The IRS Finally Issues Additional Guidance on Employee Retention Credit
The IRS finally issues formal guidance on the Employee Retention Credit (ERC) in notice 2021-49.
The guidance has some good news and some bad news for most farmers that want to take advantage of the ERC.
First, the good news. The IRS has now formally announced that you may use the alternative quarter election for any quarter in 2021. Previous guidance seemed to indicate that this was available but the wording was vague at best. They now specifically state on page 32 of the notice that this is an elective election each quarter. The bottom line is that if you qualify in Quarter 1 and 3, you automatically qualify in Quarters 2 and 4. This is good news.
The mostly bad news is that owners of their corporations and their spouses will not qualify for the credit in almost all situations. The only situation where you would qualify is if do not have any of the following:
- A child or a descendent of a child,
- A brother, sister, stepbrother or stepsister,
- Father or mother, or an ancestor of either,
- A stepfather or stepmother,
- A niece or a nephew,
- An aunt or uncle,
- A son-in-law, daughter-in-law, mother-in-law, brother-in-law, or sister-in-law, or
If you meet any of the above, then you and/or your spouse wages do not qualify for the ERC. It is possible that some farmers may not have any parents, grandparents, children, nieces or nephews or siblings. In those rare cases, then you as the owner of the corporation and your spouse will now qualify for the ERC on your wages and may be able to take full advantage of the ERC. Otherwise, none of those wages will qualify for the ERC. These rules are outlined on pages 25-31.
It is likely that many of you may have already filed amended payroll tax returns for 2020 to claim the credit for these wages. If so, you will likely be required to file an amended payroll tax return and repay that credit back to the IRS. For 2021, farmers likely will not claim the credit until you file your Form 943 in January, therefore, you may have time to fix this. If you have already reduced your payroll tax obligations by the credit on these now disallowed wages, you may need to pay in those taxes ASAP and be warned that penalties may apply.
I did get some requests for photos from the combine ride. It was very smoky and the few I took were hard to see very well. The one I show below is looking at the wheat field down toward our place. Our place is just to the right of the green patch in the middle of the picture at the bottom which is about 1,000 feet below the combine. We own that house and pasture but the place we spend most of our time in is to the right (my wife forced me to buy that place last year). We own from the edge of the wheat field down to the road that you can see. In total there is about 200 acres and from the field to the road is about 3/4ths of a mile.
My wife usually sends at least one text a day telling me how much she loves our home. About once a month I send a text saying she has not told me she loves me and I get a text about an hour later that says “I love you ……. for buying me this place.”
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.
Paul,
Does this mean that a 100% C Corp, S Corp, majority owner of an LLC or partnership who does not have a spouse or kids but has a non employee brother cannot take the credit on the 100% owner wages? Also if the 100% owner has no spouse and no disqualifying related parties do the wages qualify for the credit?
All very confusing.