May an employer claim the CARES employee-retention credit if the only expenses are for not-working employees’ health coverage?

[Peter Gulia]

An IRS interpretation states:  “If the Eligible Employer lays off or furloughs its employees and continues the employees’ health care coverage, but does not pay the employees any wages for the time they are not working, the employer may not treat any portion of the health plan expenses as qualified wages for purposes of the Employee Retention Credit because no portion of the health plan expenses would be allocable to wages paid to the employees.”  That website display includes: “This FAQ is not included in the Internal Revenue Bulletin, and therefore may not be relied upon as legal authority.  This means that the information cannot be used to support a legal argument in a court case.”

https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-amount-of-allocable-qualified-health-plan-expenses-faqs

 

A letter from three members of Congress asks the IRS to interpret differently CARES Act § 2301.

https://www.finance.senate.gov/imo/media/doc/050420%20Letter%20to%20Treasury%20on%20ERTC%20health%20benefits.pdf

 

I attach the statute’s § 2301.  And the Joint Committee on Taxation explanation.

 

Imagine your client wants to file its tax return with the position the Congressmen suggest, that the credit applies for health plan expenses even if no other wages is paid.

 

Your client tells you it wants your written opinion to help protect against penalties.  Your client doesn’t ask for a more-likely-than-not opinion; a substantial-authority opinion would meet the purpose.  26 C.F.R. § 1.6662‐4(d)(3) https://www.ecfr.gov/cgi-bin/text-idx?SID=2498c4ede6da62c6daa26b3f833d07b7&mc=true&node=se26.15.1_16662_64&rgn=div8

 

Could you, acting within your profession’s conduct rules, render the requested opinion?

Would you?

 

My queries are not about anything for my law practice.  Rather, I’m tooling-up to teach my summer-semester course on Professional Conduct in Tax Practice.  (My students include people in law, accounting, and actuarial firms, and some who render tax advice for other businesses.)  The New York Times reported on the letter mentioned above, and I hope the story—and your ideas—might illustrate some points about how practitioners manage uncertainty in tax law.  I'll be grateful for any ideas you're willing to share.

[Peter Gulia]

I must have mistakenly whacked some buttons in rendering my post.

CARES 2301.pdf x-12R-20.pdf

[Larry Starr]

6 hours ago, Peter Gulia said:

An IRS interpretation states:  “If the Eligible Employer lays off or furloughs its employees and continues the employees’ health care coverage, but does not pay the employees any wages for the time they are not working, the employer may not treat any portion of the health plan expenses as qualified wages for purposes of the Employee Retention Credit because no portion of the health plan expenses would be allocable to wages paid to the employees.”  That website display includes: “This FAQ is not included in the Internal Revenue Bulletin, and therefore may not be relied upon as legal authority.  This means that the information cannot be used to support a legal argument in a court case.”

https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-amount-of-allocable-qualified-health-plan-expenses-faqs

 

A letter from three members of Congress asks the IRS to interpret differently CARES Act § 2301.

https://www.finance.senate.gov/imo/media/doc/050420%20Letter%20to%20Treasury%20on%20ERTC%20health%20benefits.pdf

 

I attach the statute’s § 2301.  And the Joint Committee on Taxation explanation.

 

Imagine your client wants to file its tax return with the position the Congressmen suggest, that the credit applies for health plan expenses even if no other wages is paid.

 

Your client tells you it wants your written opinion to help protect against penalties.  Your client doesn’t ask for a more-likely-than-not opinion; a substantial-authority opinion would meet the purpose.  26 C.F.R. § 1.6662‐4(d)(3) https://www.ecfr.gov/cgi-bin/text-idx?SID=2498c4ede6da62c6daa26b3f833d07b7&mc=true&node=se26.15.1_16662_64&rgn=div8

 

Could you, acting within your profession’s conduct rules, render the requested opinion?

Would you?

 

My queries are not about anything for my law practice.  Rather, I’m tooling-up to teach my summer-semester course on Professional Conduct in Tax Practice.  (My students include people in law, accounting, and actuarial firms, and some who render tax advice for other businesses.)  The New York Times reported on the letter mentioned above, and I hope the story—and your ideas—might illustrate some points about how practitioners manage uncertainty in tax law.  I'll be grateful for any ideas you're willing to share.

This is a case where by the time you are teaching the course, it will have been resolved, so you won't have to deal with the issue! Time heals all wounds?