How It Works

I don't want to get too technical here, but Section 2301(e) of the CARES Act -- which produced the employee retention credit -- states that for functions of the employee retention credit, "guidelines comparable to the rule of sections 51(i)( 1) and 280C(a) of the Internal Profits Code of 1986 will use," do not get caught up on the 1986, that's simply the last time the Internal Revenue Code had a significant overhaul, so it's just referred to as the Internal Profits 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 salaries you pay in your business, you can't double dip and take a reduction for those very same salaries. Today let's speak about area 51(i)( 1 ), which says, "No incomes shall be taken into consideration ...

with respect to an individual 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, directly or indirectly, more than 50 percent in value of the outstanding stock of the corporation, or, if the taxpayer is an entity aside from a corporation, to any person who owns, directly or indirectly, more than 50 percent of the capital and revenues interests in the entity." Let's focus on the clause that says "if the taxpayer is a corporation" because we're presuming an S corp taxpayer here.

So this is saying that you don't take into consideration wages with respect to an individual who owns, straight or indirectly, more than 50 percent in worth of the impressive stock of the corporation. That seems clear to me that owner incomes do not certify. Now, some tax specialists are looking at the employee retention credit qualified salaries FAQs on the IRS site, and they're looking at FAQ 59, which states, "Are salaries paid by a company to employees who are associated people considered qualified earnings?

" and they're stating, "Look at the response here. It's only these family members whose earnings don't count. And the IRS didn't specifically say owner incomes or spouse wages don't count here, so bad-a-boo, bad-a-bing, therefore owner wages should count." To that, I would state, "Look. The IRS site is not the tax code.

 


 

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