IRS Guidance

As BLC regularly advises its clients who have applied for the employee retention credit, the amount of ERC that an employer receives reduces the amount that the employer is allowed to report as wage expense on its income tax return for the tax year in which the qualified wages were paid or incurred. The deadline to amend income tax returns is generally within 3 years after the date the business filed the original income tax return. Certain BLC clients who are awaiting information from the IRS regarding the status of their ERC claims for 2020 calendar year quarters, are considering if they should amend their 2020 income tax returns (if they have not done so already) given the IRS’s ERC moratorium and announced delay in processing ERC claims. In furtherance of BLC‘s mission to inform and educate our clients regarding relevant ERC matters, we have not identified any official IRS statement or guidance that modifies the IRS general guidance in any way.

The IRS guidance is:

“The amount of your ERC reduces the amount that you are allowed to report as wage expense on your income tax return for the tax year in which the qualified wages were paid or incurred.

Generally, most taxpayers claim wage expense as a deduction on their income tax returns. However, for some taxpayers, wage expense is properly capitalized to the basis of a particular asset or as an inventory cost.

You should amend your income tax return to reduce the amount of your original wage expense if that adjustment has not yet been made by:

· Reducing the prior wage deduction, or

· Reducing the prior amount capitalized (and making any resulting adjustment, such as reducing a depreciation deduction).”

Any BLC client whose 2020 income tax returns might be impacted by a pending ERC application related to a 2020 calendar year quarter and who wants to confirm that the IRS guidance quoted above is applicable to them in light of their unique facts and circumstances, including any concerns related to ERC processing delays and moratorium, should consult with their independent tax professional.