualifies in the second quarter, she also automatically qualifies for the third quarter. It would have been helpful for the IRS to provide this guidance before June 30, 2021 since the deadline for claiming the credit on the originally filed Form 941 for the second quarter was July 31 (remember that farmers only file an annual Form 943).
If you are determining gross receipts for any other provision of the tax laws you are required to include PPP loan forgiveness in gross receipts. The safe-harbor only applies to the ERC rules.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Will see you Tuesday in GF, but does it make sense to advise selling Aug-Sept harvested crops on installment basis for October payment to perhaps qualify for ERC for 2 quarters?