Just how It Works

I don't desire to get too technical here, but Area 2301(e) of the CARES Act -- which developed the employee retention credit -- states that for functions of the employee retention credit, "guidelines comparable to the guideline of sections 51(i)( 1) and 280C(a) of the Internal Revenue Code of 1986 will apply," don't get captured up on the 1986, that's just the last time the Internal Earnings Code had a significant overhaul, so it's simply referred to as the Internal Revenue Code of 1986. The fundamental part here is those other code sections referral.

Since that's the easy one, let's start with 280C(a). That is just saying that if you get a credit on some incomes you pay in your service, you can't double dip and take a deduction for those very same wages. And now let's talk about section 51(i)( 1 ), which states, "No salaries will be considered ...

with respect to a person who bears any of the relationships described in subparagraphs (A) through (G) of section 152(d)( 2) to the taxpayer, or, if the taxpayer is a corporation, to an individual who owns, straight or indirectly, more than 50 percent in value of the impressive stock of the corporation, or, if the taxpayer is an entity other than a corporation, to any individual who owns, directly or indirectly, more than 50 percent of the capital and profits interests in the entity." Let's focus on the stipulation that says "if the taxpayer is a corporation" due to the fact that we're assuming an S corp taxpayer here.

This is stating that you don't take into account earnings with regard to an individual who owns, straight or indirectly, more than 50 percent in worth of the outstanding stock of the corporation. That appears clear to me that owner incomes do not qualify. Now, some tax specialists are taking a look at the employee retention credit qualified incomes FAQs on the IRS site, and they're looking at FAQ 59, which says, "Are incomes paid by an employer to employees who relate individuals considered qualified wages?

" and they're stating, "Look at the answer here. It's only these relatives whose wages do not count. And the IRS didn't particularly state owner wages or partner earnings don't count here, so bad-a-boo, bad-a-bing, therefore owner earnings need to count." To that, I would say, "Look. The IRS website is not the tax code.

 


 

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