Just how It Functions

I do not desire to get too technical here, however Section 2301(e) of the CARES Act -- which developed the employee retention credit -- says that for functions of the employee retention credit, "rules similar to the rule of sections 51(i)( 1) and 280C(a) of the Internal Revenue Code of 1986 shall use," don't get captured up on the 1986, that's simply the last time the Internal Revenue Code had a significant overhaul, so it's simply referred to as the Internal Earnings Code of 1986. The fundamental part here is those other code areas referral.

Let's start with 280C(a) because that's the simple one. That is just stating that if you get a credit on some wages you pay in your service, you can't double dip and take a deduction for those exact same incomes. Now let's discuss section 51(i)( 1 ), which states, "No incomes will be considered ...

with regard to an individual who bears any of the relationships explained in subparagraphs (A) through (G) of section 152(d)( 2) to the taxpayer, or, if the taxpayer is a corporation, to a person who owns, directly or indirectly, more than 50 percent in value of the outstanding stock of the corporation, or, if the taxpayer is an entity besides a corporation, to any individual who owns, directly or indirectly, more than 50 percent of the capital and earnings interests in the entity." Let's focus on the provision 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 respect to a person who owns, straight or indirectly, more than 50 percent in value of the exceptional stock of the corporation. That seems clear to me that owner earnings do not qualify. Now, some tax professionals are looking at the employee retention credit certified wages FAQs on the IRS site, and they're looking at FAQ 59, which states, "Are salaries paid by a company to workers who relate people considered qualified earnings?

" and they're saying, "Look at the answer here. It's just these relatives whose salaries do not count. And the IRS didn't specifically say owner salaries or partner wages don't count here, so bad-a-boo, bad-a-bing, for that reason owner incomes should count." To that, I would state, "Look. The IRS website is not the tax code.

 


 

Related Posts