Recapture of Certain Excess Employment Tax Credits Under COVID-19 Legislation, 48118-48125 [2023-15690]
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Federal Register / Vol. 88, No. 142 / Wednesday, July 26, 2023 / Rules and Regulations
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Authority: 21 U.S.C. 811, 812, 871(b),
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2. In § 1308.11, add paragraphs (h)(57)
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■
Schedule I.
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*
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(h) * * *
(57) 4-(2-chlorophenyl)-2-ethyl-9methyl-6H-thieno[3,2f][1,2,4]triazolo[4,3-a][1,4]diazepine, its
salts, isomers, and salts of isomers
(Other name: etizolam) 2780
(58) 8-chloro-6-(2-fluorophenyl)-1methyl-4H-benzo[f][1,2,4]triazolo[4,3a][1,4]diazepine, its salts, isomers, and
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Scott Brinks,
Federal Register Liaison Officer, Drug
Enforcement Administration.
[FR Doc. 2023–15748 Filed 7–25–23; 8:45 am]
BILLING CODE 4410–09–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 31
[TD 9978]
RIN 1545–BQ08
Recapture of Certain Excess
Employment Tax Credits Under
COVID–19 Legislation
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations and removal of
temporary regulations.
AGENCY:
This document sets forth the
final regulations under sections 3111,
3131, 3132, 3134, and 3221 of the
Internal Revenue Code (Code) issued
under the authority granted by the
Families First Coronavirus Response
Act, the Coronavirus Aid, Relief, and
Economic Security Act, and the
American Rescue Plan Act of 2021.
These final regulations authorize the
assessment of any erroneous refund of
the tax credits paid under sections 7001
and 7003 of the Families First
Coronavirus Response Act (including
any increases in those credits under
section 7005 thereof), and section 2301
of the Coronavirus Aid, Relief, and
Economic Security Act, as well as under
sections 3131, 3132 (including any
increases in those credits under section
3133), and 3134 of the Code.
DATES:
Effective date: These final regulations
are effective on July 24, 2023.
Applicability date: For date of
applicability, see §§ 31.3111–6(e),
SUMMARY:
PART 1308—SCHEDULES OF
CONTROLLED SUBSTANCES
§ 1308.11
salts of isomers (Other name:
flualprazolam) 2785
(59) 6-(2-chlorophenyl)-1-methyl-8nitro-4H-benzo[f][1,2,4]triazolo[4,3a][1,4]diazepine, its salts, isomers, and
salts of isomers (Other name:
clonazolam) 2786
(60) 8-bromo-6-(2-fluorophenyl)-1methyl-4H-benzo[f][1,2,4]triazolo[4,3a][1,4]diazepine, its salts, isomers, and
salts of isomers (Other name:
flubromazolam) 2788
(61) 7-chloro-5-(2-chlorophenyl)-1methyl-1,3-dihydro-2Hbenzo[e][1,4]diazepin-2-one, its salts,
isomers, and salts of isomers (Other
name: diclazepam) 2789
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31.3131–1(d), 31.3132–1(d), 31.3134–
1(d), and 31.3221–5(e).
FOR FURTHER INFORMATION CONTACT:
NaLee Park at 202–317–6798 (not a tollfree number).
SUPPLEMENTARY INFORMATION:
Background
This document sets forth amendments
to the Employment Tax Regulations (26
CFR part 31) under sections 3111, 3131,
3132, 3133, 3134, and 3221.
The Families First Coronavirus
Response Act (Families First Act),
Public Law 116–127, 134 Stat. 178
(March 18, 2020), as amended and
extended by the COVID-related Tax
Relief Act of 2020 (Tax Relief Act),
enacted as Subtitle B of Title II of
Division N of the Consolidated
Appropriations Act, 2021, Public Law
116–260, 134 Stat.1182 (December 27,
2020), and the Coronavirus Aid, Relief,
and Economic Security Act (CARES
Act), Public Law 116–136, 134 Stat. 281
(March 27, 2020), as amended and
extended by the Taxpayer Certainty and
Disaster Tax Relief Act of 2020 (Relief
Act), enacted as Division EE of the
Consolidated Appropriations Act, 2021,
provided relief to taxpayers from
economic hardships resulting from the
Coronavirus Disease 2019 (COVID–19),
including paid sick and family leave
credits to eligible employers with
respect to qualified leave wages paid for
a period of leave taken beginning April
1, 2020, and ending March 31, 2021,
and an employee retention credit (ERC)
with respect to qualified wages paid
after March 12, 2020, and before July 1,
2021, respectively. The American
Rescue Plan Act of 2021 (ARP), Public
Law 117–2, 135 Stat. 4 (March 11,
2021), provided additional COVID–19
relief with similar paid leave credits
under sections 3131 through 3133 of the
Code, enacted by section 9641 of the
ARP, with respect to qualified leave
wages paid for a period of leave taken
beginning April 1, 2021, and ending
September 30, 2021, and a substantially
similar ERC under section 3134 of the
Code, enacted by section 9651 of the
ARP, with respect to qualified wages
paid after June 30, 2021, and before
January 1, 2022.1
1 Section 80604 of the Infrastructure Investment
and Jobs Act (Infrastructure Act), Public Law 117–
68, 135 Stat. 429 (November 15, 2021) amended
section 3134(n) of the Code to provide that the ERC
under section 3134 applies only to wages paid after
June 30, 2021, and before October 1, 2021 (or, in
the case of wages paid by an eligible employer
which is a recovery startup business, January 1,
2022). Therefore, the only type of employer eligible
for the ERC for wages paid after September 30,
2021, and before January 1, 2022, is an employer
that meets the definition of a recovery startup
business under section 3134(c)(5). See Notice 2021–
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I. Paid Sick and Family Leave Credits 2
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A. Families First Act, as Amended and
Extended by the Tax Relief Act
The Emergency Paid Sick Leave Act
(EPSLA) and the Emergency Family and
Medical Leave Expansion Act
(EFMLEA), enacted as Divisions E and
C of the Families First Act, respectively,
generally required certain employers
with fewer than 500 employees to
provide up to 80 hours of paid sick
leave for the care of the employees
themselves or for others for certain
COVID-related reasons specified in the
statute, at specified daily and aggregate
rates of pay, and 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 was unable to
work or telework because the employee
was caring for a son or daughter whose
school or place of care was closed or
whose child care provider was
unavailable due to certain
circumstances related to COVID–19.
Sections 7001 and 7003 of the
Families First Act generally provide that
non-governmental employers subject to
the paid leave requirements under
EPSLA and EFMLEA are entitled to
fully refundable tax credits to cover the
wages paid for leave taken for those
periods of time between April 1, 2020,
and December 31, 2020, during which
employees were unable to work or
telework for specified reasons related to
COVID–19, plus allocable qualified
health plan expenses. These paid sick
leave credits and paid family leave
credits (collectively, paid sick and
family leave credits) are 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 section
3111(e) and (f), and section 3221(a) (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 for which the credits are
claimed are not subject to the taxes
imposed on employers by sections
3111(a) and 3221(a) of the Code. In
65, 2021–51 IRB 880, for guidance for employers
that received an advance payment of the ERC or
reduced tax deposits in anticipation of the credit for
the fourth quarter of 2021 prior to the amendments
made by the Infrastructure Act.
2 Detailed information on the paid sick leave
credits and paid family leave credits under the
Families First Act, as amended by the Tax Relief
Act, and under the ARP is provided in TD 9904,
85 FR 45514, and TD 9953, 86 FR 50637,
respectively. Also see the IRS.gov website at:
Coronavirus Tax Relief for Businesses and TaxExempt Entities √ Internal Revenue Service (irs.gov).
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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 the Hospital Insurance tax
(Medicare tax)) on qualified leave
wages.3
Although the requirement to provide
employees with paid leave under
EPSLA and EFMLEA expired on
December 31, 2020, the paid sick and
family leave credits were extended by
the Tax Relief Act for qualified leave
wages paid for periods of leave taken
through March 31, 2021, that would
have satisfied the requirements of
EPSLA and EFMLEA.
B. ARP
The ARP added sections 3131 through
3133 of the Code, which provide
refundable paid sick and family leave
credits similar to those provided under
the Families First Act. Sections 3131
through 3133 extend the paid sick and
family leave credits to nongovernmental employers with fewer
than 500 employees and certain
governmental entities 4 without regard
to the number of employees that
provided paid sick and family leave for
specified reasons related to COVID–19
with respect to periods of leave
beginning on April 1, 2021, through
September 30, 2021. The paid sick and
family leave credits under sections 3131
through 3133 are available to eligible
employers that provided employees
with paid leave that would have
satisfied the requirements of EPSLA and
EFMLEA, with certain modifications
made pursuant to the ARP.
Under section 3131, a credit is
available to eligible employers that paid
qualified sick leave wages to an
employee for up to 80 hours of leave
provided during the period beginning
April 1, 2021, and ending September 30,
2021, if the employee was unable to
work or telework due to any of the
COVID-related reasons specified in the
statute. Under section 3132, a credit is
3 The credit for the employer’s share of Medicare
tax does not apply to eligible employers that are
subject to the 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, that refers
to both social security tax and Medicare tax.
4 Section 9641 of the ARP added sections
3131(f)(5) and 3132(f)(5) to the Code that extends
paid sick and family leave credits to certain
governmental employers (without regard to the
number of employees). However, the credits are not
allowed for the government of the United States, or
any agency or instrumentality of the United States
Government, except for an organization described
in section 501(c)(1) of the Code and exempt from
tax under section 501(a).
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48119
available to eligible employers that paid
qualified family leave wages to an
employee for up to 12 weeks of paid
family leave provided during the period
beginning April 1, 2021, and ending
September 30, 2021, if the employee
was unable to work or telework due to
any of the conditions for which eligible
employers may provide COVID-related
paid sick leave. Qualified family leave
wages are two-thirds of the wages paid
at the employee’s regular rate of pay, up
to a maximum of $200 per day and
$12,000 in the aggregate.
The paid sick and family leave credits
under sections 3131 and 3132 are
allowed against the taxes imposed on
employers under section 3111(b) and
against so much of the taxes imposed
under section 3221(a) as are attributable
to the rate in effect under section
3111(b), as applicable, on all wages and
compensation paid to all employees,
and any credit amounts in excess of
these taxes are treated as an
overpayment to be refunded under
sections 6402(a) and 6413(b). See
sections 3131(b)(4)(A), 3131(f)(1),
3132(b)(3)(A), and 3132(f)(1).
II. Employee Retention Credit 5
A. CARES, as Amended and Extended
by the Relief Act
Section 2301 of the CARES Act, as
originally enacted, provides for the ERC
for eligible employers, including taxexempt organizations, that paid
qualified wages, including certain
health plan expenses, to some or all of
their employees after March 12, 2020,
and before January 1, 2021. The ERC, as
originally enacted, is a fully refundable
tax credit for employers equal to 50
percent of qualified wages. Section
2301(b)(1) of the CARES Act limits the
amount of qualified wages with respect
to any employee that may be taken into
account to $10,000 for all calendar
quarters in 2020. Therefore, the
maximum credit amount with respect to
each employee for all four calendar
quarters in 2020 is $5,000. For
employers that averaged more than 100
full-time employees during 2019,
qualified wages are wages and
compensation (including allocable
qualified health plan expenses) paid to
employees who were not providing
5 Detailed information about the ERC under the
CARES Act, as amended by the Relief Act, and
under the ARP is provided in TD 9904 and TD
9953, respectively. For more information, see
Notice 2021–20, 2021–11 IRB 922, Notice 2021–23,
2021–16 IRB 1113, Notice 2021–24, 2021–18 IRB
1122, Notice 2021–49, 2021–34 IRB 316, and Rev.
Proc. 2021–33, 2021–34 IRB 327. Also see the
IRS.gov website at: Coronavirus Tax Relief for
Businesses and Tax-Exempt Entities/Internal
Revenue Service (irs.gov).
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services because operations were fully
or partially suspended due to orders
from an appropriate governmental
authority limiting commerce, travel, or
group meetings (for commercial, social,
religious, or other purposes) due to
COVID–19 or due to a significant
decline in gross receipts. For employers
that averaged 100 full-time employees
or fewer during 2019, qualified wages
are wages and compensation (including
allocable qualified health plan
expenses) paid to any employee during
the period operations were fully or
partially suspended due to orders from
an appropriate governmental authority
limiting commerce, travel, or group
meetings (for commercial, social,
religious, or other purposes) due to
COVID–19 or due to a significant
decline in gross receipts, regardless of
whether their employees were providing
services.
The ERC available under section 2301
of the CARES Act for a calendar quarter
is allowed against the taxes imposed on
employers by section 3111(a) of the
Code, first reduced by any credits
allowed under section 3111(e) and (f)
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), first
reduced by any credits allowed under
sections 7001 and 7003 of the Families
First Act, on the wages and
compensation paid with respect to the
employment of all the employees of the
eligible employer for that calendar
quarter.
Section 2301 of the CARES Act was
subsequently amended by sections 206
and 207 of the Relief Act. Section 206
of the Relief Act adopted retroactive
amendments and technical changes to
section 2301 of the CARES Act for
qualified wages paid after March 12,
2020, and before January 1, 2021,
primarily expanding eligibility for
certain employers to claim the credit.
Section 207 of the Relief Act further
amended section 2301 of the CARES Act
to extend the application of the ERC to
qualified wages paid after December 31,
2020, and before July 1, 2021, to modify
the gross receipts test for calendar
quarters in 2021, and to modify the
calculation of the credit amount for
qualified wages paid during that time.
Under section 2301 of the CARES Act,
as amended by section 207 of the Relief
Act, the ERC is equal to 70 percent of
qualified wages. The Relief Act also
increased the amount of qualified wages
that could be taken into account per
employee to $10,000 per employee per
calendar quarter in 2021. Therefore, the
maximum credit amount with respect to
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each employee for any calendar quarter
in 2021 is $7,000. Additionally, the
threshold distinguishing small
employers from large employers for
purposes of applying certain criteria to
determine eligibility for the credit was
increased from 100 employees to 500
employees.
B. ARP and Infrastructure Act
Section 9651 of the ARP enacted
section 3134 of the Code, effective for
calendar quarters beginning after June
30, 2021, to provide an ERC for
qualified wages paid after June 30, 2021,
and before January 1, 2022. The ERC
under section 3134 is substantially
similar to the ERC under section 2301
of the CARES Act, though the ARP
made some modifications including
expanding the definition of eligible
employer and the definition of qualified
wages.6 Additionally, the ERC available
under section 3134 of the Code for a
calendar quarter is allowed against the
taxes imposed on employers under
section 3111(b), first reduced by any
credits allowed under sections 3131 and
3132, and the taxes imposed under
section 3221(a) that are attributable to
the rate in effect under section 3111(b),
first reduced by any credits allowed
under sections 3131 and 3132, on the
wages and compensation paid with
respect to the employment of all the
employees of the eligible employer for
that calendar quarter. Any credit
amounts in excess of these taxes are
treated as an overpayment to be
refunded under sections 6402(a) and
6413(b). See section 3134(b)(3),
3134(c)(1).
The ERC is available to any employer
that carried on a trade or business
during a calendar quarter between June
30, 2021, and January 1, 2022, that met
the requirements to be an eligible
employer under section 3134(c)(2),
which include experiencing a full or
partial suspension of business
operations due to orders from an
appropriate governmental authority
limiting commerce, travel, or group
meetings (for commercial, social,
religious, or other purposes) due to
COVID–19, experiencing a decline in
gross receipts, or qualifying as a
recovery startup business. See Notice
2021–49. Section 80604 of the
Infrastructure Act amended section
3134(n) to provide that the ERC applies
only to wages paid after June 30, 2021,
and before October 1, 2021 (or, in the
case of wages paid by an eligible
employer that was a recovery startup
6 For more information on the changes made to
the ERC when section 3134 was added to the Code,
see Notice 2021–49.
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business in the fourth quarter of 2021,
January 1, 2022).7
III. 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
(including any increases in the credits
under section 7005) for the period of
leave taken from April 1, 2020 through
March 31, 2021, exceeds the taxes
imposed by section 3111(a) of the Code,
first reduced by any credits claimed
under section 3111(e) and (f), or section
3221(a) for any calendar quarter, the
excess shall be treated as an
overpayment that shall be refunded
under sections 6402(a) and 6413(b). For
the period after March 12, 2020, and
before July 1, 2021, section 2301(b)(3) of
the CARES Act provides that if the
amount of the ERC exceeds the
applicable employment taxes 8 (first
reduced by any credits allowed under
section 3111(e) and (f) of the Code,
sections 7001 and 7003 of the Families
First Act, and section 303(d) of the
Relief Act), the excess shall be treated
as an overpayment that shall be
refunded under sections 6402(a) and
6413(b) of the Code.
With respect to the paid sick and
family leave credits and ERC enacted by
the ARP, sections 3131(b)(4)(A),
3132(b)(3)(A), and 3134(b)(3) of the
Code provide that if the amount of the
paid sick and family leave credits under
these sections (including any increases
in the credits under section 3133(a)) and
ERC exceeds the taxes imposed under
section 3111(b) and so much of the taxes
imposed under section 3221(a) as are
attributable to the rate in effect under
section 3111(b), as applicable, for any
calendar quarter, after application of the
other credits previously applied, the
excess shall be treated as an
overpayment that shall be refunded
under sections 6402(a) and 6413(b).
Section 6402(a) generally provides
that, within the applicable period of
limitations, overpayments may be
credited against any liability in respect
7 Employers that qualify because they are
recovery startup businesses may claim the ERC for
wages paid after September 30, 2021, and before
January 1, 2022. For more information, see Notice
2021–65 for amendments made by the
Infrastructure Act. Notice 2021–65 explains the
retroactive termination of the ERC and provides
instructions for employers that became ineligible
and must repay any advance payment of ERC or
seek to avoid failure to deposit penalties for the
fourth quarter of 2021.
8 ‘‘Applicable employment taxes’’ are defined in
section 2301(c)(1) of the CARES Act as the taxes
imposed by section 3111(a) of the Code or so much
of the taxes imposed under section 3221(a) of the
Code as are attributable to the rate in effect under
section 3111(a) of the Code.
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of an Internal Revenue tax on the part
of the person who made the
overpayment, and any remaining
balance refunded to that 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),9 the amount of
the overpayment shall be refunded
(subject to the applicable statute of
limitations) as the Secretary may
prescribe in regulations.
The IRS revised Form 941, Employer’s
Quarterly Federal Tax Return, 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, several times in calendar years
2020 through 2022 so that employers
could use these returns to claim the
paid sick and family leave credits under
the Families First Act and under
sections 3131 through 3133 of the Code
and the ERC under the CARES Act and
under section 3134 of the Code
(collectively, COVID–19 credits). The
revised employment tax returns allowed
for any of these credits in excess of the
taxes imposed under section 3111(a) or
3111(b), as applicable, and so much of
the taxes imposed under section 3221(a)
as are attributable to the rate in effect
under section 3111(a) or 3111(b), as
applicable, to be credited against other
employment taxes and then for any
remaining balance to be credited or
refunded to the employer in accordance
with section 6402(a) or section 6413(b).
Form 941–X, Adjusted Employer’s
Quarterly Federal Tax Return or Claim
for Refund, Form 943–X, Adjusted
Employer’s Annual Federal Tax Return
for Agricultural Employees or Claim for
Refund, Form 944, Adjusted Employer’s
Annual Federal Tax Return or Claim for
Refund, and Form CT–1 X, Adjusted
Employer’s Annual Railroad Retirement
Tax Return or Claim for Refund were
also revised so that employers can use
these returns to amend previous
employment tax returns to adjust or
claim COVID–19 credits for prior
periods.
9 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 the manner and at the
times as the Secretary may prescribe in regulations.
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IV. Advance Payment of Credits and
Erroneous Refunds
Section 3606 of the CARES Act
amended 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 (including 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 ERC under
section 2301, subject to the limitations
provided in section 2301 and based on
such information as the Secretary shall
require. Section 2301(j)(2)(A) of the
CARES Act, as amended by section
207(g)(1) of the Relief Act, provides that,
under rules provided by the Secretary,
eligible employers for which the average
number of full-time employees (within
the meaning of section 4980H of the
Code) employed by the eligible
employer during 2019 was not greater
than 500 may elect, for calendar
quarters in 2021, to receive an advance
payment of the ERC for the quarter in
an amount not to exceed 70 percent of
the average quarterly wages paid in
calendar year 2019.
Similarly, sections 3131(b)(4)(B) and
3132(b)(3)(B) provide that, in
anticipation of the paid sick and family
leave credits under these sections
(including any increases in the credits
under section 3133(a)) and any
refundable portions, these credits are to
be advanced, according to forms and
instructions provided by the Secretary,
up to the total allowable amount of the
credits and subject to applicable limits
for the calendar quarter. Section
3134(j)(2)(A) provides that, under rules
provided by the Secretary, eligible
employers for which the average
number of full-time employees (within
the meaning of section 4980H)
employed by the eligible employer
during 2019 was not greater than 500
may elect, for calendar quarters in 2021,
to receive an advance payment of the
ERC for the quarter in an amount not to
exceed 70 percent of the average
quarterly wages paid in calendar year
2019.
To implement the advance payment
provisions, employers that were eligible
to receive an advance of the tax credits
used IRS Form 7200, Advance Payment
of Employer Credits Due To COVID–19,
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48121
to request an advance of the COVID–19
credits.10 Employers were required to
reconcile any advance payments
claimed on Form 7200 with total credits
claimed and total taxes due on their
employment tax returns, including
amended tax returns.
A refund or credit of any portion of
the COVID–19 credits, regardless of
whether they were advanced, claimed
by a taxpayer in excess of the amount
to which the taxpayer is entitled is an
erroneous refund that the employer
must repay.
V. Assessment Authority
Section 6201 authorizes and requires
the Secretary to determine and assess
tax liabilities, including interest,
additional amounts, additions to the tax,
and assessable penalties. The Code or
other statutory authority provides for
the administrative recapture of certain
erroneous refunds of the COVID–19
credits either by directly authorizing the
assessment of the erroneous refunds or
by authorizing the promulgation of
regulations or other guidance to do so.
Specifically, with regard to paid sick
and family leave credits, sections
7001(f) and 7003(f) of the Families First
Act and sections 3131(g) and 3132(g) of
the Code provide, in relevant part, that
the Secretary will provide such
regulations or other guidance as may be
necessary to carry out the purposes of
the credits, including regulations or
other guidance to prevent the avoidance
of the purposes of the limitations under
these provisions and to recapture the
benefit of the credit where there is a
subsequent adjustment to the credit. See
sections 7001(f) and 7003(f) of the
Families First Act, and sections
3131(g)(1), 3131(g)(4), 3132(g)(1), and
3132(g)(4) of the Code.
With regard to the ERC, 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 reconcile an advance
payment of the ERC with the amount
determined at the time of filing the
employment tax return for the
applicable calendar quarter or taxable
year. Section 2301(j)(3)(B) of the CARES
Act, as amended by section 207 of the
Relief Act, allows for the direct
assessment of certain erroneous refunds
of advanced portions of the ERC by
providing that if a small eligible
employer specified in section 2301(j)(2)
of the CARES Act receives excess
10 Employers are no longer able to request an
advance payment of any credit on Form 7200. The
advance payment of COVID–19 credits ended on
January 31, 2022.
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advance payments of the credit, then the
taxes imposed by chapter 21 or 22 of the
Code (whichever is applicable) for the
calendar quarter are increased by the
amount of the excess. Section 2301(l) of
the CARES Act generally, as amended
by sections 206 and 207 of the Relief
Act, further provides that the Secretary
shall issue such forms, instructions,
regulations, and other guidance as are
necessary to prevent the avoidance of
the purposes of the limitations under
section 2301 of the CARES Act.
Correspondingly, section 3134(j)(3)(B) of
the Code allows for the direct
assessment of certain erroneous refunds
of advanced portions of the credit by
providing that if a small eligible
employer specified in section 3134(j)(2)
receives excess advance payments of the
credit, then the taxes imposed under
section 3111(b) or so much of the taxes
imposed under section 3221(a) as are
attributable to the rate in effect under
section 3111(b), as applicable, for the
calendar quarter are increased by the
amount of the excess. Section
3134(m)(3) further provides that the
Secretary will issue such forms,
instructions, regulations, and other
guidance as are necessary to prevent the
avoidance of the purposes of the
limitations under section 3134.
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VI. Temporary Regulations
On July 29, 2020, temporary
regulations (TD 9904, 2020–34 IRB 413
(August 17, 2020)) amending the
Employment Tax Regulations under
sections 3111 and 3221 to provide for
the recapture of erroneous refunds of
the paid sick and family leave credits
under the Families First Act and
erroneous refunds of the ERC under the
CARES Act, pursuant to the authority
granted under these acts to prescribe
those regulations, were published in the
Federal Register (85 FR 45514). A
notice of proposed rulemaking (REG–
111879–20) cross-referencing the
temporary regulations was published in
the Federal Register on the same day
(85 FR 45551). The text of the temporary
regulations served as the text of the
proposed regulations. No public hearing
was requested or held. Two comments
responding to the notice of proposed
rulemaking were received. All
comments were considered and are
available for public inspection and
copying at https://www.regulations.gov
or upon request. After consideration of
the comments, the proposed regulations
are adopted by this Treasury decision
with a minor modification, and the
corresponding temporary regulations are
removed. The public comments are
discussed under ‘‘Summary of
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Jkt 259001
Comments and Explanation of
Provisions.’’
On September 10, 2021, temporary
regulations (TD 9953, 2021–39 IRB 430
(September 27, 2021)) amending the
Employment Tax Regulations under
sections 3131 through 3134 to provide
for the recapture of erroneous refunds of
the paid sick and family leave credits
and ERC under the ARP, pursuant to the
authority granted under that act to
prescribe those regulations, were
published in the Federal Register (86
FR 50637). A notice of proposed
rulemaking (REG–109077–21) crossreferencing the temporary regulations
was published in the Federal Register
on the same day (86 FR 50687). The text
of the temporary regulations served as
the text of the proposed regulations. No
public hearing was requested or held,
and no comments were received on the
proposed regulations. The proposed
regulations are adopted by this Treasury
decision with a minor modification, and
the corresponding temporary
regulations are removed.
Accordingly, this document amends
the Employment Tax Regulations (26
CFR part 31) by finalizing the
regulations under sections 3111, 3131,
3132, 3134, and 3221 of the Code.
Summary of Comments and
Explanation of Revisions
The Department of the Treasury
(Treasury Department) and the IRS
received two comments in response to
the proposed regulations under sections
3111 and 3221 but no comments in
response to the proposed regulations
under sections 3131 through 3134.
Neither comment received addressed
the assessment and recapture of
erroneous refunds of credits under the
Families First Act and the CARES Act.
One commenter said that the CARES
Act should not fund businesses that
primarily or exclusively employ noncitizen and temporary visa workers. The
second commenter requested that the
Treasury Department and the IRS
consider providing additional guidance
on potential reporting issues, including
for certain retirement-related provisions
in the CARES Act. These issues are
outside the scope of these regulations.
For this reason, these final regulations
do not address these comments and
adopt the proposed regulations with a
minor modification. The corresponding
temporary regulations are removed.
These final regulations provide that
erroneous refunds of COVID–19 credits
are treated as underpayments of the
taxes imposed under section 3111(a) or
3111(b), as applicable, and so much of
the taxes imposed under section 3221(a)
as are attributable to the rate in effect
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under section 3111(a) or 3111(b), as
applicable, and are, therefore, subject to
assessment and administrative
collection procedures. This allows the
IRS to prevent the avoidance of the
purposes of the limitations under the
credit provisions and to recover the
erroneous refund amounts efficiently
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 may apply both in
the processing of employment tax
returns and in examining returns for
excess claimed credits. These
assessment and administrative
collection procedures are not intended
to be exclusive and therefore do not
replace the existing recapture methods
but rather represent an alternative
method available to the IRS. These final
regulations also 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,
as modified by section 3606 of the
CARES Act, and section 2301(l)(1) of the
CARES Act.
In certain circumstances, third-party
payors claim tax credits on behalf of
their common law employer clients.
These final regulations clarify that
employers against which an erroneous
refund of credits may be assessed as an
underpayment include persons treated
as the employer under sections 3401(d),
3504, and 3511, consistent with their
liability for the employment taxes
against which the credits applied. In
addition, these final regulations clarify
the proposed regulations by expressly
stating that the common law employer
clients of these third-party payors that
remain subject to all provisions of law
applicable to employers with respect to
the payment of wages or compensation,
as applicable, may also be assessed for
an erroneous refund of credits. This
clarification makes clear to employers
what had been implicit in the proposed
regulations, that the existing rules in
sections 3504 and 3511(c) concerning
the liability of common law employer
clients of third-party payors remain
applicable in this situation. Specifically,
section 3504 provides that where a
fiduciary, agent, or other person is
acting for an employer in performing
acts required of the employer under the
Code, ‘‘the employer for whom such
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fiduciary, agent, or other person acts
shall remain subject to the provisions of
law (including penalties) applicable in
respect of employers.’’ See also
§§ 31.3504–1(a) and 31.3504–2(c)(2).
Similarly, section 3511(c) and
§ 31.3511–1(a)(3) provide that, for thirdparty payors that are Certified
Professional Employer Organizations
(CPEO), an employer client of a CPEO
is treated as an employer (and therefore
subject to all applicable provisions of
law) for purposes of Federal
employment taxes imposed on
remuneration paid by the CPEO to nonworksite employees.11 While sections
3504 and 3511 applied in the same
manner as a matter of law under the
proposed regulations, the final
regulations expressly state these rules to
avoid any confusion and help
employers better understand their legal
responsibilities stemming from sections
3504 and 3511.
Section 7805(b)(1)(A) and (B) of the
Code generally provide that no
temporary, proposed, or final regulation
relating to the Internal Revenue laws
may apply to any taxable period ending
before the earliest of (A) the date on
which the regulation is filed with the
Federal Register, or (B) in the case of a
final regulation, the date on which a
proposed or temporary regulation to
which the final regulation relates was
filed with the Federal Register.
Consistent with the authority
provided by section 7805(b)(1)(B),
§§ 31.3111–6, 31.3131–1, 31.3132–1,
31.3134–1, and 31.3221–5 are
applicable to credits paid on or after the
date on which the related proposed and
temporary regulations were filed with
the Federal Register.
Special Analyses
Pursuant to the Memorandum of
Agreement, Review of Treasury
Regulations under Executive Order
12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject
to the requirements of section 6 of
Executive Order 12866, as amended.
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11 Section
3511(a) provides that the CPEO is
treated as the sole employer (i.e., solely subject to
all provisions of law applicable to employers) for
purposes of Federal employment taxes imposed on
remuneration paid to worksite employees, as
defined in section 7705(e). Therefore, for
remuneration paid by a CPEO to worksite
employees, the employer client is not subject to any
provisions of law applicable to employers with
respect to the payment of this remuneration. For
this reason, the clarification in these final
regulations concerning the assessment against
employer clients of a third-party payor for an
erroneous refund of credits does not apply to
erroneous refunds of credits that were claimed
based on remuneration paid by a CPEO to worksite
employees.
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Jkt 259001
Therefore, a regulatory impact
assessment is not required.
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6), the Secretary
certifies that these final regulations will
not have a significant economic impact
on a substantial number of small entities
because these final regulations impose
no compliance burden on any business
entities, including small entities.
Although these final regulations will
apply to all employers eligible for the
employment tax credits under the
Families First Act, the CARES Act, and
sections 3131, 3132, and 3134 of the
Code, 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 final
regulations do not affect the employer’s
employment tax reporting or the
necessary information to substantiate
entitlement to the credits. Rather, these
final regulations merely implement the
statutory authority granted under
sections 7001(f) and 7003(f) of the
Families First Act, section 2301(l) of the
CARES Act, and sections 3131(g),
3132(g), and 3134(m) of the Code 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 taxes imposed
under section 3111(a) or 3111(b),
whichever is applicable, and so much of
the taxes imposed under section 3221(a)
as are attributable to the rate in effect
under section 3111(a) or 3111(b), as
applicable, subject to assessment and
administrative collection procedures.
Notwithstanding this certification, the
Treasury Department and the IRS did
not receive any comments on any
impact these regulations would have on
small entities.
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 final
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 regulations.
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48123
List of Subjects in 26 CFR Part 31
Employment taxes, Fishing vessels,
Gambling, 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
Paragraph 1. The authority citation
for part 31 is amended by:
■ a. Removing the entry for § 31.3111–
6T;
■ b. Adding an entry in numerical order
for § 31.3111–6;
■ c. Removing the entries for
§§ 31.3131–1T, 31.3132–1T, 31.3134–
1T, and 31.3221–5T
■ d. Adding entries in numerical order
for §§ 31.3131–1, 31.3132–1, 31.3134–1.
and 31.3221–5.
The general authority and additions
read, in part, as follows:
■
Authority: 26 U.S.C. 7805.
Section 31.3111–6 also issued under secs.
7001 and 7003, Public Law 116–127, 134
Stat. 178, and sec. 2301, Public Law 116–136,
134 Stat. 281.
*
*
*
*
*
Section 31.3131–1 also issued under 26
U.S.C. 3131(g).
Section 31.3132–1 also issued under 26
U.S.C. 3132(g).
Section 31.3134–1 also issued under 26
U.S.C. 3134(m)(3).
Section 31.3221–5 also issued under secs.
7001 and 7003, Public Law 116–127, 134
Stat. 178, and sec. 2301, Public Law 116–136,
134 Stat. 281.
*
*
*
*
*
Par. 2. Section 31.3111–6 is added to
read as follows:
■
§ 31.3111–6 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
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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
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
that is treated as an overpayment and
refunded or credited to an employer
under section 6402(a) or 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, and
also include those persons’ common law
employer clients that remain subject to
all provisions of law applicable to
employers with respect to the payment
of wages.
(e) Applicability date. This section
applies to all credit refunds under
sections 7001 and 7003 of the Families
First Act (including any increases in
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Jkt 259001
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 July 24,
2020, and all credit refunds under
section 2301 of the CARES Act
advanced or paid on or after July 24,
2020.
§ 31.3111–6T
[Removed]
Par. 3. Section 31.3111–6T is
removed.
■ Par. 4. Section 31.3131–1 is added to
read as follows:
■
§ 31.3131–1
Recapture of credits.
(a) Recapture of erroneously refunded
credits. Any amount of credits for
qualified sick leave wages under section
3131(a), including any increase to the
amount of the credits under sections
3131(d), 3131(e), and 3133, that are
treated as overpayments and refunded
or credited to an employer under
section 6402(a) or 6413(b) 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 under section 3111(b)
and so much of the taxes imposed under
section 3221(a) as are attributable to the
rate in effect under section 3111(b), as
applicable, and may be assessed and
collected by the Secretary in the same
manner as the taxes.
(b) Advance credit amounts
erroneously refunded. The
determination of any amount of credits
erroneously refunded as described in
paragraph (a) 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
section 3131(b)(4)(B) and 3131(g)(6).
(c) Third party payors. For purposes
of this section, employers against whom
an erroneous refund of the credits under
section 3131 (including any increases in
those credits under section 3133) can be
assessed as an underpayment of the
taxes imposed under section 3111(b)
and so much of the taxes imposed under
section 3221(a) as are attributable to the
rate in effect under section 3111(b), as
applicable, include persons treated as
the employer under sections 3401(d),
3504, and 3511, consistent with their
liability for the section 3111(b) or
3221(a) taxes against which the credit
applied, and also include those persons’
common law employer clients that
remain subject to all provisions of law
applicable to employers with respect to
the payment of wages or compensation,
as applicable.
(d) Applicability date. This section
applies to all credit refunds under
section 3131 (including any increases in
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Sfmt 4700
those credits under section 3133),
advanced or paid on or after September
8, 2021.
§ 31.3131–1T
[Removed]
Par. 5. Section 31.3131–1T is
removed.
■
Par. 6. Section 31.3132–1 is added to
read as follows:
■
§ 31.3132–1
Recapture of credits.
(a) Recapture of erroneously refunded
credits. Any amount of credits for
qualified family leave wages under
section 3132, including any increase to
the amount of the credits under sections
3132(d), 3132(e), and 3133, that are
treated as overpayments and refunded
or credited to an employer under
section 6402(a) or 6413(b) 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 under section 3111(b)
and so much of the taxes imposed under
section 3221(a) as are attributable to the
rate in effect under section 3111(b), as
applicable, and may be assessed and
collected by the Secretary in the same
manner as the taxes.
(b) Advance credit amounts
erroneously refunded. The
determination of any amount of credits
erroneously refunded as described in
paragraph (a) 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
section 3132(b)(3)(B) and 3132(g)(6).
(c) Third party payors. For purposes
of this section, employers against whom
an erroneous refund of the credits under
section 3132 (including any increases in
those credits under section 3133) can be
assessed as an underpayment of the
taxes imposed under section 3111(b)
and so much of the taxes imposed under
section 3221(a) as are attributable to the
rate in effect under section 3111(b), as
applicable, include persons treated as
the employer under sections 3401(d),
3504, and 3511, consistent with their
liability for the section 3111(b) or
3221(a) taxes against which the credit
applied, and also include those persons’
common law employer clients that
remain subject to all provisions of law
applicable to employers with respect to
the payment of wages or compensation,
as applicable.
(d) Applicability date. This section
applies to all credit refunds under
section 3132 (including any increases in
those credits under section 3133)
advanced or paid on or after September
8, 2021.
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§ 31.3132–1T
[Removed]
§ 31.3221–5 Recapture of credits under the
Families First Coronavirus Response Act
and the Coronavirus Aid, Relief, and
Economic Security Act.
Par. 7. Section 31.3132–1T is
removed.
■
Par. 8. Section 31.3134–1 is added to
read as follows:
■
§ 31.3134–1
Recapture of credits.
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(a) Recapture of erroneously refunded
credits. Any amount of credits for
qualified wages under section 3134 of
the Code that is treated as an
overpayment and refunded or credited
to an employer under section 6402(a) or
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 under section 3111(b)
and so much of the taxes imposed under
section 3221(a) as are attributable to the
rate in effect under section 3111(b), as
applicable, and may be assessed and
collected by the Secretary in the same
manner as the taxes.
(b) Advance credit amounts
erroneously refunded. The
determination of any amount of credits
erroneously refunded as described in
paragraph (a) 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
section 3134(j) and 3134(m).
(c) Third party payors. For purposes
of this section, employers against whom
an erroneous refund of the credits under
section 3134 can be assessed as an
underpayment of the taxes imposed
under section 3111(b) and so much of
the taxes imposed under section 3221(a)
as are attributable to the rate in effect
under section 3111(b), as applicable,
include persons treated as the employer
under sections 3401(d), 3504, and 3511,
consistent with their liability for the
section 3111(b) or 3221(a) taxes against
which the credit applied, and also
include those persons’ common law
employer clients that remain subject to
all provisions of law applicable to
employers with respect to the payment
of wages or compensation, as
applicable.
(d) Applicability date. This section
applies to all credit refunds under
section 3134 advanced or paid on or
after September 8, 2021.
§ 31.3134–1T
[Removed]
Par. 9. Section 31.3134–1T is
removed.
■
Par. 10. Section 31.3221–5 is added to
read as follows:
■
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(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 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 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)
PO 00000
Frm 00095
Fmt 4700
Sfmt 4700
48125
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, and
also include those persons’ common law
employer clients that remain subject to
all provisions of law applicable to
employers with respect to the payment
of compensation.
(e) Applicability date. This section
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 July 24, 2020, and all credit
refunds under section 2301 of the
CARES Act advanced or paid on or after
July 24, 2020.
§ 31.3221–5T
Par. 11.
removed.
■
[Removed]
Section 31.3221–5T is
Douglas W. O’Donnell,
Deputy Commissioner for Services and
Enforcement.
Approved: July 10, 2023.
Lily L. Batchelder,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 2023–15690 Filed 7–24–23; 11:15 am]
BILLING CODE 4830–01–P
DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 100
[Docket Number USCG–2023–0308]
RIN 625–AA08
Special Local Regulation; Henderson
Bay, Henderson Harbor, NY
Coast Guard, Department of
Homeland Security (DHS).
ACTION: Final rule
AGENCY:
The Coast Guard is
establishing a permanent special local
regulation for certain waters of
Henderson Bay in Henderson Harbor,
NY, in support of the Christmas in July
festival. This action is necessary to
provide for the safety of life on these
navigable waters near Henderson Bay,
Henderson Harbor, NY, during a boat
parade. This rulemaking will prohibit
persons and vessels from entering,
transiting through, anchoring, blocking,
or loitering within the event area
adjacent to the city of Henderson
Harbor, unless authorized by the
Captain of the Port Buffalo or a
designated representative.
SUMMARY:
E:\FR\FM\26JYR1.SGM
26JYR1
]]>Agencies
[Federal Register Volume 88, Number 142 (Wednesday, July 26, 2023)]
[Rules and Regulations]
[Pages 48118-48125]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-15690]
=======================================================================
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 31
[TD 9978]
RIN 1545-BQ08
Recapture of Certain Excess Employment Tax Credits Under COVID-19
Legislation
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations and removal of temporary regulations.
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SUMMARY: This document sets forth the final regulations under sections
3111, 3131, 3132, 3134, and 3221 of the Internal Revenue Code (Code)
issued under the authority granted by the Families First Coronavirus
Response Act, the Coronavirus Aid, Relief, and Economic Security Act,
and the American Rescue Plan Act of 2021. These final regulations
authorize the assessment of any erroneous refund of the tax credits
paid under sections 7001 and 7003 of the Families First Coronavirus
Response Act (including any increases in those credits under section
7005 thereof), and section 2301 of the Coronavirus Aid, Relief, and
Economic Security Act, as well as under sections 3131, 3132 (including
any increases in those credits under section 3133), and 3134 of the
Code.
DATES:
Effective date: These final regulations are effective on July 24,
2023.
Applicability date: For date of applicability, see Sec. Sec.
31.3111-6(e), 31.3131-1(d), 31.3132-1(d), 31.3134-1(d), and 31.3221-
5(e).
FOR FURTHER INFORMATION CONTACT: NaLee Park at 202-317-6798 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document sets forth amendments to the Employment Tax
Regulations (26 CFR part 31) under sections 3111, 3131, 3132, 3133,
3134, and 3221.
The Families First Coronavirus Response Act (Families First Act),
Public Law 116-127, 134 Stat. 178 (March 18, 2020), as amended and
extended by the COVID-related Tax Relief Act of 2020 (Tax Relief Act),
enacted as Subtitle B of Title II of Division N of the Consolidated
Appropriations Act, 2021, Public Law 116-260, 134 Stat.1182 (December
27, 2020), and the Coronavirus Aid, Relief, and Economic Security Act
(CARES Act), Public Law 116-136, 134 Stat. 281 (March 27, 2020), as
amended and extended by the Taxpayer Certainty and Disaster Tax Relief
Act of 2020 (Relief Act), enacted as Division EE of the Consolidated
Appropriations Act, 2021, provided relief to taxpayers from economic
hardships resulting from the Coronavirus Disease 2019 (COVID-19),
including paid sick and family leave credits to eligible employers with
respect to qualified leave wages paid for a period of leave taken
beginning April 1, 2020, and ending March 31, 2021, and an employee
retention credit (ERC) with respect to qualified wages paid after March
12, 2020, and before July 1, 2021, respectively. The American Rescue
Plan Act of 2021 (ARP), Public Law 117-2, 135 Stat. 4 (March 11, 2021),
provided additional COVID-19 relief with similar paid leave credits
under sections 3131 through 3133 of the Code, enacted by section 9641
of the ARP, with respect to qualified leave wages paid for a period of
leave taken beginning April 1, 2021, and ending September 30, 2021, and
a substantially similar ERC under section 3134 of the Code, enacted by
section 9651 of the ARP, with respect to qualified wages paid after
June 30, 2021, and before January 1, 2022.\1\
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\1\ Section 80604 of the Infrastructure Investment and Jobs Act
(Infrastructure Act), Public Law 117-68, 135 Stat. 429 (November 15,
2021) amended section 3134(n) of the Code to provide that the ERC
under section 3134 applies only to wages paid after June 30, 2021,
and before October 1, 2021 (or, in the case of wages paid by an
eligible employer which is a recovery startup business, January 1,
2022). Therefore, the only type of employer eligible for the ERC for
wages paid after September 30, 2021, and before January 1, 2022, is
an employer that meets the definition of a recovery startup business
under section 3134(c)(5). See Notice 2021-65, 2021-51 IRB 880, for
guidance for employers that received an advance payment of the ERC
or reduced tax deposits in anticipation of the credit for the fourth
quarter of 2021 prior to the amendments made by the Infrastructure
Act.
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[[Page 48119]]
I. Paid Sick and Family Leave Credits \2\
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\2\ Detailed information on the paid sick leave credits and paid
family leave credits under the Families First Act, as amended by the
Tax Relief Act, and under the ARP is provided in TD 9904, 85 FR
45514, and TD 9953, 86 FR 50637, respectively. Also see the IRS.gov
website at: Coronavirus Tax Relief for Businesses and Tax-Exempt
Entities Internal Revenue Service (irs.gov).
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A. Families First Act, as Amended and Extended by the Tax Relief Act
The Emergency Paid Sick Leave Act (EPSLA) and the Emergency Family
and Medical Leave Expansion Act (EFMLEA), enacted as Divisions E and C
of the Families First Act, respectively, generally required certain
employers with fewer than 500 employees to provide up to 80 hours of
paid sick leave for the care of the employees themselves or for others
for certain COVID-related reasons specified in the statute, at
specified daily and aggregate rates of pay, and 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
was unable to work or telework because the employee was caring for a
son or daughter whose school or place of care was closed or whose child
care provider was unavailable due to certain circumstances related to
COVID-19.
Sections 7001 and 7003 of the Families First Act generally provide
that non-governmental employers subject to the paid leave requirements
under EPSLA and EFMLEA are entitled to fully refundable tax credits to
cover the wages paid for leave taken for those periods of time between
April 1, 2020, and December 31, 2020, during which employees were
unable to work or telework for specified reasons related to COVID-19,
plus allocable qualified health plan expenses. These paid sick leave
credits and paid family leave credits (collectively, paid sick and
family leave credits) are 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 section 3111(e) and (f), and section 3221(a) (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 for which the credits are claimed 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 the Hospital Insurance tax (Medicare tax)) on
qualified leave wages.\3\
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\3\ The credit for the employer's share of Medicare tax does not
apply to eligible employers that are subject to the 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, that refers to both social security tax and
Medicare tax.
---------------------------------------------------------------------------
Although the requirement to provide employees with paid leave under
EPSLA and EFMLEA expired on December 31, 2020, the paid sick and family
leave credits were extended by the Tax Relief Act for qualified leave
wages paid for periods of leave taken through March 31, 2021, that
would have satisfied the requirements of EPSLA and EFMLEA.
B. ARP
The ARP added sections 3131 through 3133 of the Code, which provide
refundable paid sick and family leave credits similar to those provided
under the Families First Act. Sections 3131 through 3133 extend the
paid sick and family leave credits to non-governmental employers with
fewer than 500 employees and certain governmental entities \4\ without
regard to the number of employees that provided paid sick and family
leave for specified reasons related to COVID-19 with respect to periods
of leave beginning on April 1, 2021, through September 30, 2021. The
paid sick and family leave credits under sections 3131 through 3133 are
available to eligible employers that provided employees with paid leave
that would have satisfied the requirements of EPSLA and EFMLEA, with
certain modifications made pursuant to the ARP.
---------------------------------------------------------------------------
\4\ Section 9641 of the ARP added sections 3131(f)(5) and
3132(f)(5) to the Code that extends paid sick and family leave
credits to certain governmental employers (without regard to the
number of employees). However, the credits are not allowed for the
government of the United States, or any agency or instrumentality of
the United States Government, except for an organization described
in section 501(c)(1) of the Code and exempt from tax under section
501(a).
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Under section 3131, a credit is available to eligible employers
that paid qualified sick leave wages to an employee for up to 80 hours
of leave provided during the period beginning April 1, 2021, and ending
September 30, 2021, if the employee was unable to work or telework due
to any of the COVID-related reasons specified in the statute. Under
section 3132, a credit is available to eligible employers that paid
qualified family leave wages to an employee for up to 12 weeks of paid
family leave provided during the period beginning April 1, 2021, and
ending September 30, 2021, if the employee was unable to work or
telework due to any of the conditions for which eligible employers may
provide COVID-related paid sick leave. Qualified family leave wages are
two-thirds of the wages paid at the employee's regular rate of pay, up
to a maximum of $200 per day and $12,000 in the aggregate.
The paid sick and family leave credits under sections 3131 and 3132
are allowed against the taxes imposed on employers under section
3111(b) and against so much of the taxes imposed under section 3221(a)
as are attributable to the rate in effect under section 3111(b), as
applicable, on all wages and compensation paid to all employees, and
any credit amounts in excess of these taxes are treated as an
overpayment to be refunded under sections 6402(a) and 6413(b). See
sections 3131(b)(4)(A), 3131(f)(1), 3132(b)(3)(A), and 3132(f)(1).
II. Employee Retention Credit \5\
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\5\ Detailed information about the ERC under the CARES Act, as
amended by the Relief Act, and under the ARP is provided in TD 9904
and TD 9953, respectively. For more information, see Notice 2021-20,
2021-11 IRB 922, Notice 2021-23, 2021-16 IRB 1113, Notice 2021-24,
2021-18 IRB 1122, Notice 2021-49, 2021-34 IRB 316, and Rev. Proc.
2021-33, 2021-34 IRB 327. Also see the IRS.gov website at:
Coronavirus Tax Relief for Businesses and Tax-Exempt Entities/
Internal Revenue Service (irs.gov).
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A. CARES, as Amended and Extended by the Relief Act
Section 2301 of the CARES Act, as originally enacted, provides for
the ERC for eligible employers, including tax-exempt organizations,
that paid qualified wages, including certain health plan expenses, to
some or all of their employees after March 12, 2020, and before January
1, 2021. The ERC, as originally enacted, is a fully refundable tax
credit for employers equal to 50 percent of qualified wages. Section
2301(b)(1) of the CARES Act limits the amount of qualified wages with
respect to any employee that may be taken into account to $10,000 for
all calendar quarters in 2020. Therefore, the maximum credit amount
with respect to each employee for all four calendar quarters in 2020 is
$5,000. For employers that averaged more than 100 full-time employees
during 2019, qualified wages are wages and compensation (including
allocable qualified health plan expenses) paid to employees who were
not providing
[[Page 48120]]
services because operations were fully or partially suspended due to
orders from an appropriate governmental authority limiting commerce,
travel, or group meetings (for commercial, social, religious, or other
purposes) due to COVID-19 or due to a significant decline in gross
receipts. For employers that averaged 100 full-time employees or fewer
during 2019, qualified wages are wages and compensation (including
allocable qualified health plan expenses) paid to any employee during
the period operations were fully or partially suspended due to orders
from an appropriate governmental authority limiting commerce, travel,
or group meetings (for commercial, social, religious, or other
purposes) due to COVID-19 or due to a significant decline in gross
receipts, regardless of whether their employees were providing
services.
The ERC available under section 2301 of the CARES Act for a
calendar quarter is allowed against the taxes imposed on employers by
section 3111(a) of the Code, first reduced by any credits allowed under
section 3111(e) and (f) 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), first
reduced by any credits allowed under sections 7001 and 7003 of the
Families First Act, on the wages and compensation paid with respect to
the employment of all the employees of the eligible employer for that
calendar quarter.
Section 2301 of the CARES Act was subsequently amended by sections
206 and 207 of the Relief Act. Section 206 of the Relief Act adopted
retroactive amendments and technical changes to section 2301 of the
CARES Act for qualified wages paid after March 12, 2020, and before
January 1, 2021, primarily expanding eligibility for certain employers
to claim the credit. Section 207 of the Relief Act further amended
section 2301 of the CARES Act to extend the application of the ERC to
qualified wages paid after December 31, 2020, and before July 1, 2021,
to modify the gross receipts test for calendar quarters in 2021, and to
modify the calculation of the credit amount for qualified wages paid
during that time. Under section 2301 of the CARES Act, as amended by
section 207 of the Relief Act, the ERC is equal to 70 percent of
qualified wages. The Relief Act also increased the amount of qualified
wages that could be taken into account per employee to $10,000 per
employee per calendar quarter in 2021. Therefore, the maximum credit
amount with respect to each employee for any calendar quarter in 2021
is $7,000. Additionally, the threshold distinguishing small employers
from large employers for purposes of applying certain criteria to
determine eligibility for the credit was increased from 100 employees
to 500 employees.
B. ARP and Infrastructure Act
Section 9651 of the ARP enacted section 3134 of the Code, effective
for calendar quarters beginning after June 30, 2021, to provide an ERC
for qualified wages paid after June 30, 2021, and before January 1,
2022. The ERC under section 3134 is substantially similar to the ERC
under section 2301 of the CARES Act, though the ARP made some
modifications including expanding the definition of eligible employer
and the definition of qualified wages.\6\ Additionally, the ERC
available under section 3134 of the Code for a calendar quarter is
allowed against the taxes imposed on employers under section 3111(b),
first reduced by any credits allowed under sections 3131 and 3132, and
the taxes imposed under section 3221(a) that are attributable to the
rate in effect under section 3111(b), first reduced by any credits
allowed under sections 3131 and 3132, on the wages and compensation
paid with respect to the employment of all the employees of the
eligible employer for that calendar quarter. Any credit amounts in
excess of these taxes are treated as an overpayment to be refunded
under sections 6402(a) and 6413(b). See section 3134(b)(3), 3134(c)(1).
---------------------------------------------------------------------------
\6\ For more information on the changes made to the ERC when
section 3134 was added to the Code, see Notice 2021-49.
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The ERC is available to any employer that carried on a trade or
business during a calendar quarter between June 30, 2021, and January
1, 2022, that met the requirements to be an eligible employer under
section 3134(c)(2), which include experiencing a full or partial
suspension of business operations due to orders from an appropriate
governmental authority limiting commerce, travel, or group meetings
(for commercial, social, religious, or other purposes) due to COVID-19,
experiencing a decline in gross receipts, or qualifying as a recovery
startup business. See Notice 2021-49. Section 80604 of the
Infrastructure Act amended section 3134(n) to provide that the ERC
applies only to wages paid after June 30, 2021, and before October 1,
2021 (or, in the case of wages paid by an eligible employer that was a
recovery startup business in the fourth quarter of 2021, January 1,
2022).\7\
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\7\ Employers that qualify because they are recovery startup
businesses may claim the ERC for wages paid after September 30,
2021, and before January 1, 2022. For more information, see Notice
2021-65 for amendments made by the Infrastructure Act. Notice 2021-
65 explains the retroactive termination of the ERC and provides
instructions for employers that became ineligible and must repay any
advance payment of ERC or seek to avoid failure to deposit penalties
for the fourth quarter of 2021.
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III. 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 (including any increases in the credits under
section 7005) for the period of leave taken from April 1, 2020 through
March 31, 2021, exceeds the taxes imposed by section 3111(a) of the
Code, first reduced by any credits claimed under section 3111(e) and
(f), or section 3221(a) for any calendar quarter, the excess shall be
treated as an overpayment that shall be refunded under sections 6402(a)
and 6413(b). For the period after March 12, 2020, and before July 1,
2021, section 2301(b)(3) of the CARES Act provides that if the amount
of the ERC exceeds the applicable employment taxes \8\ (first reduced
by any credits allowed under section 3111(e) and (f) of the Code,
sections 7001 and 7003 of the Families First Act, and section 303(d) of
the Relief Act), the excess shall be treated as an overpayment that
shall be refunded under sections 6402(a) and 6413(b) of the Code.
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\8\ ``Applicable employment taxes'' are defined in section
2301(c)(1) of the CARES Act as the taxes imposed by section 3111(a)
of the Code or so much of the taxes imposed under section 3221(a) of
the Code as are attributable to the rate in effect under section
3111(a) of the Code.
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With respect to the paid sick and family leave credits and ERC
enacted by the ARP, sections 3131(b)(4)(A), 3132(b)(3)(A), and
3134(b)(3) of the Code provide that if the amount of the paid sick and
family leave credits under these sections (including any increases in
the credits under section 3133(a)) and ERC exceeds the taxes imposed
under section 3111(b) and so much of the taxes imposed under section
3221(a) as are attributable to the rate in effect under section
3111(b), as applicable, for any calendar quarter, after application of
the other credits previously applied, the excess shall be treated as an
overpayment that shall be refunded under sections 6402(a) and 6413(b).
Section 6402(a) generally provides that, within the applicable
period of limitations, overpayments may be credited against any
liability in respect
[[Page 48121]]
of an Internal Revenue tax on the part of the person who made the
overpayment, and any remaining balance refunded to that 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),\9\ the
amount of the overpayment shall be refunded (subject to the applicable
statute of limitations) as the Secretary may prescribe in regulations.
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\9\ 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 the manner and at the
times as the Secretary may prescribe in regulations.
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The IRS revised Form 941, Employer's Quarterly Federal Tax Return,
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, several times in
calendar years 2020 through 2022 so that employers could use these
returns to claim the paid sick and family leave credits under the
Families First Act and under sections 3131 through 3133 of the Code and
the ERC under the CARES Act and under section 3134 of the Code
(collectively, COVID-19 credits). The revised employment tax returns
allowed for any of these credits in excess of the taxes imposed under
section 3111(a) or 3111(b), as applicable, and so much of the taxes
imposed under section 3221(a) as are attributable to the rate in effect
under section 3111(a) or 3111(b), as applicable, to be credited against
other employment taxes and then for any remaining balance to be
credited or refunded to the employer in accordance with section 6402(a)
or section 6413(b). Form 941-X, Adjusted Employer's Quarterly Federal
Tax Return or Claim for Refund, Form 943-X, Adjusted Employer's Annual
Federal Tax Return for Agricultural Employees or Claim for Refund, Form
944, Adjusted Employer's Annual Federal Tax Return or Claim for Refund,
and Form CT-1 X, Adjusted Employer's Annual Railroad Retirement Tax
Return or Claim for Refund were also revised so that employers can use
these returns to amend previous employment tax returns to adjust or
claim COVID-19 credits for prior periods.
IV. Advance Payment of Credits and Erroneous Refunds
Section 3606 of the CARES Act amended 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 (including 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 ERC under
section 2301, subject to the limitations provided in section 2301 and
based on such information as the Secretary shall require. Section
2301(j)(2)(A) of the CARES Act, as amended by section 207(g)(1) of the
Relief Act, provides that, under rules provided by the Secretary,
eligible employers for which the average number of full-time employees
(within the meaning of section 4980H of the Code) employed by the
eligible employer during 2019 was not greater than 500 may elect, for
calendar quarters in 2021, to receive an advance payment of the ERC for
the quarter in an amount not to exceed 70 percent of the average
quarterly wages paid in calendar year 2019.
Similarly, sections 3131(b)(4)(B) and 3132(b)(3)(B) provide that,
in anticipation of the paid sick and family leave credits under these
sections (including any increases in the credits under section 3133(a))
and any refundable portions, these credits are to be advanced,
according to forms and instructions provided by the Secretary, up to
the total allowable amount of the credits and subject to applicable
limits for the calendar quarter. Section 3134(j)(2)(A) provides that,
under rules provided by the Secretary, eligible employers for which the
average number of full-time employees (within the meaning of section
4980H) employed by the eligible employer during 2019 was not greater
than 500 may elect, for calendar quarters in 2021, to receive an
advance payment of the ERC for the quarter in an amount not to exceed
70 percent of the average quarterly wages paid in calendar year 2019.
To implement the advance payment provisions, employers that were
eligible to receive an advance of the tax credits used IRS Form 7200,
Advance Payment of Employer Credits Due To COVID-19, to request an
advance of the COVID-19 credits.\10\ Employers were required to
reconcile any advance payments claimed on Form 7200 with total credits
claimed and total taxes due on their employment tax returns, including
amended tax returns.
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\10\ Employers are no longer able to request an advance payment
of any credit on Form 7200. The advance payment of COVID-19 credits
ended on January 31, 2022.
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A refund or credit of any portion of the COVID-19 credits,
regardless of whether they were advanced, claimed by a taxpayer in
excess of the amount to which the taxpayer is entitled is an erroneous
refund that the employer must repay.
V. Assessment Authority
Section 6201 authorizes and requires the Secretary to determine and
assess tax liabilities, including interest, additional amounts,
additions to the tax, and assessable penalties. The Code or other
statutory authority provides for the administrative recapture of
certain erroneous refunds of the COVID-19 credits either by directly
authorizing the assessment of the erroneous refunds or by authorizing
the promulgation of regulations or other guidance to do so.
Specifically, with regard to paid sick and family leave credits,
sections 7001(f) and 7003(f) of the Families First Act and sections
3131(g) and 3132(g) of the Code provide, in relevant part, that the
Secretary will provide such regulations or other guidance as may be
necessary to carry out the purposes of the credits, including
regulations or other guidance to prevent the avoidance of the purposes
of the limitations under these provisions and to recapture the benefit
of the credit where there is a subsequent adjustment to the credit. See
sections 7001(f) and 7003(f) of the Families First Act, and sections
3131(g)(1), 3131(g)(4), 3132(g)(1), and 3132(g)(4) of the Code.
With regard to the ERC, 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 reconcile
an advance payment of the ERC with the amount determined at the time of
filing the employment tax return for the applicable calendar quarter or
taxable year. Section 2301(j)(3)(B) of the CARES Act, as amended by
section 207 of the Relief Act, allows for the direct assessment of
certain erroneous refunds of advanced portions of the ERC by providing
that if a small eligible employer specified in section 2301(j)(2) of
the CARES Act receives excess
[[Page 48122]]
advance payments of the credit, then the taxes imposed by chapter 21 or
22 of the Code (whichever is applicable) for the calendar quarter are
increased by the amount of the excess. Section 2301(l) of the CARES Act
generally, as amended by sections 206 and 207 of the Relief Act,
further provides that the Secretary shall issue such forms,
instructions, regulations, and other guidance as are necessary to
prevent the avoidance of the purposes of the limitations under section
2301 of the CARES Act. Correspondingly, section 3134(j)(3)(B) of the
Code allows for the direct assessment of certain erroneous refunds of
advanced portions of the credit by providing that if a small eligible
employer specified in section 3134(j)(2) receives excess advance
payments of the credit, then the taxes imposed under section 3111(b) or
so much of the taxes imposed under section 3221(a) as are attributable
to the rate in effect under section 3111(b), as applicable, for the
calendar quarter are increased by the amount of the excess. Section
3134(m)(3) further provides that the Secretary will issue such forms,
instructions, regulations, and other guidance as are necessary to
prevent the avoidance of the purposes of the limitations under section
3134.
VI. Temporary Regulations
On July 29, 2020, temporary regulations (TD 9904, 2020-34 IRB 413
(August 17, 2020)) amending the Employment Tax Regulations under
sections 3111 and 3221 to provide for the recapture of erroneous
refunds of the paid sick and family leave credits under the Families
First Act and erroneous refunds of the ERC under the CARES Act,
pursuant to the authority granted under these acts to prescribe those
regulations, were published in the Federal Register (85 FR 45514). A
notice of proposed rulemaking (REG-111879-20) cross-referencing the
temporary regulations was published in the Federal Register on the same
day (85 FR 45551). The text of the temporary regulations served as the
text of the proposed regulations. No public hearing was requested or
held. Two comments responding to the notice of proposed rulemaking were
received. All comments were considered and are available for public
inspection and copying at https://www.regulations.gov or upon request.
After consideration of the comments, the proposed regulations are
adopted by this Treasury decision with a minor modification, and the
corresponding temporary regulations are removed. The public comments
are discussed under ``Summary of Comments and Explanation of
Provisions.''
On September 10, 2021, temporary regulations (TD 9953, 2021-39 IRB
430 (September 27, 2021)) amending the Employment Tax Regulations under
sections 3131 through 3134 to provide for the recapture of erroneous
refunds of the paid sick and family leave credits and ERC under the
ARP, pursuant to the authority granted under that act to prescribe
those regulations, were published in the Federal Register (86 FR
50637). A notice of proposed rulemaking (REG-109077-21) cross-
referencing the temporary regulations was published in the Federal
Register on the same day (86 FR 50687). The text of the temporary
regulations served as the text of the proposed regulations. No public
hearing was requested or held, and no comments were received on the
proposed regulations. The proposed regulations are adopted by this
Treasury decision with a minor modification, and the corresponding
temporary regulations are removed.
Accordingly, this document amends the Employment Tax Regulations
(26 CFR part 31) by finalizing the regulations under sections 3111,
3131, 3132, 3134, and 3221 of the Code.
Summary of Comments and Explanation of Revisions
The Department of the Treasury (Treasury Department) and the IRS
received two comments in response to the proposed regulations under
sections 3111 and 3221 but no comments in response to the proposed
regulations under sections 3131 through 3134. Neither comment received
addressed the assessment and recapture of erroneous refunds of credits
under the Families First Act and the CARES Act. One commenter said that
the CARES Act should not fund businesses that primarily or exclusively
employ non-citizen and temporary visa workers. The second commenter
requested that the Treasury Department and the IRS consider providing
additional guidance on potential reporting issues, including for
certain retirement-related provisions in the CARES Act. These issues
are outside the scope of these regulations. For this reason, these
final regulations do not address these comments and adopt the proposed
regulations with a minor modification. The corresponding temporary
regulations are removed.
These final regulations provide that erroneous refunds of COVID-19
credits are treated as underpayments of the taxes imposed under section
3111(a) or 3111(b), as applicable, and so much of the taxes imposed
under section 3221(a) as are attributable to the rate in effect under
section 3111(a) or 3111(b), as applicable, and are, therefore, subject
to assessment and administrative collection procedures. This allows the
IRS to prevent the avoidance of the purposes of the limitations under
the credit provisions and to recover the erroneous refund amounts
efficiently 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
may apply both in the processing of employment tax returns and in
examining returns for excess claimed credits. These assessment and
administrative collection procedures are not intended to be exclusive
and therefore do not replace the existing recapture methods but rather
represent an alternative method available to the IRS. These final
regulations also 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, as modified by section 3606 of the CARES Act, and
section 2301(l)(1) of the CARES Act.
In certain circumstances, third-party payors claim tax credits on
behalf of their common law employer clients. These final regulations
clarify that employers against which an erroneous refund of credits may
be assessed as an underpayment include persons treated as the employer
under sections 3401(d), 3504, and 3511, consistent with their liability
for the employment taxes against which the credits applied. In
addition, these final regulations clarify the proposed regulations by
expressly stating that the common law employer clients of these third-
party payors that remain subject to all provisions of law applicable to
employers with respect to the payment of wages or compensation, as
applicable, may also be assessed for an erroneous refund of credits.
This clarification makes clear to employers what had been implicit in
the proposed regulations, that the existing rules in sections 3504 and
3511(c) concerning the liability of common law employer clients of
third-party payors remain applicable in this situation. Specifically,
section 3504 provides that where a fiduciary, agent, or other person is
acting for an employer in performing acts required of the employer
under the Code, ``the employer for whom such
[[Page 48123]]
fiduciary, agent, or other person acts shall remain subject to the
provisions of law (including penalties) applicable in respect of
employers.'' See also Sec. Sec. 31.3504-1(a) and 31.3504-2(c)(2).
Similarly, section 3511(c) and Sec. 31.3511-1(a)(3) provide that, for
third-party payors that are Certified Professional Employer
Organizations (CPEO), an employer client of a CPEO is treated as an
employer (and therefore subject to all applicable provisions of law)
for purposes of Federal employment taxes imposed on remuneration paid
by the CPEO to non-worksite employees.\11\ While sections 3504 and 3511
applied in the same manner as a matter of law under the proposed
regulations, the final regulations expressly state these rules to avoid
any confusion and help employers better understand their legal
responsibilities stemming from sections 3504 and 3511.
---------------------------------------------------------------------------
\11\ Section 3511(a) provides that the CPEO is treated as the
sole employer (i.e., solely subject to all provisions of law
applicable to employers) for purposes of Federal employment taxes
imposed on remuneration paid to worksite employees, as defined in
section 7705(e). Therefore, for remuneration paid by a CPEO to
worksite employees, the employer client is not subject to any
provisions of law applicable to employers with respect to the
payment of this remuneration. For this reason, the clarification in
these final regulations concerning the assessment against employer
clients of a third-party payor for an erroneous refund of credits
does not apply to erroneous refunds of credits that were claimed
based on remuneration paid by a CPEO to worksite employees.
---------------------------------------------------------------------------
Section 7805(b)(1)(A) and (B) of the Code generally provide that no
temporary, proposed, or final regulation relating to the Internal
Revenue laws may apply to any taxable period ending before the earliest
of (A) the date on which the regulation is filed with the Federal
Register, or (B) in the case of a final regulation, the date on which a
proposed or temporary regulation to which the final regulation relates
was filed with the Federal Register.
Consistent with the authority provided by section 7805(b)(1)(B),
Sec. Sec. 31.3111-6, 31.3131-1, 31.3132-1, 31.3134-1, and 31.3221-5
are applicable to credits paid on or after the date on which the
related proposed and temporary regulations were filed with the Federal
Register.
Special Analyses
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6),
the Secretary certifies that these final regulations will not have a
significant economic impact on a substantial number of small entities
because these final regulations impose no compliance burden on any
business entities, including small entities. Although these final
regulations will apply to all employers eligible for the employment tax
credits under the Families First Act, the CARES Act, and sections 3131,
3132, and 3134 of the Code, 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 final regulations do not affect
the employer's employment tax reporting or the necessary information to
substantiate entitlement to the credits. Rather, these final
regulations merely implement the statutory authority granted under
sections 7001(f) and 7003(f) of the Families First Act, section 2301(l)
of the CARES Act, and sections 3131(g), 3132(g), and 3134(m) of the
Code 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 taxes
imposed under section 3111(a) or 3111(b), whichever is applicable, and
so much of the taxes imposed under section 3221(a) as are attributable
to the rate in effect under section 3111(a) or 3111(b), as applicable,
subject to assessment and administrative collection procedures.
Notwithstanding this certification, the Treasury Department and the IRS
did not receive any comments on any impact these regulations would have
on small entities.
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 final 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 regulations.
List of Subjects in 26 CFR Part 31
Employment taxes, Fishing vessels, Gambling, 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:
0
a. Removing the entry for Sec. 31.3111-6T;
0
b. Adding an entry in numerical order for Sec. 31.3111-6;
0
c. Removing the entries for Sec. Sec. 31.3131-1T, 31.3132-1T, 31.3134-
1T, and 31.3221-5T
0
d. Adding entries in numerical order for Sec. Sec. 31.3131-1, 31.3132-
1, 31.3134-1. and 31.3221-5.
The general authority and additions read, in part, as follows:
Authority: 26 U.S.C. 7805.
Section 31.3111-6 also issued under secs. 7001 and 7003, Public
Law 116-127, 134 Stat. 178, and sec. 2301, Public Law 116-136, 134
Stat. 281.
* * * * *
Section 31.3131-1 also issued under 26 U.S.C. 3131(g).
Section 31.3132-1 also issued under 26 U.S.C. 3132(g).
Section 31.3134-1 also issued under 26 U.S.C. 3134(m)(3).
Section 31.3221-5 also issued under secs. 7001 and 7003, Public
Law 116-127, 134 Stat. 178, and sec. 2301, Public Law 116-136, 134
Stat. 281.
* * * * *
0
Par. 2. Section 31.3111-6 is added to read as follows:
Sec. 31.3111-6 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
[[Page 48124]]
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 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 that is treated as
an overpayment and refunded or credited to an employer under section
6402(a) or 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, and also include those persons' common law employer clients
that remain subject to all provisions of law applicable to employers
with respect to the payment of wages.
(e) Applicability date. This section 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 July 24, 2020, and all credit refunds under section 2301 of
the CARES Act advanced or paid on or after July 24, 2020.
Sec. 31.3111-6T [Removed]
0
Par. 3. Section 31.3111-6T is removed.
0
Par. 4. Section 31.3131-1 is added to read as follows:
Sec. 31.3131-1 Recapture of credits.
(a) Recapture of erroneously refunded credits. Any amount of
credits for qualified sick leave wages under section 3131(a), including
any increase to the amount of the credits under sections 3131(d),
3131(e), and 3133, that are treated as overpayments and refunded or
credited to an employer under section 6402(a) or 6413(b) 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
under section 3111(b) and so much of the taxes imposed under section
3221(a) as are attributable to the rate in effect under section
3111(b), as applicable, and may be assessed and collected by the
Secretary in the same manner as the taxes.
(b) Advance credit amounts erroneously refunded. The determination
of any amount of credits erroneously refunded as described in paragraph
(a) 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 section 3131(b)(4)(B) and
3131(g)(6).
(c) Third party payors. For purposes of this section, employers
against whom an erroneous refund of the credits under section 3131
(including any increases in those credits under section 3133) can be
assessed as an underpayment of the taxes imposed under section 3111(b)
and so much of the taxes imposed under section 3221(a) as are
attributable to the rate in effect under section 3111(b), as
applicable, include persons treated as the employer under sections
3401(d), 3504, and 3511, consistent with their liability for the
section 3111(b) or 3221(a) taxes against which the credit applied, and
also include those persons' common law employer clients that remain
subject to all provisions of law applicable to employers with respect
to the payment of wages or compensation, as applicable.
(d) Applicability date. This section applies to all credit refunds
under section 3131 (including any increases in those credits under
section 3133), advanced or paid on or after September 8, 2021.
Sec. 31.3131-1T [Removed]
0
Par. 5. Section 31.3131-1T is removed.
0
Par. 6. Section 31.3132-1 is added to read as follows:
Sec. 31.3132-1 Recapture of credits.
(a) Recapture of erroneously refunded credits. Any amount of
credits for qualified family leave wages under section 3132, including
any increase to the amount of the credits under sections 3132(d),
3132(e), and 3133, that are treated as overpayments and refunded or
credited to an employer under section 6402(a) or 6413(b) 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
under section 3111(b) and so much of the taxes imposed under section
3221(a) as are attributable to the rate in effect under section
3111(b), as applicable, and may be assessed and collected by the
Secretary in the same manner as the taxes.
(b) Advance credit amounts erroneously refunded. The determination
of any amount of credits erroneously refunded as described in paragraph
(a) 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 section 3132(b)(3)(B) and
3132(g)(6).
(c) Third party payors. For purposes of this section, employers
against whom an erroneous refund of the credits under section 3132
(including any increases in those credits under section 3133) can be
assessed as an underpayment of the taxes imposed under section 3111(b)
and so much of the taxes imposed under section 3221(a) as are
attributable to the rate in effect under section 3111(b), as
applicable, include persons treated as the employer under sections
3401(d), 3504, and 3511, consistent with their liability for the
section 3111(b) or 3221(a) taxes against which the credit applied, and
also include those persons' common law employer clients that remain
subject to all provisions of law applicable to employers with respect
to the payment of wages or compensation, as applicable.
(d) Applicability date. This section applies to all credit refunds
under section 3132 (including any increases in those credits under
section 3133) advanced or paid on or after September 8, 2021.
[[Page 48125]]
Sec. 31.3132-1T [Removed]
0
Par. 7. Section 31.3132-1T is removed.
0
Par. 8. Section 31.3134-1 is added to read as follows:
Sec. 31.3134-1 Recapture of credits.
(a) Recapture of erroneously refunded credits. Any amount of
credits for qualified wages under section 3134 of the Code that is
treated as an overpayment and refunded or credited to an employer under
section 6402(a) or 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 under section 3111(b)
and so much of the taxes imposed under section 3221(a) as are
attributable to the rate in effect under section 3111(b), as
applicable, and may be assessed and collected by the Secretary in the
same manner as the taxes.
(b) Advance credit amounts erroneously refunded. The determination
of any amount of credits erroneously refunded as described in paragraph
(a) 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 section 3134(j) and 3134(m).
(c) Third party payors. For purposes of this section, employers
against whom an erroneous refund of the credits under section 3134 can
be assessed as an underpayment of the taxes imposed under section
3111(b) and so much of the taxes imposed under section 3221(a) as are
attributable to the rate in effect under section 3111(b), as
applicable, include persons treated as the employer under sections
3401(d), 3504, and 3511, consistent with their liability for the
section 3111(b) or 3221(a) taxes against which the credit applied, and
also include those persons' common law employer clients that remain
subject to all provisions of law applicable to employers with respect
to the payment of wages or compensation, as applicable.
(d) Applicability date. This section applies to all credit refunds
under section 3134 advanced or paid on or after September 8, 2021.
Sec. 31.3134-1T [Removed]
0
Par. 9. Section 31.3134-1T is removed.
0
Par. 10. Section 31.3221-5 is added to read as follows:
Sec. 31.3221-5 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 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 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, and also include those
persons' common law employer clients that remain subject to all
provisions of law applicable to employers with respect to the payment
of compensation.
(e) Applicability date. This section 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 July 24,
2020, and all credit refunds under section 2301 of the CARES Act
advanced or paid on or after July 24, 2020.
Sec. 31.3221-5T [Removed]
0
Par. 11. Section 31.3221-5T is removed.
Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
Approved: July 10, 2023.
Lily L. Batchelder,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2023-15690 Filed 7-24-23; 11:15 am]
BILLING CODE 4830-01-P
