Recapture of Excess Employment Tax Credits Under the Families First Act and the CARES Act, 45514-45519 [2020-16302]
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Federal Register / Vol. 85, No. 146 / Wednesday, July 29, 2020 / Rules and Regulations
this length also will provide an
extended operational window for
regulated entities during the course of
the public health crisis. DDTC believes
that a failure to extend these temporary
suspensions, modifications, and
exceptions will have a negative impact
on regulated entities’ ability to safely
engage in continued operations. As
persons and entities subject to the
regulations or operating pursuant to a
license or other approval are located
around the world, it is apparent that
physical presence may contradict public
health guidance or legal requirements in
many instances. For these reasons,
DDTC is extending the termination date
prescribed in 85 FR 25287, items
number 3 and number 4.
The temporary suspension,
modification, and exception to the
requirement in ITAR parts 122 and 129
to renew registration as a manufacturer,
exporter, and/or broker and pay a fee on
an annual basis described at number 1
of 85 FR 25287, is not being extended
to subsequent registrations. DDTC did
not receive any request from industry
for additional extensions to registrations
that terminate after June 30. To the
contrary, several commenters expressed
their appreciation for the original
action, but noted that any extension
would be unnecessary. DDTC’s
experience since the original temporary
suspension, modification, and exception
is that registrants are able to use DDTC’s
DECCS online system for the purpose of
registration in the normal course of
business.
The temporary suspension,
modification, and exception to the
limitations on the duration of ITAR
licenses and agreements described at
number 2 of 85 FR 25287, is not
extended. Although several commenters
expressed appreciation for the original
action, one commenter indicated a
preference that it not be extended.
Although three commenters did request
extension for various reasons, DDTC is
not accepting those requests. DDTC
notes that the majority of commenters
did not make such a request, and that
of those that did, some of the reasons
related to internal DDTC operations and
coordination with other areas of the
government. DDTC believes that
progress is being made on those matters
and that continued extensions to all
existing authorizations is an overbroad
response to the current situation. DDTC,
its interagency partners, and the
regulated entities have had several
months to adjust to the current situation
and DDTC believes it is prepared to
handle authorizations in accordance
with its statutory requirements.
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DDTC further notes that several
commenters requested additional
measures be taken by DDTC. DDTC is
not adopting any of those measures at
this time. Although DDTC is not
providing individual responses to those
requests, DDTC notes generally that
several of the requests would involve
major infrastructure revisions to DDTC
automated systems and are therefore not
feasible as temporary suspensions,
modifications, or exceptions; others
were outside the scope of the request;
and others involved matters of internal
policy and practice and not regulatory
matters. For all regulatory matters
recommended, DDTC will continue to
consider those that may merit future
possibility of action.
Therefore, pursuant to ITAR §§ 126.2
and 126.3, in the interest of the security
and foreign policy of the United States
and as warranted by the exceptional and
undue hardships and risks to safety
caused by the public health emergency
related to the SARS–COV2 pandemic,
notice is provided that the following
temporary suspensions, modifications,
and exceptions are being extended as
follows:
1. As of March 13, 2020, a temporary
suspension, modification, and exception
to the requirement that a regular
employee, for purposes of ITAR
§ 120.39(a)(2), work at the company’s
facilities, to allow the individual to
work at a remote work location, so long
as the individual is not located in
Russia or a country listed in ITAR
§ 126.1. This suspension, modification,
and exception shall terminate on
December 31, 2020, unless otherwise
extended in writing.
2. As of March 13, 2020, a temporary
suspension, modification, and exception
to authorize regular employees of
licensed entities who are working
remotely in a country not currently
authorized by a technical assistance
agreement, manufacturing license
agreement, or exemption to send,
receive, or access any technical data
authorized for export, reexport, or
retransfer to their employer via a
technical assistance agreement,
manufacturing license agreement, or
exemption so long as the regular
employee is not located in Russia or a
country listed in ITAR § 126.1. This
suspension, modification, and exception
shall terminate on December 31, 2020,
unless otherwise extended in writing.
This notice makes no other revision to
the notice published at 85 FR 25287, nor
does it make any other temporary
suspension, modification, or exception
to the requirements of the ITAR.
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Authority: 22 CFR 126.2 and 126.3.
Zachary A. Parker,
Director, Office of Directives Management,
U.S. Department of State.
[FR Doc. 2020–15777 Filed 7–28–20; 8:45 am]
BILLING CODE 4710–25–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 31
[TD 9904]
RIN 1545–BP89
Recapture of Excess Employment Tax
Credits Under the Families First Act
and the CARES Act
Internal Revenue Service (IRS),
Treasury.
ACTION: Temporary regulations.
AGENCY:
This document amends the
regulations under sections 3111 and
3221 of the Internal Revenue Code with
the addition of temporary regulations
issued under the regulatory authority
granted by the Families First
Coronavirus Response Act and the
Coronavirus Aid, Relief, and Economic
Security Act to prescribe such
regulations as may be necessary for
reconciling advance payments of
refundable employment tax credits
provided under these acts and
recapturing the benefit of the credits
when necessary. Consistent with this
authority, these temporary regulations
authorize the assessment of any
erroneous refund of the credits paid
under sections 7001 and 7003 of the
Families First Coronavirus Response
Act, including any increases in such
credits under section 7005 thereof, and
section 2301 of the Coronavirus Aid,
Relief, and Economic Security Act. The
text of these temporary regulations also
serves as the text of the proposed
regulations (REG–111879–20) set forth
in the notice of proposed rulemaking on
this subject in the Proposed Rules
section of this issue of the Federal
Register.
DATES:
Effective Date: These temporary
regulations are effective on July 29,
2020.
Applicability Date: For date of
applicability, see §§ 31.3111–6T and
31.3221–5T of these temporary
regulations.
FOR FURTHER INFORMATION CONTACT:
Concerning these temporary regulations,
NaLee Park at 202–317–6798.
SUPPLEMENTARY INFORMATION:
SUMMARY:
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Background
I. The Statutes in General: The Families
First Act and the CARES Act
The Families First Coronavirus
Response Act (Families First Act),
Public Law 116–127, 134 Stat. 178
(2020), enacted on March 18, 2020, and
the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act),
Public Law 116–136, 134 Stat. 281
(2020), enacted on March 27, 2020,
provide relief to taxpayers from
economic hardships resulting from the
Coronavirus Disease 2019 (COVID–19).
The Families First Act, through the
enactment of the Emergency Paid Sick
Leave Act and the Emergency Family
and Medical Leave Expansion Act,
generally requires employers with fewer
than 500 employees to provide paid
leave due to certain circumstances
related to COVID–19.
Division E of the Families First Act,
the Emergency Paid Sick Leave Act
(EPSLA), requires certain employers to
provide employees with up to 80 hours
of paid sick leave if the employee is
unable to work or telework because the
employee:
(1) Is subject to a Federal, State, or
local quarantine or isolation order
related to COVID–19;
(2) has been advised by a health care
provider to self-quarantine due to
concerns related to COVID–19;
(3) is experiencing symptoms of
COVID–19 and seeking a medical
diagnosis;
(4) is caring for an individual who is
subject to a Federal, State, or local
quarantine or isolation order related to
COVID–19, or has been advised by a
health care provider to self-quarantine
due to concerns related to COVID–19;
(5) is caring for a son or daughter of
such employee if the school or place of
care of the son or daughter has been
closed, or the child care provider of
such son or daughter is unavailable, due
to COVID–19 precautions; or
(6) is experiencing any other
substantially similar condition specified
by the Secretary of Health and Human
Services in consultation with the
Secretaries of the Treasury and Labor.1
An employee who is unable to work
or telework for reasons related to
COVID–19 described in (1), (2), or (3)
above is entitled to paid sick leave at the
employee’s regular rate of pay or, if
higher, the Federal minimum wage or
any applicable State or local minimum
wage, up to $511 per day and $5,110 in
the aggregate. An employee who is
1 The U.S. Department of Health and Human
Services has not yet specified any other such
conditions as of July 29, 2020.
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unable to work or telework for reasons
related to COVID–19 described in (4),
(5), or (6) above is entitled to paid sick
leave at two-thirds the employee’s
regular rate of pay or, if higher, the
Federal minimum wage or any
applicable State or local minimum
wage, up to $200 per day and $2,000 in
the aggregate.
Division C of the Families First Act,
the Emergency Family and Medical
Leave Expansion Act (EFMLEA),
amends the Family and Medical Leave
Act of 1993 to require certain employers
to provide expanded paid family and
medical leave to employees who are
unable to work or telework for reasons
related to COVID–19. An employee can
receive up to 10 weeks of paid family
and medical leave at two-thirds the
employee’s regular rate of pay, up to
$200 per day and $10,000 in the
aggregate if the employee is unable to
work or telework because the employee
is caring for a son or daughter whose
school or place of care is closed or
whose child care provider is unavailable
for reasons related to COVID–19.
Sections 7001 and 7003 of the
Families First Act generally provide that
employers subject to the paid leave
requirements under EPSLA and
EFMLEA (‘‘eligible employers’’) are
entitled to fully refundable tax credits to
cover the cost of the leave required to
be paid for those periods of time during
which employees are unable to work or
telework for reasons related to COVID–
19.2
Eligible employers are entitled to
receive a refundable credit equal to the
amount of the qualified sick leave wages
and qualified family leave wages
(collectively ‘‘qualified leave wages’’),
plus allocable qualified health plan
expenses. Under the respective
provisions, qualified leave wages are
defined to mean wages (as defined in
section 3121(a) of the Internal Revenue
Code (Code)) and compensation (as
defined in section 3231(e) of the Code)
paid by an employer which are required
to be paid under the EPSLA and
EFMLEA. See section 7001(c) and
7003(c). The credit is allowed against
the taxes imposed on employers by
section 3111(a) of the Code (the OldAge, Survivors, and Disability Insurance
tax (social security tax)), first reduced
by any credits claimed under sections
3111(e) and (f) of the Code, and section
3221(a) of the Code (the Railroad
Retirement Tax Act Tier 1 tax), on all
wages and compensation paid to all
2 Under sections 7001(d)(4) and 7003(d)(4) of the
Families First Act, these credits do not apply to the
government of the United States, the government of
any State or political subdivision thereof, or any
agency or instrumentality of any of the foregoing.
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employees. Under section 7005 of the
Families First Act, the qualified leave
wages are not subject to the taxes
imposed on employers by sections
3111(a) and 3221(a) of the Code. In
addition, section 7005 provides that the
credits under sections 7001 and 7003 of
the Families First Act are increased by
the amount of the tax imposed by
section 3111(b) of the Code (employer’s
share of Medicare tax) on qualified leave
wages.3
The CARES Act provides an
additional credit for employers
experiencing economic hardship related
to COVID–19. Under section 2301 of the
CARES Act, certain employers who pay
qualified wages to their employees are
eligible for an employee retention
credit. Employers eligible for the
employee retention credit are employers
that carry on a trade or business during
calendar year 2020 and tax-exempt
organizations that either have a full or
partial suspension of operations during
any calendar quarter in 2020 due to an
order from an appropriate governmental
authority limiting commerce, travel, or
group meetings (for commercial, social,
religious, or other purposes) due to
COVID–19, or experience a significant
decline in gross receipts during the
calendar quarter.
Qualified wages are wages (as defined
in section 3121(a) of the Code) and
compensation (as defined in section
3231(e) of the Code) paid by an
employer to some or all employees after
March 12, 2020, and before January 1,
2021, and include the employer’s
qualified health plan expenses that are
properly allocable to such wages or
compensation. For employers that
averaged more than 100 full-time
employees during 2019, qualified wages
are wages and compensation (including
allocable qualified health plan
expenses), up to $10,000 per employee,
paid to employees that are not providing
services because operations were fully
or partially suspended due to orders
from an appropriate governmental
authority or due to a decline in gross
receipts. For employers who averaged
100 full-time employees or fewer during
2019, qualified wages are wages and
compensation (including allocable
qualified health plan expenses), up to
$10,000 per employee, paid to any
employee during the period operations
were suspended due to orders from an
3 The credit for the employer’s share of Medicare
tax does not apply to eligible employers that are
subject to Railroad Retirement Tax Act (RRTA)
because under section 7005(a) of the Families First
Act qualified leave wages are not subject to
Medicare tax under RRTA due to that section’s
reference to section 3221(a) of the Code, which
includes both social security tax and Medicare tax.
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appropriate governmental authority or
due to a decline in gross receipts,
regardless of whether its employees are
providing services.
The employee retention credit is a
fully refundable tax credit for employers
equal to 50 percent of qualified wages.
Because the maximum amount of
qualified wages taken into account with
respect to each employee is $10,000, the
maximum employee retention credit for
an eligible employer for qualified wages
paid to any employee is $5,000. The
credit is allowed against the taxes
imposed on employers by section
3111(a) of the Code, first reduced by any
credits allowed under sections 3111(e)
and (f) of the Code and sections 7001
and 7003 of the Families First Act, and
the taxes imposed under section 3221(a)
of the Code that are attributable to the
rate in effect under section 3111(a) of
the Code, first reduced by any credits
allowed under sections 7001 and 7003
of the Families First Act, on all wages
and compensation paid to all
employees. The same wages or
compensation cannot be counted for
both the Families First Act leave credits
and the CARES Act employee retention
credit.
II. Refundability of Credits
Sections 7001(b)(4) and 7003(b)(3) of
the Families First Act provide that if the
amount of the paid sick and family
leave credits under these sections
exceeds the taxes imposed by section
3111(a) or 3221(a) of the Code for any
calendar quarter, such excess shall be
treated as an overpayment that shall be
refunded under sections 6402(a) and
6413(b) of the Code. Section 2301(b)(3)
of the CARES Act provides that if the
amount of the employee retention credit
exceeds the taxes imposed by section
3111(a) or 3221(a) (limited to the
portion attributable to the rate in effect
under section 3111(a)) of the Code for
any calendar quarter, such excess shall
be treated as an overpayment that shall
be refunded under sections 6402(a) and
6413(b) of the Code.
Section 6402(a) of the Code provides
that, within the applicable period of
limitations, overpayments may be
credited against any liability in respect
of an internal revenue tax on the part of
the person who made the overpayment
and any remaining balance refunded to
such person. Section 6413(b) provides
that if more than the correct amount of
employment tax imposed by sections
3101, 3111, 3201, 3221, or 3402 is paid
or deducted and the overpayment
cannot be adjusted under section
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6413(a),4 the amount of the
overpayment shall be refunded (subject
to the applicable statute of limitations)
as the Secretary may prescribe in
regulations.
The IRS has revised Form 941,
Employer’s Quarterly Federal Tax
Return, and is revising Form 943,
Employer’s Annual Federal Tax Return
for Agricultural Employees, Form 944,
Employer’s Annual Federal Tax Return,
and Form CT–1, Employer’s Annual
Railroad Retirement Tax Return, so that
employers may use these returns to
claim the paid sick and family leave
credits under the Families First Act and
the employee retention credit under the
CARES Act. The revised employment
tax returns will provide for any credits
in excess of the taxes imposed under
sections 3111(a) or 3221(a) (for the
employee retention credit, only the
taxes imposed under section 3221(a)
that are attributable to the rate in effect
under section 3111(a)) to be credited
against other employment taxes and
then for any remaining balance to be
refunded to the employer (per section
6402(a) or section 6413(b)).5
III. Advance Payment of Credits and
Erroneous Refunds
Section 3606 of the CARES Act
amends sections 7001(b)(4) and
7003(b)(3) of the Families First Act to
provide that, in anticipation of the paid
sick and family leave credits under
these sections, including any refundable
portions (which would include any
increases in the credits under section
7005), these credits may be advanced,
according to forms and instructions
provided by the Secretary, up to the
total allowable amount and subject to
applicable limits for the calendar
quarter. Section 2301(l)(1) of the CARES
Act provides that the Secretary shall
issue such forms, instructions,
regulations, and guidance as are
necessary to allow the advance payment
4 Section 6413(a) addresses interest-free
adjustments of overpayments. The section provides
that if more than the correct amount of employment
tax imposed by section 3101, 3111, 3201, 3221, or
3402 is paid with respect to any payment of
remuneration, proper adjustments with respect to
both the tax and the amount to be deducted, shall
be made, without interest, in such manner and at
such times as the Secretary may by regulations
prescribe.
5 Employment tax returns have also been revised
to provide for reporting of any deferral of
employment taxes under the CARES Act. Section
2302 of the CARES Act provides that employers
may defer the deposit and payment of the
employer’s share of social security tax for the
payroll tax deferral period of March 27, 2020
through December 31, 2020. The deferral applies in
addition to the credits claimed on an employment
tax return, but the deferral does not reduce the
amount of the employer’s share of social security
tax against which the credits are applied.
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of the employee retention credit under
section 2301, subject to the limitations
provided in section 2301 and based on
such information as the Secretary shall
require.
To implement the advance payment
provisions of the Families First Act and
the CARES Act, the IRS has created
Form 7200, Advance Payment of
Employer Credits Due To COVID–19,
which employers may use to request an
advance of the paid sick or family leave
credits under the Families First Act, the
employee retention credit under the
CARES Act, or two or more of them.
Employers are required to reconcile any
advance payments claimed on Form
7200 with total credits claimed and total
taxes due on their employment tax
returns. A refund, a credit, or an
advance of any portion of these credits
to a taxpayer in excess of the amount to
which the taxpayer is entitled is an
erroneous refund for which the IRS
must seek repayment.
IV. Assessment Authority
Section 6201, in general, authorizes
the Secretary to determine and assess
tax liabilities including interest,
additional amounts, additions to the tax,
and assessable penalties. However, the
general authority to assess tax liabilities
under section 6201(a) does not allow the
assessment of any non-rebate 6 portion
of an erroneous refund of a refundable
credit. Instead, non-rebate refunds are
generally recovered or recaptured
through voluntary payment or litigation.
The government by appropriate action
can bring civil litigation to recover
funds which its agents have wrongfully,
erroneously, or illegally paid, and no
statute is necessary to authorize the
government to sue in such a case, since
the right to sue is independent of
statute. United States v. Wurts, 303 U.S.
414, 415 (1938), citing United States v.
The Bank of the Metropolis, 40 U.S. 377
(1841). However, the statutory language
of the Families First Act and the CARES
Act provides for the administrative
recapture of these non-rebate refunds by
authorizing the promulgation of
regulations or other guidance to do so.
Sections 7001 and 7003 of the
Families First Act and section 2301 of
the CARES Act grant authority to the
Department of the Treasury (Treasury
Department) and the IRS to issue
regulations or other guidance to
recapture an erroneous refund of the
credits. Specifically, sections 7001(f)
6 ’’Non-rebate’’ refers to the portion of any refund
of a credit that exceeds the IRS’s determination of
the recipient’s tax liability (i.e., the remaining
portion of the refund that is paid to the recipient
after the refund has been applied to the recipient’s
tax liability).
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and 7003(f) of the Families First Act and
section 2301(l) of the CARES Act
authorize the Secretary to issue
guidance to allow for the administrative
reconciliation and recapture of
erroneous refunds. Sections 7001(f) and
7003(f) of the Families First Act
provide, in relevant part, that the
Secretary (or the Secretary’s delegate)
shall provide such regulations or other
guidance as may be necessary to carry
out the purposes of the credit, including
regulations or other guidance: (1) To
prevent the avoidance of the purposes of
the limitations under this provision; (2)
to minimize compliance and recordkeeping burdens associated with the
credit; (3) to provide for a waiver of
penalties for failure to deposit amounts
in anticipation of the allowance of the
credit; (4) to recapture the benefit of the
credit in cases where there is a
subsequent adjustment to the credit; and
(5) to ensure that the wages taken into
account for the credit conform with the
paid sick leave and paid family leave
required to be provided under the
Families First Act. Similarly, section
2301(l) of the CARES Act provides in
relevant part that the Secretary shall
issue such forms, instructions,
regulations, and guidance as are
necessary to provide for the
reconciliation of an advance payment of
the employee retention credit with the
amount advanced at the time of filing
the return of tax for the applicable
calendar quarter or taxable year, and to
provide for the recapture of the credit
under section 2301 of the CARES Act if
such credit is allowed to a taxpayer that
receives a small business loan under
section 1102 of the CARES Act during
a subsequent quarter.
Accordingly, this document amends
the Employment Tax Regulations (26
CFR part 31) by adding temporary
regulations under sections 3111 and
3221 of the Code. Concurrent with the
publication of this Treasury decision,
the Treasury Department and the IRS
are publishing in the Proposed Rules
section of this issue of the Federal
Register a notice of proposed
rulemaking (REG–111879–20) on this
subject that cross-references the text of
these temporary regulations. See section
7805(e)(1). Interested persons are
directed to the ADDRESSES and
COMMENTS AND REQUESTS FOR A
PUBLIC HEARING sections of the
preamble to REG–111879–20 for
information on submitting public
comments or requesting a public
hearing on the proposed regulations.
Explanation of Provisions
Sections 7001 and 7003 of the
Families First Act and section 2301 of
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the CARES Act provide that the credits
described in these sections are taken
against the taxes imposed on employers
under sections 3111(a) or 3221(a) of the
Code (for the employee retention credit,
only the taxes imposed under section
3221(a) that are attributable to the rate
in effect under section 3111(a) of the
Code). Additionally, if the amount of
the credit exceeds the taxes imposed
under sections 3111(a) or 3221(a) of the
Code (for the employee retention credit,
only the taxes imposed under section
3221(a) that are attributable to the rate
in effect under section 3111(a) of the
Code) for any calendar quarter, such
excess shall be treated as an
overpayment to be refunded or credited
under sections 6402(a) and 6413(b) of
the Code. Any credits claimed that
exceed the amount to which the
employer is entitled and that are
actually credited or paid by the IRS are
considered to be erroneous refunds of
the credits. These temporary regulations
provide that erroneous refunds of these
credits are treated as underpayments of
the taxes imposed under sections
3111(a) or 3221(a) of the Code and
authorize the IRS to assess any portion
of the credits erroneously credited, paid,
or refunded in excess of the amount
allowed as if those amounts were tax
liabilities under sections 3111(a) and
3221(a) subject to assessment and
administrative collection procedures.
This allows the IRS to efficiently
recover the amounts, while also
preserving administrative protections
afforded to taxpayers with respect to
contesting their tax liabilities under the
Code and avoiding unnecessary costs
and burdens associated with litigation.
These assessment and administrative
collection procedures will apply in the
normal course in processing
employment tax returns that report
advances in excess of claimed credits
and in examining returns for excess
claimed credits.
Specifically, these temporary
regulations provide that any amount of
the credits for qualified leave wages
under sections 7001 and 7003 of the
Families First Act, plus any amount of
credits for qualified health plan
expenses under sections 7001 and 7003,
and including any increases in these
credits under section 7005, and any
amount of the employee retention credit
for qualified wages under section 2301
of the CARES Act that are erroneously
refunded or credited to an employer
shall be treated as underpayments of the
taxes imposed by section 3111(a) or
section 3221(a), as applicable, by the
employer and may be administratively
assessed and collected in the same
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45517
manner as the taxes. These temporary
regulations provide that the
determination of any amount of credits
erroneously refunded must take into
account any credit amounts advanced to
an employer under the process
established by the IRS in accordance
with sections 7001(b)(4)(A)(ii) and
7003(b)(3)(B) of the Families First Act
and section 2301(l)(1) of the CARES Act.
Because in certain situations third
party payors claim credits on behalf of
their common law employer clients,
these temporary regulations also
provide that employers against whom
an erroneous refund of credits can be
assessed as an underpayment include
persons treated as the employer under
sections 3401(d), 3504, and 3511 of the
Code, consistent with their liability for
the section 3111(a) and section 3221(a)
taxes against which the credit applied.
Finally, these temporary regulations
apply to all credit refunds under section
7001 and 7003 of the Families First Act
advanced or paid on or after April 1,
2020 and all credit refunds under
section 2301 of the CARES Act
advanced or paid on or after March 13,
2020. These applicability dates
correspond to the effective dates of the
statutory sections that provide for these
credits and that authorize guidance to
allow for the administrative
reconciliation and recapture of
erroneous refunds of these credits.
Sections 7001(g) and 7003(g) of the
Families First Act provide that sections
7001 and 7003 apply to wages paid with
respect to the period beginning on a
date selected by the Secretary of the
Treasury which is during the 15-day
period beginning on the date of the
enactment of the Families First Act
(March 18, 2020). In Notice 2020–21,
2020–16 I.R.B. 660, the IRS provided
that the tax credits for qualified sick
leave wages and qualified family leave
wages under sections 7001 and 7003 of
the Families First Act apply to wages
paid for the period beginning on April
1, 2020, and ending on December 31,
2020. Section 2301(m) of the CARES Act
provides that section 2301 applies to
wages paid on or after March 13, 2020,
and before January 1, 2021.
Pursuant to section 7805(b)(2) of the
Code, these temporary regulations are
permitted to apply before the dates
provided under section 7805(b)(1),
including the date on which these
temporary regulations are filed with the
Federal Register, because these
temporary regulations are being issued
within 18 months of the date of the
enactment of the relevant statutory
provisions under the Families First Act
and the CARES Act. Accordingly, these
temporary regulations apply to all
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29JYR1
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credits under sections 7001 and 7003 of
the Families First Act, as modified by
section 3606 of the CARES Act,
including any increases in the credits
under section 7005 of the Families First
Act, refunded on or after April 1, 2020,
including advanced refunds, as well as
all credits under section 2301 of the
CARES Act that are refunded on or after
March 13, 2020, including advanced
refunds.
Special Analyses
The Office of Management and
Budget’s Office of Information and
Regulatory Analysis has determined that
these temporary regulations are not
significant and not subject to review
under section 6(b) of Executive Order
12866.
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6), the Secretary
certifies that these temporary
regulations will not have a significant
economic impact on a substantial
number of small entities because these
temporary regulations impose no
compliance burden on any business
entities, including small entities.
Although these temporary regulations
will apply to all employers eligible for
the credits under the Families First Act
and the CARES Act, including small
businesses and tax-exempt
organizations with fewer than 500
employees, and will therefore be likely
to affect a substantial number of small
entities, the economic impact will not
be significant. These temporary
regulations do not affect the employer’s
employment tax reporting or the
necessary information to substantiate
entitlement to the credits. Rather, these
temporary regulations merely
implement the statutory authority
granted under sections 7001(f) and
7003(f) of the Families First Act and
section 2301(l) of the CARES Act that
authorize the IRS to assess, reconcile,
and recapture any portion of the credits
erroneously credited, paid, or refunded
in excess of the actual amount allowed
as if the amounts were tax liabilities
under sections 3111(a) and 3221(a)
subject to assessment and
administrative collection procedures.
Notwithstanding this certification, the
Treasury Department and the IRS invite
comments on any impact these
temporary regulations would have on
small entities.
Pursuant to section 7805(f), these
temporary regulations have been
submitted to the Chief Counsel of the
Office of Advocacy of the Small
Business Administration for comment
on its impact on small business.
The Treasury Department and the IRS
have determined that good cause exists
VerDate Sep<11>2014
15:51 Jul 28, 2020
Jkt 250001
under section 553(b)(B) of the
Administrative Procedure Act (APA) (5
U.S.C. 551 et seq.). Section 553(b)(B)
provides that an agency is not required
to publish a notice of proposed
rulemaking in the Federal Register
when the agency, for good cause, finds
that notice and public comment thereon
are impracticable, unnecessary, or
contrary to the public interest.
Employers must file Form 941,
Employer’s Quarterly Federal Tax
Return, for the second quarter of
calendar year 2020 by July 31, 2020, as
required by section 6071 of the Code
and Treas. Reg. § 31.6071(a)–1.
Employers use Form 941 to claim
qualified leave credits under the
Families First Act and the employee
retention credit under the CARES Act,
as well as to report any advance of these
credits they received during the quarter.
In filing their second quarter 2020 Form
941, some employers will report and
receive, or will have already received as
an advance, refund amounts in excess of
the refund to which they are entitled.
These temporary regulations authorize
the assessment of any such erroneous
refunds. Without these temporary
regulations, in some instances the IRS
may not be able to avoid bringing costly
and burdensome litigation to recover
such reported erroneous refunds.
Further, comments are being solicited in
the cross-referenced notice of proposed
rulemaking that is in this issue of the
Federal Register, and any comments
will be considered before final
regulations are issued.
Statement of Availability of IRS
Documents
IRS notices and other guidance cited
in this preamble are published in the
Internal Revenue Bulletin (or
Cumulative Bulletin) and are available
from the Superintendent of Documents,
U.S. Government Publishing Office,
Washington, DC 20402, or by visiting
the IRS website at https://www.irs.gov.
Drafting Information
The principal author of these
temporary regulations is NaLee Park,
Office of the Associate Chief Counsel
(Employee Benefits, Exempt
Organizations, and Employment Taxes).
However, other personnel from the
Treasury Department and the IRS
participated in the development of these
temporary regulations.
List of Subjects in 26 CFR 31
Employment taxes, Income taxes,
Penalties, Pensions, Railroad retirement,
Reporting and recordkeeping
requirements, Social security,
Unemployment compensation.
PO 00000
Frm 00014
Fmt 4700
Sfmt 4700
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 31 is
amended as follows:
PART 31—EMPLOYMENT TAXES AND
COLLECTION OF INCOME TAX AT
SOURCE
Paragraph 1. The authority citation
for part 31 is amended by adding entries
for §§ 31.3111–6T and 31.3221–5T in
numerical order to read in part as
follows:
■
Authority: 26 U.S.C. 7805.
*
*
*
*
*
Section 31.3111–6T also issued under sec.
7001 and sec. 7003 of the Families First
Coronavirus Response Act of 2020 and sec.
2301 of the Coronavirus Aid, Relief, and
Economic Security Act of 2020.
*
*
*
*
*
Section 31.3221–5T also issued under sec.
7001 and sec. 7003 of the Families First
Coronavirus Response Act of 2020 and sec.
2301 of the Coronavirus Aid, Relief, and
Economic Security Act of 2020.
*
*
*
*
*
Par. 2.Section 31.3111–6T is added to
read as follows:
■
§ 31.3111–6T Recapture of credits under
the Families First Coronavirus Response
Act and the Coronavirus Aid, Relief, and
Economic Security Act.
(a) Recapture of erroneously refunded
credits under the Families First
Coronavirus Response Act. Any amount
of credits for qualified sick leave wages
or qualified family leave wages under
sections 7001 and 7003, respectively, of
the Families First Coronavirus Response
Act (Families First Act), Public Law
116–127, 134 Stat. 178 (2020), as
modified by section 3606 of the
Coronavirus Aid, Relief, and Economic
Security Act (CARES Act), Public Law
116–136, 134 Stat. 281 (2020), plus any
amount of credits for qualified health
plan expenses under sections 7001 and
7003, and including any increases in
those credits under section 7005 of the
Families First Act, that are treated as
overpayments and refunded or credited
to an employer under section 6402(a) or
section 6413(b) of the Internal Revenue
Code (Code) and to which the employer
is not entitled, resulting in an erroneous
refund to the employer, shall be treated
as an underpayment of the taxes
imposed by section 3111(a) of the Code
and may be assessed and collected by
the Secretary in the same manner as the
taxes.
(b) Recapture of erroneously refunded
credits under the Coronavirus Aid,
Relief, and Economic Security Act. Any
amount of credits for qualified wages
under section 2301 of the CARES Act
E:\FR\FM\29JYR1.SGM
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that is treated as an overpayment and
refunded or credited to an employer
under section 6402(a) or section 6413(b)
of the Code and to which the employer
is not entitled, resulting in an erroneous
refund to the employer, shall be treated
as an underpayment of the taxes
imposed by section 3111(a) of the Code
and may be assessed and collected by
the Secretary in the same manner as the
taxes.
(c) Advance credit amounts
erroneously refunded. The
determination of any amount of credits
erroneously refunded as described in
paragraphs (a) and (b) of this section
must take into account any amount of
credits advanced to an employer under
the process established by the Internal
Revenue Service in accordance with
sections 7001(b)(4)(A)(ii) and
7003(b)(3)(B) of the Families First Act,
as modified by section 3606 of the
CARES Act, and section 2301(l)(1) of the
CARES Act.
(d) Third party payors. For purposes
of this section, employers against whom
an erroneous refund of the credits under
sections 7001 and 7003 of the Families
First Act (including any increases in
those credits under section 7005 of the
Families First Act), as modified by
section 3606 of the CARES Act, and the
credits under section 2301 of the CARES
Act can be assessed as an underpayment
of the taxes imposed by section 3111(a)
include persons treated as the employer
under sections 3401(d), 3504, and 3511
of the Code, consistent with their
liability for the section 3111(a) taxes
against which the credit applied.
(e) Applicability date. This regulation
applies to all credit refunds under
sections 7001 and 7003 of the Families
First Act (including any increases in
those credits under section 7005 of the
Families First Act), as modified by
section 3606 of the CARES Act,
advanced or paid on or after April 1,
2020 and all credit refunds under
section 2301 of the CARES Act
advanced or paid on or after March 13,
2020.
■ Par. 3.Section 31.3221–5T is added to
read as follows:
§ 31.3221–5T Recapture of credits under
the Families First Coronavirus Response
Act and the Coronavirus Aid, Relief, and
Economic Security Act.
(a) Recapture of erroneously refunded
credits under the Families First
Coronavirus Response Act. Any amount
of credits for qualified sick leave wages
or qualified family leave wages under
sections 7001 and 7003, respectively, of
the Families First Coronavirus Response
Act (Families First Act), Public Law
116–127, 134 Stat. 178 (2020), as
VerDate Sep<11>2014
15:51 Jul 28, 2020
Jkt 250001
modified by section 3606 of the
Coronavirus Aid, Relief, and Economic
Security Act (CARES Act), Public Law
116–136, 134 Stat. 281 (2020), plus any
amount of credits for qualified health
plan expenses under sections 7001 and
7003, that are treated as overpayments
and refunded or credited to an employer
under section 6402(a) or section 6413(b)
of the Internal Revenue Code (Code) and
to which the employer is not entitled,
resulting in an erroneous refund to the
employer, shall be treated as an
underpayment of the taxes imposed by
section 3221(a) of the Code and may be
assessed and collected by the Secretary
in the same manner as the taxes.
(b) Recapture of erroneously refunded
credits under the Coronavirus Aid,
Relief, and Economic Security Act. Any
amount of credits for qualified wages
under section 2301 of the CARES Act
that is treated as an overpayment and
refunded or credited to an employer
under section 6402(a) or section 6413(b)
of the Code and to which the employer
is not entitled, resulting in an erroneous
refund to the employer, shall be treated
as an underpayment of the taxes
imposed by section 3221(a) of the Code
and may be assessed and collected by
the Secretary in the same manner as the
taxes.
(c) Advance credit amounts
erroneously refunded. The
determination of any amount of credits
erroneously refunded as described in
paragraphs (a) and (b) of this section
must take into account any amount of
credits advanced to an employer under
the process established by the Internal
Revenue Service in accordance with
sections 7001(b)(4)(A)(ii) and
7003(b)(3)(B) of the Families First Act,
as modified by section 3606 of the
CARES Act, and section 2301(l)(1) of the
CARES Act.
(d) Third party payors. For purposes
of this section, employers against whom
an erroneous refund of the credits under
sections 7001 and 7003 of the Families
First Act, as modified by section 3606
of the CARES Act, and the credits under
section 2301 of the CARES Act can be
assessed as an underpayment of the
taxes imposed by section 3221(a)
include persons treated as the employer
under sections 3401(d), 3504, and 3511
of the Code, consistent with their
liability for the section 3221(a) taxes
against which the credit applied.
(e) Applicability date. This regulation
applies to all credit refunds under
sections 7001 and 7003 of the Families
First Act, as modified by section 3606
of the CARES Act, advanced or paid on
or after April 1, 2020, and all credit
refunds under section 2301 of the
PO 00000
Frm 00015
Fmt 4700
Sfmt 4700
45519
CARES Act advanced or paid on or after
March 13, 2020.
Sunita Lough,
Deputy Commissioner for Services and
Enforcement.
Approved: July 14, 2020.
David J. Kautter,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 2020–16302 Filed 7–24–20; 4:15 pm]
BILLING CODE 4830–01–P
DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 165
[Docket Number USCG–2020–0408]
RIN 1625–AA00
Emergency Safety Zone; Lower
Mississippi River, Helena, AR
Coast Guard, DHS.
Temporary final rule.
AGENCY:
ACTION:
The Coast Guard is
establishing a safety zone for emergency
purposes for all waters of the Lower
Mississippi River (LMR), extending
from mile 660.0 to mile 663.0. This
emergency safety zone is needed to
protect persons, property, and
infrastructure from the potential safety
hazards associated with the diving and
salvage effort of a sunken barge at
Mississippi River Mile Marker (MM)
661.0, in the vicinity of the Helena
Highway Bridge, Helena, Arkansas.
Deviation from the safety zone is
prohibited unless specifically
authorized by the Captain of the Port
Lower Mississippi River or a designated
representative.
DATES: This rule is effective without
actual notice from July 29, 2020 through
August 30, 2020, or until all diving and
salvage work is complete, whichever
occurs earlier. For the purposes of
enforcement, actual notice will be used
from July 13, 2020 through July 29,
2020.
ADDRESSES: To view documents
mentioned in this preamble as being
available in the docket, go to https://
www.regulations.gov, type USCG–2020–
0408 in the ‘‘SEARCH’’ box and click
‘‘SEARCH.’’ Click on Open Docket
Folder on the line associated with this
rule.
FOR FURTHER INFORMATION CONTACT: If
you have questions on this rule, call or
email LT Adam J. Paz, U.S. Coast Guard;
telephone 901–521–4825, email
adam.j.paz@uscg.mil.
SUMMARY:
E:\FR\FM\29JYR1.SGM
29JYR1
]]>Agencies
[Federal Register Volume 85, Number 146 (Wednesday, July 29, 2020)]
[Rules and Regulations]
[Pages 45514-45519]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-16302]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 31
[TD 9904]
RIN 1545-BP89
Recapture of Excess Employment Tax Credits Under the Families
First Act and the CARES Act
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document amends the regulations under sections 3111 and
3221 of the Internal Revenue Code with the addition of temporary
regulations issued under the regulatory authority granted by the
Families First Coronavirus Response Act and the Coronavirus Aid,
Relief, and Economic Security Act to prescribe such regulations as may
be necessary for reconciling advance payments of refundable employment
tax credits provided under these acts and recapturing the benefit of
the credits when necessary. Consistent with this authority, these
temporary regulations authorize the assessment of any erroneous refund
of the credits paid under sections 7001 and 7003 of the Families First
Coronavirus Response Act, including any increases in such credits under
section 7005 thereof, and section 2301 of the Coronavirus Aid, Relief,
and Economic Security Act. The text of these temporary regulations also
serves as the text of the proposed regulations (REG-111879-20) set
forth in the notice of proposed rulemaking on this subject in the
Proposed Rules section of this issue of the Federal Register.
DATES:
Effective Date: These temporary regulations are effective on July
29, 2020.
Applicability Date: For date of applicability, see Sec. Sec.
31.3111-6T and 31.3221-5T of these temporary regulations.
FOR FURTHER INFORMATION CONTACT: Concerning these temporary
regulations, NaLee Park at 202-317-6798.
SUPPLEMENTARY INFORMATION:
[[Page 45515]]
Background
I. The Statutes in General: The Families First Act and the CARES Act
The Families First Coronavirus Response Act (Families First Act),
Public Law 116-127, 134 Stat. 178 (2020), enacted on March 18, 2020,
and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act),
Public Law 116-136, 134 Stat. 281 (2020), enacted on March 27, 2020,
provide relief to taxpayers from economic hardships resulting from the
Coronavirus Disease 2019 (COVID-19).
The Families First Act, through the enactment of the Emergency Paid
Sick Leave Act and the Emergency Family and Medical Leave Expansion
Act, generally requires employers with fewer than 500 employees to
provide paid leave due to certain circumstances related to COVID-19.
Division E of the Families First Act, the Emergency Paid Sick Leave
Act (EPSLA), requires certain employers to provide employees with up to
80 hours of paid sick leave if the employee is unable to work or
telework because the employee:
(1) Is subject to a Federal, State, or local quarantine or
isolation order related to COVID-19;
(2) has been advised by a health care provider to self-quarantine
due to concerns related to COVID-19;
(3) is experiencing symptoms of COVID-19 and seeking a medical
diagnosis;
(4) is caring for an individual who is subject to a Federal, State,
or local quarantine or isolation order related to COVID-19, or has been
advised by a health care provider to self-quarantine due to concerns
related to COVID-19;
(5) is caring for a son or daughter of such employee if the school
or place of care of the son or daughter has been closed, or the child
care provider of such son or daughter is unavailable, due to COVID-19
precautions; or
(6) is experiencing any other substantially similar condition
specified by the Secretary of Health and Human Services in consultation
with the Secretaries of the Treasury and Labor.\1\
---------------------------------------------------------------------------
\1\ The U.S. Department of Health and Human Services has not yet
specified any other such conditions as of July 29, 2020.
---------------------------------------------------------------------------
An employee who is unable to work or telework for reasons related
to COVID-19 described in (1), (2), or (3) above is entitled to paid
sick leave at the employee's regular rate of pay or, if higher, the
Federal minimum wage or any applicable State or local minimum wage, up
to $511 per day and $5,110 in the aggregate. An employee who is unable
to work or telework for reasons related to COVID-19 described in (4),
(5), or (6) above is entitled to paid sick leave at two-thirds the
employee's regular rate of pay or, if higher, the Federal minimum wage
or any applicable State or local minimum wage, up to $200 per day and
$2,000 in the aggregate.
Division C of the Families First Act, the Emergency Family and
Medical Leave Expansion Act (EFMLEA), amends the Family and Medical
Leave Act of 1993 to require certain employers to provide expanded paid
family and medical leave to employees who are unable to work or
telework for reasons related to COVID-19. An employee can receive up to
10 weeks of paid family and medical leave at two-thirds the employee's
regular rate of pay, up to $200 per day and $10,000 in the aggregate if
the employee is unable to work or telework because the employee is
caring for a son or daughter whose school or place of care is closed or
whose child care provider is unavailable for reasons related to COVID-
19.
Sections 7001 and 7003 of the Families First Act generally provide
that employers subject to the paid leave requirements under EPSLA and
EFMLEA (``eligible employers'') are entitled to fully refundable tax
credits to cover the cost of the leave required to be paid for those
periods of time during which employees are unable to work or telework
for reasons related to COVID-19.\2\
---------------------------------------------------------------------------
\2\ Under sections 7001(d)(4) and 7003(d)(4) of the Families
First Act, these credits do not apply to the government of the
United States, the government of any State or political subdivision
thereof, or any agency or instrumentality of any of the foregoing.
---------------------------------------------------------------------------
Eligible employers are entitled to receive a refundable credit
equal to the amount of the qualified sick leave wages and qualified
family leave wages (collectively ``qualified leave wages''), plus
allocable qualified health plan expenses. Under the respective
provisions, qualified leave wages are defined to mean wages (as defined
in section 3121(a) of the Internal Revenue Code (Code)) and
compensation (as defined in section 3231(e) of the Code) paid by an
employer which are required to be paid under the EPSLA and EFMLEA. See
section 7001(c) and 7003(c). The credit is allowed against the taxes
imposed on employers by section 3111(a) of the Code (the Old-Age,
Survivors, and Disability Insurance tax (social security tax)), first
reduced by any credits claimed under sections 3111(e) and (f) of the
Code, and section 3221(a) of the Code (the Railroad Retirement Tax Act
Tier 1 tax), on all wages and compensation paid to all employees. Under
section 7005 of the Families First Act, the qualified leave wages are
not subject to the taxes imposed on employers by sections 3111(a) and
3221(a) of the Code. In addition, section 7005 provides that the
credits under sections 7001 and 7003 of the Families First Act are
increased by the amount of the tax imposed by section 3111(b) of the
Code (employer's share of Medicare tax) on qualified leave wages.\3\
---------------------------------------------------------------------------
\3\ The credit for the employer's share of Medicare tax does not
apply to eligible employers that are subject to Railroad Retirement
Tax Act (RRTA) because under section 7005(a) of the Families First
Act qualified leave wages are not subject to Medicare tax under RRTA
due to that section's reference to section 3221(a) of the Code,
which includes both social security tax and Medicare tax.
---------------------------------------------------------------------------
The CARES Act provides an additional credit for employers
experiencing economic hardship related to COVID-19. Under section 2301
of the CARES Act, certain employers who pay qualified wages to their
employees are eligible for an employee retention credit. Employers
eligible for the employee retention credit are employers that carry on
a trade or business during calendar year 2020 and tax-exempt
organizations that either have a full or partial suspension of
operations during any calendar quarter in 2020 due to an order from an
appropriate governmental authority limiting commerce, travel, or group
meetings (for commercial, social, religious, or other purposes) due to
COVID-19, or experience a significant decline in gross receipts during
the calendar quarter.
Qualified wages are wages (as defined in section 3121(a) of the
Code) and compensation (as defined in section 3231(e) of the Code) paid
by an employer to some or all employees after March 12, 2020, and
before January 1, 2021, and include the employer's qualified health
plan expenses that are properly allocable to such wages or
compensation. For employers that averaged more than 100 full-time
employees during 2019, qualified wages are wages and compensation
(including allocable qualified health plan expenses), up to $10,000 per
employee, paid to employees that are not providing services because
operations were fully or partially suspended due to orders from an
appropriate governmental authority or due to a decline in gross
receipts. For employers who averaged 100 full-time employees or fewer
during 2019, qualified wages are wages and compensation (including
allocable qualified health plan expenses), up to $10,000 per employee,
paid to any employee during the period operations were suspended due to
orders from an
[[Page 45516]]
appropriate governmental authority or due to a decline in gross
receipts, regardless of whether its employees are providing services.
The employee retention credit is a fully refundable tax credit for
employers equal to 50 percent of qualified wages. Because the maximum
amount of qualified wages taken into account with respect to each
employee is $10,000, the maximum employee retention credit for an
eligible employer for qualified wages paid to any employee is $5,000.
The credit is allowed against the taxes imposed on employers by section
3111(a) of the Code, first reduced by any credits allowed under
sections 3111(e) and (f) of the Code and sections 7001 and 7003 of the
Families First Act, and the taxes imposed under section 3221(a) of the
Code that are attributable to the rate in effect under section 3111(a)
of the Code, first reduced by any credits allowed under sections 7001
and 7003 of the Families First Act, on all wages and compensation paid
to all employees. The same wages or compensation cannot be counted for
both the Families First Act leave credits and the CARES Act employee
retention credit.
II. Refundability of Credits
Sections 7001(b)(4) and 7003(b)(3) of the Families First Act
provide that if the amount of the paid sick and family leave credits
under these sections exceeds the taxes imposed by section 3111(a) or
3221(a) of the Code for any calendar quarter, such excess shall be
treated as an overpayment that shall be refunded under sections 6402(a)
and 6413(b) of the Code. Section 2301(b)(3) of the CARES Act provides
that if the amount of the employee retention credit exceeds the taxes
imposed by section 3111(a) or 3221(a) (limited to the portion
attributable to the rate in effect under section 3111(a)) of the Code
for any calendar quarter, such excess shall be treated as an
overpayment that shall be refunded under sections 6402(a) and 6413(b)
of the Code.
Section 6402(a) of the Code provides that, within the applicable
period of limitations, overpayments may be credited against any
liability in respect of an internal revenue tax on the part of the
person who made the overpayment and any remaining balance refunded to
such person. Section 6413(b) provides that if more than the correct
amount of employment tax imposed by sections 3101, 3111, 3201, 3221, or
3402 is paid or deducted and the overpayment cannot be adjusted under
section 6413(a),\4\ the amount of the overpayment shall be refunded
(subject to the applicable statute of limitations) as the Secretary may
prescribe in regulations.
---------------------------------------------------------------------------
\4\ Section 6413(a) addresses interest-free adjustments of
overpayments. The section provides that if more than the correct
amount of employment tax imposed by section 3101, 3111, 3201, 3221,
or 3402 is paid with respect to any payment of remuneration, proper
adjustments with respect to both the tax and the amount to be
deducted, shall be made, without interest, in such manner and at
such times as the Secretary may by regulations prescribe.
---------------------------------------------------------------------------
The IRS has revised Form 941, Employer's Quarterly Federal Tax
Return, and is revising Form 943, Employer's Annual Federal Tax Return
for Agricultural Employees, Form 944, Employer's Annual Federal Tax
Return, and Form CT-1, Employer's Annual Railroad Retirement Tax
Return, so that employers may use these returns to claim the paid sick
and family leave credits under the Families First Act and the employee
retention credit under the CARES Act. The revised employment tax
returns will provide for any credits in excess of the taxes imposed
under sections 3111(a) or 3221(a) (for the employee retention credit,
only the taxes imposed under section 3221(a) that are attributable to
the rate in effect under section 3111(a)) to be credited against other
employment taxes and then for any remaining balance to be refunded to
the employer (per section 6402(a) or section 6413(b)).\5\
---------------------------------------------------------------------------
\5\ Employment tax returns have also been revised to provide for
reporting of any deferral of employment taxes under the CARES Act.
Section 2302 of the CARES Act provides that employers may defer the
deposit and payment of the employer's share of social security tax
for the payroll tax deferral period of March 27, 2020 through
December 31, 2020. The deferral applies in addition to the credits
claimed on an employment tax return, but the deferral does not
reduce the amount of the employer's share of social security tax
against which the credits are applied.
---------------------------------------------------------------------------
III. Advance Payment of Credits and Erroneous Refunds
Section 3606 of the CARES Act amends sections 7001(b)(4) and
7003(b)(3) of the Families First Act to provide that, in anticipation
of the paid sick and family leave credits under these sections,
including any refundable portions (which would include any increases in
the credits under section 7005), these credits may be advanced,
according to forms and instructions provided by the Secretary, up to
the total allowable amount and subject to applicable limits for the
calendar quarter. Section 2301(l)(1) of the CARES Act provides that the
Secretary shall issue such forms, instructions, regulations, and
guidance as are necessary to allow the advance payment of the employee
retention credit under section 2301, subject to the limitations
provided in section 2301 and based on such information as the Secretary
shall require.
To implement the advance payment provisions of the Families First
Act and the CARES Act, the IRS has created Form 7200, Advance Payment
of Employer Credits Due To COVID-19, which employers may use to request
an advance of the paid sick or family leave credits under the Families
First Act, the employee retention credit under the CARES Act, or two or
more of them. Employers are required to reconcile any advance payments
claimed on Form 7200 with total credits claimed and total taxes due on
their employment tax returns. A refund, a credit, or an advance of any
portion of these credits to a taxpayer in excess of the amount to which
the taxpayer is entitled is an erroneous refund for which the IRS must
seek repayment.
IV. Assessment Authority
Section 6201, in general, authorizes the Secretary to determine and
assess tax liabilities including interest, additional amounts,
additions to the tax, and assessable penalties. However, the general
authority to assess tax liabilities under section 6201(a) does not
allow the assessment of any non-rebate \6\ portion of an erroneous
refund of a refundable credit. Instead, non-rebate refunds are
generally recovered or recaptured through voluntary payment or
litigation. The government by appropriate action can bring civil
litigation to recover funds which its agents have wrongfully,
erroneously, or illegally paid, and no statute is necessary to
authorize the government to sue in such a case, since the right to sue
is independent of statute. United States v. Wurts, 303 U.S. 414, 415
(1938), citing United States v. The Bank of the Metropolis, 40 U.S. 377
(1841). However, the statutory language of the Families First Act and
the CARES Act provides for the administrative recapture of these non-
rebate refunds by authorizing the promulgation of regulations or other
guidance to do so.
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\6\ ''Non-rebate'' refers to the portion of any refund of a
credit that exceeds the IRS's determination of the recipient's tax
liability (i.e., the remaining portion of the refund that is paid to
the recipient after the refund has been applied to the recipient's
tax liability).
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Sections 7001 and 7003 of the Families First Act and section 2301
of the CARES Act grant authority to the Department of the Treasury
(Treasury Department) and the IRS to issue regulations or other
guidance to recapture an erroneous refund of the credits. Specifically,
sections 7001(f)
[[Page 45517]]
and 7003(f) of the Families First Act and section 2301(l) of the CARES
Act authorize the Secretary to issue guidance to allow for the
administrative reconciliation and recapture of erroneous refunds.
Sections 7001(f) and 7003(f) of the Families First Act provide, in
relevant part, that the Secretary (or the Secretary's delegate) shall
provide such regulations or other guidance as may be necessary to carry
out the purposes of the credit, including regulations or other
guidance: (1) To prevent the avoidance of the purposes of the
limitations under this provision; (2) to minimize compliance and
record-keeping burdens associated with the credit; (3) to provide for a
waiver of penalties for failure to deposit amounts in anticipation of
the allowance of the credit; (4) to recapture the benefit of the credit
in cases where there is a subsequent adjustment to the credit; and (5)
to ensure that the wages taken into account for the credit conform with
the paid sick leave and paid family leave required to be provided under
the Families First Act. Similarly, section 2301(l) of the CARES Act
provides in relevant part that the Secretary shall issue such forms,
instructions, regulations, and guidance as are necessary to provide for
the reconciliation of an advance payment of the employee retention
credit with the amount advanced at the time of filing the return of tax
for the applicable calendar quarter or taxable year, and to provide for
the recapture of the credit under section 2301 of the CARES Act if such
credit is allowed to a taxpayer that receives a small business loan
under section 1102 of the CARES Act during a subsequent quarter.
Accordingly, this document amends the Employment Tax Regulations
(26 CFR part 31) by adding temporary regulations under sections 3111
and 3221 of the Code. Concurrent with the publication of this Treasury
decision, the Treasury Department and the IRS are publishing in the
Proposed Rules section of this issue of the Federal Register a notice
of proposed rulemaking (REG-111879-20) on this subject that cross-
references the text of these temporary regulations. See section
7805(e)(1). Interested persons are directed to the ADDRESSES and
COMMENTS AND REQUESTS FOR A PUBLIC HEARING sections of the preamble to
REG-111879-20 for information on submitting public comments or
requesting a public hearing on the proposed regulations.
Explanation of Provisions
Sections 7001 and 7003 of the Families First Act and section 2301
of the CARES Act provide that the credits described in these sections
are taken against the taxes imposed on employers under sections 3111(a)
or 3221(a) of the Code (for the employee retention credit, only the
taxes imposed under section 3221(a) that are attributable to the rate
in effect under section 3111(a) of the Code). Additionally, if the
amount of the credit exceeds the taxes imposed under sections 3111(a)
or 3221(a) of the Code (for the employee retention credit, only the
taxes imposed under section 3221(a) that are attributable to the rate
in effect under section 3111(a) of the Code) for any calendar quarter,
such excess shall be treated as an overpayment to be refunded or
credited under sections 6402(a) and 6413(b) of the Code. Any credits
claimed that exceed the amount to which the employer is entitled and
that are actually credited or paid by the IRS are considered to be
erroneous refunds of the credits. These temporary regulations provide
that erroneous refunds of these credits are treated as underpayments of
the taxes imposed under sections 3111(a) or 3221(a) of the Code and
authorize the IRS to assess any portion of the credits erroneously
credited, paid, or refunded in excess of the amount allowed as if those
amounts were tax liabilities under sections 3111(a) and 3221(a) subject
to assessment and administrative collection procedures. This allows the
IRS to efficiently recover the amounts, while also preserving
administrative protections afforded to taxpayers with respect to
contesting their tax liabilities under the Code and avoiding
unnecessary costs and burdens associated with litigation. These
assessment and administrative collection procedures will apply in the
normal course in processing employment tax returns that report advances
in excess of claimed credits and in examining returns for excess
claimed credits.
Specifically, these temporary regulations provide that any amount
of the credits for qualified leave wages under sections 7001 and 7003
of the Families First Act, plus any amount of credits for qualified
health plan expenses under sections 7001 and 7003, and including any
increases in these credits under section 7005, and any amount of the
employee retention credit for qualified wages under section 2301 of the
CARES Act that are erroneously refunded or credited to an employer
shall be treated as underpayments of the taxes imposed by section
3111(a) or section 3221(a), as applicable, by the employer and may be
administratively assessed and collected in the same manner as the
taxes. These temporary regulations provide that the determination of
any amount of credits erroneously refunded must take into account any
credit amounts advanced to an employer under the process established by
the IRS in accordance with sections 7001(b)(4)(A)(ii) and 7003(b)(3)(B)
of the Families First Act and section 2301(l)(1) of the CARES Act.
Because in certain situations third party payors claim credits on
behalf of their common law employer clients, these temporary
regulations also provide that employers against whom an erroneous
refund of credits can be assessed as an underpayment include persons
treated as the employer under sections 3401(d), 3504, and 3511 of the
Code, consistent with their liability for the section 3111(a) and
section 3221(a) taxes against which the credit applied.
Finally, these temporary regulations apply to all credit refunds
under section 7001 and 7003 of the Families First Act advanced or paid
on or after April 1, 2020 and all credit refunds under section 2301 of
the CARES Act advanced or paid on or after March 13, 2020. These
applicability dates correspond to the effective dates of the statutory
sections that provide for these credits and that authorize guidance to
allow for the administrative reconciliation and recapture of erroneous
refunds of these credits.
Sections 7001(g) and 7003(g) of the Families First Act provide that
sections 7001 and 7003 apply to wages paid with respect to the period
beginning on a date selected by the Secretary of the Treasury which is
during the 15-day period beginning on the date of the enactment of the
Families First Act (March 18, 2020). In Notice 2020-21, 2020-16 I.R.B.
660, the IRS provided that the tax credits for qualified sick leave
wages and qualified family leave wages under sections 7001 and 7003 of
the Families First Act apply to wages paid for the period beginning on
April 1, 2020, and ending on December 31, 2020. Section 2301(m) of the
CARES Act provides that section 2301 applies to wages paid on or after
March 13, 2020, and before January 1, 2021.
Pursuant to section 7805(b)(2) of the Code, these temporary
regulations are permitted to apply before the dates provided under
section 7805(b)(1), including the date on which these temporary
regulations are filed with the Federal Register, because these
temporary regulations are being issued within 18 months of the date of
the enactment of the relevant statutory provisions under the Families
First Act and the CARES Act. Accordingly, these temporary regulations
apply to all
[[Page 45518]]
credits under sections 7001 and 7003 of the Families First Act, as
modified by section 3606 of the CARES Act, including any increases in
the credits under section 7005 of the Families First Act, refunded on
or after April 1, 2020, including advanced refunds, as well as all
credits under section 2301 of the CARES Act that are refunded on or
after March 13, 2020, including advanced refunds.
Special Analyses
The Office of Management and Budget's Office of Information and
Regulatory Analysis has determined that these temporary regulations are
not significant and not subject to review under section 6(b) of
Executive Order 12866.
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6),
the Secretary certifies that these temporary regulations will not have
a significant economic impact on a substantial number of small entities
because these temporary regulations impose no compliance burden on any
business entities, including small entities. Although these temporary
regulations will apply to all employers eligible for the credits under
the Families First Act and the CARES Act, including small businesses
and tax-exempt organizations with fewer than 500 employees, and will
therefore be likely to affect a substantial number of small entities,
the economic impact will not be significant. These temporary
regulations do not affect the employer's employment tax reporting or
the necessary information to substantiate entitlement to the credits.
Rather, these temporary regulations merely implement the statutory
authority granted under sections 7001(f) and 7003(f) of the Families
First Act and section 2301(l) of the CARES Act that authorize the IRS
to assess, reconcile, and recapture any portion of the credits
erroneously credited, paid, or refunded in excess of the actual amount
allowed as if the amounts were tax liabilities under sections 3111(a)
and 3221(a) subject to assessment and administrative collection
procedures. Notwithstanding this certification, the Treasury Department
and the IRS invite comments on any impact these temporary regulations
would have on small entities.
Pursuant to section 7805(f), these temporary regulations have been
submitted to the Chief Counsel of the Office of Advocacy of the Small
Business Administration for comment on its impact on small business.
The Treasury Department and the IRS have determined that good cause
exists under section 553(b)(B) of the Administrative Procedure Act
(APA) (5 U.S.C. 551 et seq.). Section 553(b)(B) provides that an agency
is not required to publish a notice of proposed rulemaking in the
Federal Register when the agency, for good cause, finds that notice and
public comment thereon are impracticable, unnecessary, or contrary to
the public interest. Employers must file Form 941, Employer's Quarterly
Federal Tax Return, for the second quarter of calendar year 2020 by
July 31, 2020, as required by section 6071 of the Code and Treas. Reg.
Sec. 31.6071(a)-1. Employers use Form 941 to claim qualified leave
credits under the Families First Act and the employee retention credit
under the CARES Act, as well as to report any advance of these credits
they received during the quarter. In filing their second quarter 2020
Form 941, some employers will report and receive, or will have already
received as an advance, refund amounts in excess of the refund to which
they are entitled. These temporary regulations authorize the assessment
of any such erroneous refunds. Without these temporary regulations, in
some instances the IRS may not be able to avoid bringing costly and
burdensome litigation to recover such reported erroneous refunds.
Further, comments are being solicited in the cross-referenced notice of
proposed rulemaking that is in this issue of the Federal Register, and
any comments will be considered before final regulations are issued.
Statement of Availability of IRS Documents
IRS notices and other guidance cited in this preamble are published
in the Internal Revenue Bulletin (or Cumulative Bulletin) and are
available from the Superintendent of Documents, U.S. Government
Publishing Office, Washington, DC 20402, or by visiting the IRS website
at https://www.irs.gov.
Drafting Information
The principal author of these temporary regulations is NaLee Park,
Office of the Associate Chief Counsel (Employee Benefits, Exempt
Organizations, and Employment Taxes). However, other personnel from the
Treasury Department and the IRS participated in the development of
these temporary regulations.
List of Subjects in 26 CFR 31
Employment taxes, Income taxes, Penalties, Pensions, Railroad
retirement, Reporting and recordkeeping requirements, Social security,
Unemployment compensation.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 31 is amended as follows:
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE
0
Paragraph 1. The authority citation for part 31 is amended by adding
entries for Sec. Sec. 31.3111-6T and 31.3221-5T in numerical order to
read in part as follows:
Authority: 26 U.S.C. 7805.
* * * * *
Section 31.3111-6T also issued under sec. 7001 and sec. 7003 of
the Families First Coronavirus Response Act of 2020 and sec. 2301 of
the Coronavirus Aid, Relief, and Economic Security Act of 2020.
* * * * *
Section 31.3221-5T also issued under sec. 7001 and sec. 7003 of
the Families First Coronavirus Response Act of 2020 and sec. 2301 of
the Coronavirus Aid, Relief, and Economic Security Act of 2020.
* * * * *
0
Par. 2.Section 31.3111-6T is added to read as follows:
Sec. 31.3111-6T Recapture of credits under the Families First
Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic
Security Act.
(a) Recapture of erroneously refunded credits under the Families
First Coronavirus Response Act. Any amount of credits for qualified
sick leave wages or qualified family leave wages under sections 7001
and 7003, respectively, of the Families First Coronavirus Response Act
(Families First Act), Public Law 116-127, 134 Stat. 178 (2020), as
modified by section 3606 of the Coronavirus Aid, Relief, and Economic
Security Act (CARES Act), Public Law 116-136, 134 Stat. 281 (2020),
plus any amount of credits for qualified health plan expenses under
sections 7001 and 7003, and including any increases in those credits
under section 7005 of the Families First Act, that are treated as
overpayments and refunded or credited to an employer under section
6402(a) or section 6413(b) of the Internal Revenue Code (Code) and to
which the employer is not entitled, resulting in an erroneous refund to
the employer, shall be treated as an underpayment of the taxes imposed
by section 3111(a) of the Code and may be assessed and collected by the
Secretary in the same manner as the taxes.
(b) Recapture of erroneously refunded credits under the Coronavirus
Aid, Relief, and Economic Security Act. Any amount of credits for
qualified wages under section 2301 of the CARES Act
[[Page 45519]]
that is treated as an overpayment and refunded or credited to an
employer under section 6402(a) or section 6413(b) of the Code and to
which the employer is not entitled, resulting in an erroneous refund to
the employer, shall be treated as an underpayment of the taxes imposed
by section 3111(a) of the Code and may be assessed and collected by the
Secretary in the same manner as the taxes.
(c) Advance credit amounts erroneously refunded. The determination
of any amount of credits erroneously refunded as described in
paragraphs (a) and (b) of this section must take into account any
amount of credits advanced to an employer under the process established
by the Internal Revenue Service in accordance with sections
7001(b)(4)(A)(ii) and 7003(b)(3)(B) of the Families First Act, as
modified by section 3606 of the CARES Act, and section 2301(l)(1) of
the CARES Act.
(d) Third party payors. For purposes of this section, employers
against whom an erroneous refund of the credits under sections 7001 and
7003 of the Families First Act (including any increases in those
credits under section 7005 of the Families First Act), as modified by
section 3606 of the CARES Act, and the credits under section 2301 of
the CARES Act can be assessed as an underpayment of the taxes imposed
by section 3111(a) include persons treated as the employer under
sections 3401(d), 3504, and 3511 of the Code, consistent with their
liability for the section 3111(a) taxes against which the credit
applied.
(e) Applicability date. This regulation applies to all credit
refunds under sections 7001 and 7003 of the Families First Act
(including any increases in those credits under section 7005 of the
Families First Act), as modified by section 3606 of the CARES Act,
advanced or paid on or after April 1, 2020 and all credit refunds under
section 2301 of the CARES Act advanced or paid on or after March 13,
2020.
0
Par. 3.Section 31.3221-5T is added to read as follows:
Sec. 31.3221-5T Recapture of credits under the Families First
Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic
Security Act.
(a) Recapture of erroneously refunded credits under the Families
First Coronavirus Response Act. Any amount of credits for qualified
sick leave wages or qualified family leave wages under sections 7001
and 7003, respectively, of the Families First Coronavirus Response Act
(Families First Act), Public Law 116-127, 134 Stat. 178 (2020), as
modified by section 3606 of the Coronavirus Aid, Relief, and Economic
Security Act (CARES Act), Public Law 116-136, 134 Stat. 281 (2020),
plus any amount of credits for qualified health plan expenses under
sections 7001 and 7003, that are treated as overpayments and refunded
or credited to an employer under section 6402(a) or section 6413(b) of
the Internal Revenue Code (Code) and to which the employer is not
entitled, resulting in an erroneous refund to the employer, shall be
treated as an underpayment of the taxes imposed by section 3221(a) of
the Code and may be assessed and collected by the Secretary in the same
manner as the taxes.
(b) Recapture of erroneously refunded credits under the Coronavirus
Aid, Relief, and Economic Security Act. Any amount of credits for
qualified wages under section 2301 of the CARES Act that is treated as
an overpayment and refunded or credited to an employer under section
6402(a) or section 6413(b) of the Code and to which the employer is not
entitled, resulting in an erroneous refund to the employer, shall be
treated as an underpayment of the taxes imposed by section 3221(a) of
the Code and may be assessed and collected by the Secretary in the same
manner as the taxes.
(c) Advance credit amounts erroneously refunded. The determination
of any amount of credits erroneously refunded as described in
paragraphs (a) and (b) of this section must take into account any
amount of credits advanced to an employer under the process established
by the Internal Revenue Service in accordance with sections
7001(b)(4)(A)(ii) and 7003(b)(3)(B) of the Families First Act, as
modified by section 3606 of the CARES Act, and section 2301(l)(1) of
the CARES Act.
(d) Third party payors. For purposes of this section, employers
against whom an erroneous refund of the credits under sections 7001 and
7003 of the Families First Act, as modified by section 3606 of the
CARES Act, and the credits under section 2301 of the CARES Act can be
assessed as an underpayment of the taxes imposed by section 3221(a)
include persons treated as the employer under sections 3401(d), 3504,
and 3511 of the Code, consistent with their liability for the section
3221(a) taxes against which the credit applied.
(e) Applicability date. This regulation applies to all credit
refunds under sections 7001 and 7003 of the Families First Act, as
modified by section 3606 of the CARES Act, advanced or paid on or after
April 1, 2020, and all credit refunds under section 2301 of the CARES
Act advanced or paid on or after March 13, 2020.
Sunita Lough,
Deputy Commissioner for Services and Enforcement.
Approved: July 14, 2020.
David J. Kautter,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2020-16302 Filed 7-24-20; 4:15 pm]
BILLING CODE 4830-01-P
