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Temporary Regulations: Recapture of Excess Employment Tax Credits (TD 9904) — Federal Register, July 29, 2020

Summary

Pages of the Federal Register of Wednesday, July 29, 2020, Rules and Regulations, starting at page 45514, with a Department of the Treasury, Internal Revenue Service document, TD 9904, with the heading Recapture of Excess Employment Tax Credits Under the Families First Act and the CARES Act, issued as temporary regulations that amend the regulations under sections 3111 and 3221 of the Internal Revenue Code. The temporary regulations authorize the assessment of any erroneous refund of the credits paid under sections 7001 and 7003 of the Families First Coronavirus Response Act and section 2301 of the CARES Act. The pages also carry a U.S. Department of State notice extending temporary suspensions, modifications, and exceptions to December 31, 2020.

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Issuer
Congressional materials
Document type
17 Employee Retention Credit Recapture Of Excess Employment Tax Credits Under The Families
Case
17 Employee Retention Credit Recapture Of Excess Employment Tax Credits Under The Families First Act And The Cares Act

Cite this document

“Temporary Regulations: Recapture of Excess Employment Tax Credits (TD 9904) — Federal Register, July 29, 2020.” Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/17-employee-retention-credit-recapture-of-excess-employment-tax-credits-under-the-families-first-act-and-the-cares-act/, SHA-256 7b1f1c14967698766a813ecf30d352acd4f25b386497d8ec542488cbe5e88cb8.

Full text

     45514             Federal Register / Vol. 85, No. 146 / Wednesday, July 29, 2020 / Rules and Regulations

     this length also will provide an                            DDTC further notes that several                      Authority: 22 CFR 126.2 and 126.3.
     extended operational window for                          commenters requested additional                       Zachary A. Parker,
     regulated entities during the course of                  measures be taken by DDTC. DDTC is
                                                                                                                    Director, Office of Directives Management,
     the public health crisis. DDTC believes                  not adopting any of those measures at                 U.S. Department of State.
     that a failure to extend these temporary                 this time. Although DDTC is not
                                                                                                                    [FR Doc. 2020–15777 Filed 7–28–20; 8:45 am]
     suspensions, modifications, and                          providing individual responses to those
                                                                                                                    BILLING CODE 4710–25–P
     exceptions will have a negative impact                   requests, DDTC notes generally that
     on regulated entities’ ability to safely                 several of the requests would involve
     engage in continued operations. As                       major infrastructure revisions to DDTC
     persons and entities subject to the                      automated systems and are therefore not               DEPARTMENT OF THE TREASURY
     regulations or operating pursuant to a                   feasible as temporary suspensions,
                                                                                                                    Internal Revenue Service
     license or other approval are located                    modifications, or exceptions; others
     around the world, it is apparent that                    were outside the scope of the request;
                                                                                                                    26 CFR Part 31
     physical presence may contradict public                  and others involved matters of internal
     health guidance or legal requirements in                 policy and practice and not regulatory                [TD 9904]
     many instances. For these reasons,                       matters. For all regulatory matters                   RIN 1545–BP89
     DDTC is extending the termination date                   recommended, DDTC will continue to
     prescribed in 85 FR 25287, items                         consider those that may merit future                  Recapture of Excess Employment Tax
     number 3 and number 4.                                   possibility of action.                                Credits Under the Families First Act
        The temporary suspension,                                Therefore, pursuant to ITAR §§ 126.2               and the CARES Act
     modification, and exception to the                       and 126.3, in the interest of the security            AGENCY: Internal Revenue Service (IRS),
     requirement in ITAR parts 122 and 129                    and foreign policy of the United States
     to renew registration as a manufacturer,                                                                       Treasury.
                                                              and as warranted by the exceptional and
     exporter, and/or broker and pay a fee on                                                                       ACTION: Temporary regulations.
                                                              undue hardships and risks to safety
     an annual basis described at number 1                    caused by the public health emergency                 SUMMARY: This document amends the
     of 85 FR 25287, is not being extended                    related to the SARS–COV2 pandemic,                    regulations under sections 3111 and
     to subsequent registrations. DDTC did                    notice is provided that the following                 3221 of the Internal Revenue Code with
     not receive any request from industry                    temporary suspensions, modifications,                 the addition of temporary regulations
     for additional extensions to registrations               and exceptions are being extended as                  issued under the regulatory authority
     that terminate after June 30. To the                     follows:                                              granted by the Families First
     contrary, several commenters expressed                                                                         Coronavirus Response Act and the
                                                                 1. As of March 13, 2020, a temporary
     their appreciation for the original                                                                            Coronavirus Aid, Relief, and Economic
                                                              suspension, modification, and exception
     action, but noted that any extension                                                                           Security Act to prescribe such
                                                              to the requirement that a regular
     would be unnecessary. DDTC’s                                                                                   regulations as may be necessary for
                                                              employee, for purposes of ITAR
     experience since the original temporary                                                                        reconciling advance payments of
                                                              § 120.39(a)(2), work at the company’s
     suspension, modification, and exception                                                                        refundable employment tax credits
                                                              facilities, to allow the individual to
     is that registrants are able to use DDTC’s                                                                     provided under these acts and
                                                              work at a remote work location, so long
     DECCS online system for the purpose of                                                                         recapturing the benefit of the credits
                                                              as the individual is not located in
     registration in the normal course of                                                                           when necessary. Consistent with this
                                                              Russia or a country listed in ITAR
     business.                                                                                                      authority, these temporary regulations
                                                              § 126.1. This suspension, modification,
        The temporary suspension,                             and exception shall terminate on                      authorize the assessment of any
     modification, and exception to the                       December 31, 2020, unless otherwise                   erroneous refund of the credits paid
     limitations on the duration of ITAR                      extended in writing.                                  under sections 7001 and 7003 of the
     licenses and agreements described at                                                                           Families First Coronavirus Response
     number 2 of 85 FR 25287, is not                             2. As of March 13, 2020, a temporary
                                                              suspension, modification, and exception               Act, including any increases in such
     extended. Although several commenters                                                                          credits under section 7005 thereof, and
     expressed appreciation for the original                  to authorize regular employees of
                                                              licensed entities who are working                     section 2301 of the Coronavirus Aid,
     action, one commenter indicated a                                                                              Relief, and Economic Security Act. The
     preference that it not be extended.                      remotely in a country not currently
                                                              authorized by a technical assistance                  text of these temporary regulations also
     Although three commenters did request                                                                          serves as the text of the proposed
     extension for various reasons, DDTC is                   agreement, manufacturing license
                                                              agreement, or exemption to send,                      regulations (REG–111879–20) set forth
     not accepting those requests. DDTC                                                                             in the notice of proposed rulemaking on
     notes that the majority of commenters                    receive, or access any technical data
                                                              authorized for export, reexport, or                   this subject in the Proposed Rules
     did not make such a request, and that                                                                          section of this issue of the Federal
     of those that did, some of the reasons                   retransfer to their employer via a
                                                              technical assistance agreement,                       Register.
     related to internal DDTC operations and
     coordination with other areas of the                     manufacturing license agreement, or                   DATES:
     government. DDTC believes that                           exemption so long as the regular                         Effective Date: These temporary
     progress is being made on those matters                  employee is not located in Russia or a                regulations are effective on July 29,
     and that continued extensions to all                     country listed in ITAR § 126.1. This                  2020.
                                                              suspension, modification, and exception                  Applicability Date: For date of
     existing authorizations is an overbroad
                                                              shall terminate on December 31, 2020,                 applicability, see §§ 31.3111–6T and
     response to the current situation. DDTC,
                                                              unless otherwise extended in writing.                 31.3221–5T of these temporary
     its interagency partners, and the
                                                                                                                    regulations.
     regulated entities have had several                         This notice makes no other revision to
     months to adjust to the current situation                the notice published at 85 FR 25287, nor              FOR FURTHER INFORMATION CONTACT:
     and DDTC believes it is prepared to                      does it make any other temporary                      Concerning these temporary regulations,
     handle authorizations in accordance                      suspension, modification, or exception                NaLee Park at 202–317–6798.
     with its statutory requirements.                         to the requirements of the ITAR.                      SUPPLEMENTARY INFORMATION:



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                       Federal Register / Vol. 85, No. 146 / Wednesday, July 29, 2020 / Rules and Regulations                                                   45515

     Background                                               unable to work or telework for reasons                  employees. Under section 7005 of the
     I. The Statutes in General: The Families                 related to COVID–19 described in (4),                   Families First Act, the qualified leave
     First Act and the CARES Act                              (5), or (6) above is entitled to paid sick              wages are not subject to the taxes
                                                              leave at two-thirds the employee’s                      imposed on employers by sections
       The Families First Coronavirus                         regular rate of pay or, if higher, the                  3111(a) and 3221(a) of the Code. In
     Response Act (Families First Act),                       Federal minimum wage or any                             addition, section 7005 provides that the
     Public Law 116–127, 134 Stat. 178                        applicable State or local minimum                       credits under sections 7001 and 7003 of
     (2020), enacted on March 18, 2020, and                   wage, up to $200 per day and $2,000 in                  the Families First Act are increased by
     the Coronavirus Aid, Relief, and                         the aggregate.                                          the amount of the tax imposed by
     Economic Security Act (CARES Act),                          Division C of the Families First Act,                section 3111(b) of the Code (employer’s
     Public Law 116–136, 134 Stat. 281                        the Emergency Family and Medical                        share of Medicare tax) on qualified leave
     (2020), enacted on March 27, 2020,                       Leave Expansion Act (EFMLEA),                           wages.3
     provide relief to taxpayers from                         amends the Family and Medical Leave                        The CARES Act provides an
     economic hardships resulting from the                    Act of 1993 to require certain employers                additional credit for employers
     Coronavirus Disease 2019 (COVID–19).                     to provide expanded paid family and                     experiencing economic hardship related
       The Families First Act, through the                    medical leave to employees who are                      to COVID–19. Under section 2301 of the
     enactment of the Emergency Paid Sick                     unable to work or telework for reasons                  CARES Act, certain employers who pay
     Leave Act and the Emergency Family                       related to COVID–19. An employee can                    qualified wages to their employees are
     and Medical Leave Expansion Act,                         receive up to 10 weeks of paid family                   eligible for an employee retention
     generally requires employers with fewer                  and medical leave at two-thirds the                     credit. Employers eligible for the
     than 500 employees to provide paid                       employee’s regular rate of pay, up to                   employee retention credit are employers
     leave due to certain circumstances                       $200 per day and $10,000 in the                         that carry on a trade or business during
     related to COVID–19.                                     aggregate if the employee is unable to                  calendar year 2020 and tax-exempt
       Division E of the Families First Act,                  work or telework because the employee                   organizations that either have a full or
     the Emergency Paid Sick Leave Act                        is caring for a son or daughter whose                   partial suspension of operations during
     (EPSLA), requires certain employers to                   school or place of care is closed or                    any calendar quarter in 2020 due to an
     provide employees with up to 80 hours                    whose child care provider is unavailable                order from an appropriate governmental
     of paid sick leave if the employee is                    for reasons related to COVID–19.                        authority limiting commerce, travel, or
     unable to work or telework because the                      Sections 7001 and 7003 of the                        group meetings (for commercial, social,
     employee:                                                Families First Act generally provide that               religious, or other purposes) due to
       (1) Is subject to a Federal, State, or                 employers subject to the paid leave                     COVID–19, or experience a significant
     local quarantine or isolation order                      requirements under EPSLA and                            decline in gross receipts during the
     related to COVID–19;                                     EFMLEA (‘‘eligible employers’’) are                     calendar quarter.
       (2) has been advised by a health care                  entitled to fully refundable tax credits to                Qualified wages are wages (as defined
     provider to self-quarantine due to                       cover the cost of the leave required to                 in section 3121(a) of the Code) and
     concerns related to COVID–19;                            be paid for those periods of time during                compensation (as defined in section
       (3) is experiencing symptoms of                        which employees are unable to work or                   3231(e) of the Code) paid by an
     COVID–19 and seeking a medical                           telework for reasons related to COVID–                  employer to some or all employees after
     diagnosis;                                               19.2                                                    March 12, 2020, and before January 1,
       (4) is caring for an individual who is                    Eligible employers are entitled to                   2021, and include the employer’s
     subject to a Federal, State, or local                    receive a refundable credit equal to the                qualified health plan expenses that are
     quarantine or isolation order related to                 amount of the qualified sick leave wages                properly allocable to such wages or
     COVID–19, or has been advised by a                       and qualified family leave wages                        compensation. For employers that
     health care provider to self-quarantine                  (collectively ‘‘qualified leave wages’’),               averaged more than 100 full-time
     due to concerns related to COVID–19;                     plus allocable qualified health plan                    employees during 2019, qualified wages
       (5) is caring for a son or daughter of                 expenses. Under the respective                          are wages and compensation (including
     such employee if the school or place of                  provisions, qualified leave wages are                   allocable qualified health plan
     care of the son or daughter has been                     defined to mean wages (as defined in                    expenses), up to $10,000 per employee,
     closed, or the child care provider of                    section 3121(a) of the Internal Revenue                 paid to employees that are not providing
     such son or daughter is unavailable, due                 Code (Code)) and compensation (as                       services because operations were fully
     to COVID–19 precautions; or                              defined in section 3231(e) of the Code)                 or partially suspended due to orders
       (6) is experiencing any other                          paid by an employer which are required                  from an appropriate governmental
     substantially similar condition specified                to be paid under the EPSLA and                          authority or due to a decline in gross
     by the Secretary of Health and Human                     EFMLEA. See section 7001(c) and                         receipts. For employers who averaged
     Services in consultation with the                        7003(c). The credit is allowed against                  100 full-time employees or fewer during
     Secretaries of the Treasury and Labor.1                  the taxes imposed on employers by                       2019, qualified wages are wages and
       An employee who is unable to work                      section 3111(a) of the Code (the Old-                   compensation (including allocable
     or telework for reasons related to                       Age, Survivors, and Disability Insurance                qualified health plan expenses), up to
     COVID–19 described in (1), (2), or (3)                   tax (social security tax)), first reduced               $10,000 per employee, paid to any
     above is entitled to paid sick leave at the              by any credits claimed under sections                   employee during the period operations
                                                              3111(e) and (f) of the Code, and section
     employee’s regular rate of pay or, if                                                                            were suspended due to orders from an
                                                              3221(a) of the Code (the Railroad
     higher, the Federal minimum wage or
                                                              Retirement Tax Act Tier 1 tax), on all
     any applicable State or local minimum                                                                              3 The credit for the employer’s share of Medicare
                                                              wages and compensation paid to all                      tax does not apply to eligible employers that are
     wage, up to $511 per day and $5,110 in
                                                                                                                      subject to Railroad Retirement Tax Act (RRTA)
     the aggregate. An employee who is                          2 Under sections 7001(d)(4) and 7003(d)(4) of the     because under section 7005(a) of the Families First
                                                              Families First Act, these credits do not apply to the   Act qualified leave wages are not subject to
       1 The U.S. Department of Health and Human              government of the United States, the government of      Medicare tax under RRTA due to that section’s
     Services has not yet specified any other such            any State or political subdivision thereof, or any      reference to section 3221(a) of the Code, which
     conditions as of July 29, 2020.                          agency or instrumentality of any of the foregoing.      includes both social security tax and Medicare tax.



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     45516             Federal Register / Vol. 85, No. 146 / Wednesday, July 29, 2020 / Rules and Regulations

     appropriate governmental authority or                    6413(a),4 the amount of the                           of the employee retention credit under
     due to a decline in gross receipts,                      overpayment shall be refunded (subject                section 2301, subject to the limitations
     regardless of whether its employees are                  to the applicable statute of limitations)             provided in section 2301 and based on
     providing services.                                      as the Secretary may prescribe in                     such information as the Secretary shall
        The employee retention credit is a                    regulations.                                          require.
                                                                The IRS has revised Form 941,                         To implement the advance payment
     fully refundable tax credit for employers
                                                              Employer’s Quarterly Federal Tax                      provisions of the Families First Act and
     equal to 50 percent of qualified wages.                  Return, and is revising Form 943,                     the CARES Act, the IRS has created
     Because the maximum amount of                            Employer’s Annual Federal Tax Return                  Form 7200, Advance Payment of
     qualified wages taken into account with                  for Agricultural Employees, Form 944,                 Employer Credits Due To COVID–19,
     respect to each employee is $10,000, the                 Employer’s Annual Federal Tax Return,                 which employers may use to request an
     maximum employee retention credit for                    and Form CT–1, Employer’s Annual                      advance of the paid sick or family leave
     an eligible employer for qualified wages                 Railroad Retirement Tax Return, so that               credits under the Families First Act, the
     paid to any employee is $5,000. The                      employers may use these returns to                    employee retention credit under the
     credit is allowed against the taxes                      claim the paid sick and family leave                  CARES Act, or two or more of them.
     imposed on employers by section                          credits under the Families First Act and              Employers are required to reconcile any
     3111(a) of the Code, first reduced by any                the employee retention credit under the               advance payments claimed on Form
     credits allowed under sections 3111(e)                   CARES Act. The revised employment                     7200 with total credits claimed and total
     and (f) of the Code and sections 7001                    tax returns will provide for any credits              taxes due on their employment tax
     and 7003 of the Families First Act, and                  in excess of the taxes imposed under                  returns. A refund, a credit, or an
     the taxes imposed under section 3221(a)                  sections 3111(a) or 3221(a) (for the                  advance of any portion of these credits
     of the Code that are attributable to the                 employee retention credit, only the                   to a taxpayer in excess of the amount to
     rate in effect under section 3111(a) of                  taxes imposed under section 3221(a)                   which the taxpayer is entitled is an
     the Code, first reduced by any credits                   that are attributable to the rate in effect           erroneous refund for which the IRS
     allowed under sections 7001 and 7003                     under section 3111(a)) to be credited                 must seek repayment.
     of the Families First Act, on all wages                  against other employment taxes and
                                                                                                                    IV. Assessment Authority
     and compensation paid to all                             then for any remaining balance to be
     employees. The same wages or                             refunded to the employer (per section                   Section 6201, in general, authorizes
     compensation cannot be counted for                       6402(a) or section 6413(b)).5                         the Secretary to determine and assess
     both the Families First Act leave credits                                                                      tax liabilities including interest,
                                                              III. Advance Payment of Credits and                   additional amounts, additions to the tax,
     and the CARES Act employee retention                     Erroneous Refunds
     credit.                                                                                                        and assessable penalties. However, the
                                                                 Section 3606 of the CARES Act                      general authority to assess tax liabilities
     II. Refundability of Credits                             amends sections 7001(b)(4) and                        under section 6201(a) does not allow the
                                                              7003(b)(3) of the Families First Act to               assessment of any non-rebate 6 portion
        Sections 7001(b)(4) and 7003(b)(3) of                 provide that, in anticipation of the paid             of an erroneous refund of a refundable
     the Families First Act provide that if the               sick and family leave credits under                   credit. Instead, non-rebate refunds are
     amount of the paid sick and family                       these sections, including any refundable              generally recovered or recaptured
     leave credits under these sections                       portions (which would include any                     through voluntary payment or litigation.
     exceeds the taxes imposed by section                     increases in the credits under section                The government by appropriate action
     3111(a) or 3221(a) of the Code for any                   7005), these credits may be advanced,                 can bring civil litigation to recover
     calendar quarter, such excess shall be                   according to forms and instructions                   funds which its agents have wrongfully,
     treated as an overpayment that shall be                  provided by the Secretary, up to the                  erroneously, or illegally paid, and no
     refunded under sections 6402(a) and                      total allowable amount and subject to                 statute is necessary to authorize the
     6413(b) of the Code. Section 2301(b)(3)                  applicable limits for the calendar                    government to sue in such a case, since
     of the CARES Act provides that if the                    quarter. Section 2301(l)(1) of the CARES              the right to sue is independent of
     amount of the employee retention credit                  Act provides that the Secretary shall                 statute. United States v. Wurts, 303 U.S.
     exceeds the taxes imposed by section                     issue such forms, instructions,                       414, 415 (1938), citing United States v.
     3111(a) or 3221(a) (limited to the                       regulations, and guidance as are                      The Bank of the Metropolis, 40 U.S. 377
     portion attributable to the rate in effect               necessary to allow the advance payment                (1841). However, the statutory language
     under section 3111(a)) of the Code for                                                                         of the Families First Act and the CARES
     any calendar quarter, such excess shall                    4 Section 6413(a) addresses interest-free           Act provides for the administrative
                                                              adjustments of overpayments. The section provides     recapture of these non-rebate refunds by
     be treated as an overpayment that shall                  that if more than the correct amount of employment
     be refunded under sections 6402(a) and                   tax imposed by section 3101, 3111, 3201, 3221, or
                                                                                                                    authorizing the promulgation of
     6413(b) of the Code.                                     3402 is paid with respect to any payment of           regulations or other guidance to do so.
                                                              remuneration, proper adjustments with respect to        Sections 7001 and 7003 of the
        Section 6402(a) of the Code provides                  both the tax and the amount to be deducted, shall     Families First Act and section 2301 of
     that, within the applicable period of                    be made, without interest, in such manner and at
                                                                                                                    the CARES Act grant authority to the
     limitations, overpayments may be                         such times as the Secretary may by regulations
                                                              prescribe.                                            Department of the Treasury (Treasury
     credited against any liability in respect                  5 Employment tax returns have also been revised     Department) and the IRS to issue
     of an internal revenue tax on the part of                to provide for reporting of any deferral of           regulations or other guidance to
     the person who made the overpayment                      employment taxes under the CARES Act. Section         recapture an erroneous refund of the
     and any remaining balance refunded to                    2302 of the CARES Act provides that employers
                                                                                                                    credits. Specifically, sections 7001(f)
     such person. Section 6413(b) provides                    may defer the deposit and payment of the
                                                              employer’s share of social security tax for the
     that if more than the correct amount of                  payroll tax deferral period of March 27, 2020            6 ’’Non-rebate’’ refers to the portion of any refund

     employment tax imposed by sections                       through December 31, 2020. The deferral applies in    of a credit that exceeds the IRS’s determination of
     3101, 3111, 3201, 3221, or 3402 is paid                  addition to the credits claimed on an employment      the recipient’s tax liability (i.e., the remaining
                                                              tax return, but the deferral does not reduce the      portion of the refund that is paid to the recipient
     or deducted and the overpayment                          amount of the employer’s share of social security     after the refund has been applied to the recipient’s
     cannot be adjusted under section                         tax against which the credits are applied.            tax liability).



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                       Federal Register / Vol. 85, No. 146 / Wednesday, July 29, 2020 / Rules and Regulations                                        45517

     and 7003(f) of the Families First Act and                the CARES Act provide that the credits                manner as the taxes. These temporary
     section 2301(l) of the CARES Act                         described in these sections are taken                 regulations provide that the
     authorize the Secretary to issue                         against the taxes imposed on employers                determination of any amount of credits
     guidance to allow for the administrative                 under sections 3111(a) or 3221(a) of the              erroneously refunded must take into
     reconciliation and recapture of                          Code (for the employee retention credit,              account any credit amounts advanced to
     erroneous refunds. Sections 7001(f) and                  only the taxes imposed under section                  an employer under the process
     7003(f) of the Families First Act                        3221(a) that are attributable to the rate             established by the IRS in accordance
     provide, in relevant part, that the                      in effect under section 3111(a) of the                with sections 7001(b)(4)(A)(ii) and
     Secretary (or the Secretary’s delegate)                  Code). Additionally, if the amount of                 7003(b)(3)(B) of the Families First Act
     shall provide such regulations or other                  the credit exceeds the taxes imposed                  and section 2301(l)(1) of the CARES Act.
     guidance as may be necessary to carry                    under sections 3111(a) or 3221(a) of the                 Because in certain situations third
     out the purposes of the credit, including                Code (for the employee retention credit,              party payors claim credits on behalf of
     regulations or other guidance: (1) To                    only the taxes imposed under section                  their common law employer clients,
     prevent the avoidance of the purposes of                 3221(a) that are attributable to the rate             these temporary regulations also
     the limitations under this provision; (2)                in effect under section 3111(a) of the                provide that employers against whom
     to minimize compliance and record-                       Code) for any calendar quarter, such                  an erroneous refund of credits can be
     keeping burdens associated with the                      excess shall be treated as an                         assessed as an underpayment include
     credit; (3) to provide for a waiver of                   overpayment to be refunded or credited                persons treated as the employer under
     penalties for failure to deposit amounts                 under sections 6402(a) and 6413(b) of                 sections 3401(d), 3504, and 3511 of the
     in anticipation of the allowance of the                  the Code. Any credits claimed that                    Code, consistent with their liability for
     credit; (4) to recapture the benefit of the              exceed the amount to which the                        the section 3111(a) and section 3221(a)
     credit in cases where there is a                         employer is entitled and that are                     taxes against which the credit applied.
     subsequent adjustment to the credit; and                 actually credited or paid by the IRS are                 Finally, these temporary regulations
     (5) to ensure that the wages taken into                  considered to be erroneous refunds of                 apply to all credit refunds under section
     account for the credit conform with the                  the credits. These temporary regulations              7001 and 7003 of the Families First Act
     paid sick leave and paid family leave                    provide that erroneous refunds of these               advanced or paid on or after April 1,
     required to be provided under the                        credits are treated as underpayments of               2020 and all credit refunds under
     Families First Act. Similarly, section                   the taxes imposed under sections                      section 2301 of the CARES Act
     2301(l) of the CARES Act provides in                     3111(a) or 3221(a) of the Code and                    advanced or paid on or after March 13,
     relevant part that the Secretary shall                   authorize the IRS to assess any portion               2020. These applicability dates
     issue such forms, instructions,                          of the credits erroneously credited, paid,            correspond to the effective dates of the
     regulations, and guidance as are                                                                               statutory sections that provide for these
                                                              or refunded in excess of the amount
     necessary to provide for the                                                                                   credits and that authorize guidance to
                                                              allowed as if those amounts were tax
     reconciliation of an advance payment of                                                                        allow for the administrative
                                                              liabilities under sections 3111(a) and
     the employee retention credit with the                                                                         reconciliation and recapture of
                                                              3221(a) subject to assessment and
     amount advanced at the time of filing                                                                          erroneous refunds of these credits.
                                                              administrative collection procedures.                    Sections 7001(g) and 7003(g) of the
     the return of tax for the applicable                     This allows the IRS to efficiently
     calendar quarter or taxable year, and to                                                                       Families First Act provide that sections
                                                              recover the amounts, while also                       7001 and 7003 apply to wages paid with
     provide for the recapture of the credit                  preserving administrative protections
     under section 2301 of the CARES Act if                                                                         respect to the period beginning on a
                                                              afforded to taxpayers with respect to                 date selected by the Secretary of the
     such credit is allowed to a taxpayer that                contesting their tax liabilities under the
     receives a small business loan under                                                                           Treasury which is during the 15-day
                                                              Code and avoiding unnecessary costs                   period beginning on the date of the
     section 1102 of the CARES Act during                     and burdens associated with litigation.
     a subsequent quarter.                                                                                          enactment of the Families First Act
                                                              These assessment and administrative                   (March 18, 2020). In Notice 2020–21,
        Accordingly, this document amends
                                                              collection procedures will apply in the               2020–16 I.R.B. 660, the IRS provided
     the Employment Tax Regulations (26
                                                              normal course in processing                           that the tax credits for qualified sick
     CFR part 31) by adding temporary
                                                              employment tax returns that report                    leave wages and qualified family leave
     regulations under sections 3111 and
                                                              advances in excess of claimed credits                 wages under sections 7001 and 7003 of
     3221 of the Code. Concurrent with the
     publication of this Treasury decision,                   and in examining returns for excess                   the Families First Act apply to wages
     the Treasury Department and the IRS                      claimed credits.                                      paid for the period beginning on April
     are publishing in the Proposed Rules                        Specifically, these temporary                      1, 2020, and ending on December 31,
     section of this issue of the Federal                     regulations provide that any amount of                2020. Section 2301(m) of the CARES Act
     Register a notice of proposed                            the credits for qualified leave wages                 provides that section 2301 applies to
     rulemaking (REG–111879–20) on this                       under sections 7001 and 7003 of the                   wages paid on or after March 13, 2020,
     subject that cross-references the text of                Families First Act, plus any amount of                and before January 1, 2021.
     these temporary regulations. See section                 credits for qualified health plan                        Pursuant to section 7805(b)(2) of the
     7805(e)(1). Interested persons are                       expenses under sections 7001 and 7003,                Code, these temporary regulations are
     directed to the ADDRESSES and                            and including any increases in these                  permitted to apply before the dates
     COMMENTS AND REQUESTS FOR A                              credits under section 7005, and any                   provided under section 7805(b)(1),
     PUBLIC HEARING sections of the                           amount of the employee retention credit               including the date on which these
     preamble to REG–111879–20 for                            for qualified wages under section 2301                temporary regulations are filed with the
     information on submitting public                         of the CARES Act that are erroneously                 Federal Register, because these
     comments or requesting a public                          refunded or credited to an employer                   temporary regulations are being issued
     hearing on the proposed regulations.                     shall be treated as underpayments of the              within 18 months of the date of the
                                                              taxes imposed by section 3111(a) or                   enactment of the relevant statutory
     Explanation of Provisions                                section 3221(a), as applicable, by the                provisions under the Families First Act
       Sections 7001 and 7003 of the                          employer and may be administratively                  and the CARES Act. Accordingly, these
     Families First Act and section 2301 of                   assessed and collected in the same                    temporary regulations apply to all


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     45518             Federal Register / Vol. 85, No. 146 / Wednesday, July 29, 2020 / Rules and Regulations

     credits under sections 7001 and 7003 of                  under section 553(b)(B) of the                        Adoption of Amendments to the
     the Families First Act, as modified by                   Administrative Procedure Act (APA) (5                 Regulations
     section 3606 of the CARES Act,                           U.S.C. 551 et seq.). Section 553(b)(B)                  Accordingly, 26 CFR part 31 is
     including any increases in the credits                   provides that an agency is not required               amended as follows:
     under section 7005 of the Families First                 to publish a notice of proposed
     Act, refunded on or after April 1, 2020,                 rulemaking in the Federal Register                    PART 31—EMPLOYMENT TAXES AND
     including advanced refunds, as well as                   when the agency, for good cause, finds                COLLECTION OF INCOME TAX AT
     all credits under section 2301 of the                    that notice and public comment thereon                SOURCE
     CARES Act that are refunded on or after                  are impracticable, unnecessary, or
     March 13, 2020, including advanced                       contrary to the public interest.                      ■ Paragraph 1. The authority citation
     refunds.                                                 Employers must file Form 941,                         for part 31 is amended by adding entries
                                                              Employer’s Quarterly Federal Tax                      for §§ 31.3111–6T and 31.3221–5T in
     Special Analyses                                                                                               numerical order to read in part as
                                                              Return, for the second quarter of
       The Office of Management and                           calendar year 2020 by July 31, 2020, as               follows:
     Budget’s Office of Information and                       required by section 6071 of the Code                      Authority: 26 U.S.C. 7805.
     Regulatory Analysis has determined that                  and Treas. Reg. § 31.6071(a)–1.
     these temporary regulations are not                                                                            *       *     *     *     *
                                                              Employers use Form 941 to claim                         Section 31.3111–6T also issued under sec.
     significant and not subject to review                    qualified leave credits under the                     7001 and sec. 7003 of the Families First
     under section 6(b) of Executive Order                    Families First Act and the employee                   Coronavirus Response Act of 2020 and sec.
     12866.                                                   retention credit under the CARES Act,                 2301 of the Coronavirus Aid, Relief, and
       Pursuant to the Regulatory Flexibility                 as well as to report any advance of these             Economic Security Act of 2020.
     Act (5 U.S.C. chapter 6), the Secretary                  credits they received during the quarter.             *       *     *     *     *
     certifies that these temporary                           In filing their second quarter 2020 Form                Section 31.3221–5T also issued under sec.
     regulations will not have a significant                  941, some employers will report and                   7001 and sec. 7003 of the Families First
     economic impact on a substantial                         receive, or will have already received as             Coronavirus Response Act of 2020 and sec.
     number of small entities because these                   an advance, refund amounts in excess of               2301 of the Coronavirus Aid, Relief, and
     temporary regulations impose no                                                                                Economic Security Act of 2020.
                                                              the refund to which they are entitled.
     compliance burden on any business                        These temporary regulations authorize                 *       *     *     *     *
     entities, including small entities.                      the assessment of any such erroneous                  ■ Par. 2.Section 31.3111–6T is added to
     Although these temporary regulations                     refunds. Without these temporary                      read as follows:
     will apply to all employers eligible for                 regulations, in some instances the IRS
     the credits under the Families First Act                 may not be able to avoid bringing costly              § 31.3111–6T Recapture of credits under
     and the CARES Act, including small                       and burdensome litigation to recover                  the Families First Coronavirus Response
     businesses and tax-exempt                                                                                      Act and the Coronavirus Aid, Relief, and
                                                              such reported erroneous refunds.                      Economic Security Act.
     organizations with fewer than 500                        Further, comments are being solicited in
     employees, and will therefore be likely                                                                           (a) Recapture of erroneously refunded
                                                              the cross-referenced notice of proposed
     to affect a substantial number of small                                                                        credits under the Families First
                                                              rulemaking that is in this issue of the
     entities, the economic impact will not                                                                         Coronavirus Response Act. Any amount
                                                              Federal Register, and any comments
     be significant. These temporary                                                                                of credits for qualified sick leave wages
                                                              will be considered before final
     regulations do not affect the employer’s                                                                       or qualified family leave wages under
                                                              regulations are issued.
     employment tax reporting or the                                                                                sections 7001 and 7003, respectively, of
     necessary information to substantiate                    Statement of Availability of IRS                      the Families First Coronavirus Response
     entitlement to the credits. Rather, these                Documents                                             Act (Families First Act), Public Law
     temporary regulations merely                               IRS notices and other guidance cited                116–127, 134 Stat. 178 (2020), as
     implement the statutory authority                        in this preamble are published in the                 modified by section 3606 of the
     granted under sections 7001(f) and                       Internal Revenue Bulletin (or                         Coronavirus Aid, Relief, and Economic
     7003(f) of the Families First Act and                    Cumulative Bulletin) and are available                Security Act (CARES Act), Public Law
     section 2301(l) of the CARES Act that                    from the Superintendent of Documents,                 116–136, 134 Stat. 281 (2020), plus any
     authorize the IRS to assess, reconcile,                  U.S. Government Publishing Office,                    amount of credits for qualified health
     and recapture any portion of the credits                 Washington, DC 20402, or by visiting                  plan expenses under sections 7001 and
     erroneously credited, paid, or refunded                  the IRS website at http://www.irs.gov.                7003, and including any increases in
     in excess of the actual amount allowed                                                                         those credits under section 7005 of the
     as if the amounts were tax liabilities                   Drafting Information                                  Families First Act, that are treated as
     under sections 3111(a) and 3221(a)                         The principal author of these                       overpayments and refunded or credited
     subject to assessment and                                temporary regulations is NaLee Park,                  to an employer under section 6402(a) or
     administrative collection procedures.                    Office of the Associate Chief Counsel                 section 6413(b) of the Internal Revenue
     Notwithstanding this certification, the                  (Employee Benefits, Exempt                            Code (Code) and to which the employer
     Treasury Department and the IRS invite                   Organizations, and Employment Taxes).                 is not entitled, resulting in an erroneous
     comments on any impact these                             However, other personnel from the                     refund to the employer, shall be treated
     temporary regulations would have on                      Treasury Department and the IRS                       as an underpayment of the taxes
     small entities.                                          participated in the development of these              imposed by section 3111(a) of the Code
       Pursuant to section 7805(f), these                     temporary regulations.                                and may be assessed and collected by
     temporary regulations have been                                                                                the Secretary in the same manner as the
     submitted to the Chief Counsel of the                    List of Subjects in 26 CFR 31                         taxes.
     Office of Advocacy of the Small                            Employment taxes, Income taxes,                        (b) Recapture of erroneously refunded
     Business Administration for comment                      Penalties, Pensions, Railroad retirement,             credits under the Coronavirus Aid,
     on its impact on small business.                         Reporting and recordkeeping                           Relief, and Economic Security Act. Any
       The Treasury Department and the IRS                    requirements, Social security,                        amount of credits for qualified wages
     have determined that good cause exists                   Unemployment compensation.                            under section 2301 of the CARES Act


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                       Federal Register / Vol. 85, No. 146 / Wednesday, July 29, 2020 / Rules and Regulations                                              45519

     that is treated as an overpayment and                    modified by section 3606 of the                       CARES Act advanced or paid on or after
     refunded or credited to an employer                      Coronavirus Aid, Relief, and Economic                 March 13, 2020.
     under section 6402(a) or section 6413(b)                 Security Act (CARES Act), Public Law
                                                                                                                    Sunita Lough,
     of the Code and to which the employer                    116–136, 134 Stat. 281 (2020), plus any
                                                                                                                    Deputy Commissioner for Services and
     is not entitled, resulting in an erroneous               amount of credits for qualified health
                                                                                                                    Enforcement.
     refund to the employer, shall be treated                 plan expenses under sections 7001 and
                                                                                                                      Approved: July 14, 2020.
     as an underpayment of the taxes                          7003, that are treated as overpayments
     imposed by section 3111(a) of the Code                   and refunded or credited to an employer               David J. Kautter,
     and may be assessed and collected by                     under section 6402(a) or section 6413(b)              Assistant Secretary of the Treasury (Tax
     the Secretary in the same manner as the                  of the Internal Revenue Code (Code) and               Policy).
     taxes.                                                   to which the employer is not entitled,                [FR Doc. 2020–16302 Filed 7–24–20; 4:15 pm]
        (c) Advance credit amounts                            resulting in an erroneous refund to the               BILLING CODE 4830–01–P
     erroneously refunded. The                                employer, shall be treated as an
     determination of any amount of credits                   underpayment of the taxes imposed by
     erroneously refunded as described in                     section 3221(a) of the Code and may be                DEPARTMENT OF HOMELAND
     paragraphs (a) and (b) of this section                   assessed and collected by the Secretary               SECURITY
     must take into account any amount of                     in the same manner as the taxes.
     credits advanced to an employer under                       (b) Recapture of erroneously refunded              Coast Guard
     the process established by the Internal                  credits under the Coronavirus Aid,
     Revenue Service in accordance with                       Relief, and Economic Security Act. Any                33 CFR Part 165
     sections 7001(b)(4)(A)(ii) and                           amount of credits for qualified wages                 [Docket Number USCG–2020–0408]
     7003(b)(3)(B) of the Families First Act,                 under section 2301 of the CARES Act
     as modified by section 3606 of the                                                                             RIN 1625–AA00
                                                              that is treated as an overpayment and
     CARES Act, and section 2301(l)(1) of the                 refunded or credited to an employer                   Emergency Safety Zone; Lower
     CARES Act.                                               under section 6402(a) or section 6413(b)              Mississippi River, Helena, AR
        (d) Third party payors. For purposes                  of the Code and to which the employer
     of this section, employers against whom                  is not entitled, resulting in an erroneous            AGENCY: Coast Guard, DHS.
     an erroneous refund of the credits under                 refund to the employer, shall be treated              ACTION: Temporary final rule.
     sections 7001 and 7003 of the Families                   as an underpayment of the taxes
     First Act (including any increases in                                                                          SUMMARY: The Coast Guard is
                                                              imposed by section 3221(a) of the Code
     those credits under section 7005 of the                  and may be assessed and collected by                  establishing a safety zone for emergency
     Families First Act), as modified by                      the Secretary in the same manner as the               purposes for all waters of the Lower
     section 3606 of the CARES Act, and the                   taxes.                                                Mississippi River (LMR), extending
     credits under section 2301 of the CARES                                                                        from mile 660.0 to mile 663.0. This
                                                                 (c) Advance credit amounts
     Act can be assessed as an underpayment                                                                         emergency safety zone is needed to
                                                              erroneously refunded. The
     of the taxes imposed by section 3111(a)                                                                        protect persons, property, and
                                                              determination of any amount of credits
     include persons treated as the employer                                                                        infrastructure from the potential safety
                                                              erroneously refunded as described in
     under sections 3401(d), 3504, and 3511                                                                         hazards associated with the diving and
                                                              paragraphs (a) and (b) of this section
     of the Code, consistent with their                                                                             salvage effort of a sunken barge at
                                                              must take into account any amount of
     liability for the section 3111(a) taxes                                                                        Mississippi River Mile Marker (MM)
                                                              credits advanced to an employer under
     against which the credit applied.                                                                              661.0, in the vicinity of the Helena
                                                              the process established by the Internal
        (e) Applicability date. This regulation                                                                     Highway Bridge, Helena, Arkansas.
                                                              Revenue Service in accordance with
     applies to all credit refunds under                                                                            Deviation from the safety zone is
                                                              sections 7001(b)(4)(A)(ii) and
     sections 7001 and 7003 of the Families                                                                         prohibited unless specifically
                                                              7003(b)(3)(B) of the Families First Act,
     First Act (including any increases in                                                                          authorized by the Captain of the Port
                                                              as modified by section 3606 of the
     those credits under section 7005 of the                                                                        Lower Mississippi River or a designated
                                                              CARES Act, and section 2301(l)(1) of the
     Families First Act), as modified by                                                                            representative.
                                                              CARES Act.
     section 3606 of the CARES Act,                                                                                 DATES: This rule is effective without
                                                                 (d) Third party payors. For purposes
     advanced or paid on or after April 1,                    of this section, employers against whom               actual notice from July 29, 2020 through
     2020 and all credit refunds under                        an erroneous refund of the credits under              August 30, 2020, or until all diving and
     section 2301 of the CARES Act                            sections 7001 and 7003 of the Families                salvage work is complete, whichever
     advanced or paid on or after March 13,                   First Act, as modified by section 3606                occurs earlier. For the purposes of
     2020.                                                    of the CARES Act, and the credits under               enforcement, actual notice will be used
     ■ Par. 3.Section 31.3221–5T is added to
                                                              section 2301 of the CARES Act can be                  from July 13, 2020 through July 29,
     read as follows:                                         assessed as an underpayment of the                    2020.
     § 31.3221–5T Recapture of credits under                  taxes imposed by section 3221(a)                      ADDRESSES: To view documents
     the Families First Coronavirus Response                  include persons treated as the employer               mentioned in this preamble as being
     Act and the Coronavirus Aid, Relief, and                 under sections 3401(d), 3504, and 3511                available in the docket, go to https://
     Economic Security Act.                                   of the Code, consistent with their                    www.regulations.gov, type USCG–2020–
       (a) Recapture of erroneously refunded                  liability for the section 3221(a) taxes               0408 in the ‘‘SEARCH’’ box and click
     credits under the Families First                         against which the credit applied.                     ‘‘SEARCH.’’ Click on Open Docket
     Coronavirus Response Act. Any amount                        (e) Applicability date. This regulation            Folder on the line associated with this
     of credits for qualified sick leave wages                applies to all credit refunds under                   rule.
     or qualified family leave wages under                    sections 7001 and 7003 of the Families                FOR FURTHER INFORMATION CONTACT: If
     sections 7001 and 7003, respectively, of                 First Act, as modified by section 3606                you have questions on this rule, call or
     the Families First Coronavirus Response                  of the CARES Act, advanced or paid on                 email LT Adam J. Paz, U.S. Coast Guard;
     Act (Families First Act), Public Law                     or after April 1, 2020, and all credit                telephone 901–521–4825, email
     116–127, 134 Stat. 178 (2020), as                        refunds under section 2301 of the                     adam.j.paz@uscg.mil.


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