Rev. Proc. 2021-33: 26 CFR 601.105 Examination of Returns and Claims for Refund, Credit or Abatement
Summary
Rev. Proc. 2021-33 states that it provides a safe harbor permitting a taxpayer to exclude certain items from "gross receipts" under the Internal Revenue Code, solely for purposes of determining eligibility to claim the employee retention credit under section 2301 of the CARES Act. The items covered are the amount of forgiveness of a Paycheck Protection Program (PPP) loan, a grant under section 324 of the Economic Aid Act, and a restaurant revitalization grant under section 5003 of the ARP. Its background section describes the employee retention credit, eligible employers, PPP loans and the grants. The drafting information names Anna Gleysteen of the Office of the Associate Chief Counsel (Income Tax & Accounting) as principal author.
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- Date
- 2021-08-10
Cite this document
“Rev. Proc. 2021-33: 26 CFR 601.105 Examination of Returns and Claims for Refund, Credit or Abatement.”
Original at www.irs.gov, dated 2021-08-10. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/2021-08-10-internal-revenue-service-revenue-procedure-2021-33-safe-har-0f22d4e59a/
, SHA-256 2277478b99ac83e0617ca9d716d5ee170d2f43d9a7f8601e823905c0cf290165.Full text
Part III
Administrative, Procedural, and Miscellaneous
26 CFR 601.105 Examination of returns and claims for refund, credit or abatement;
determination of correct tax liability.
Also Part I, § 3134; § 2301 of Public Law 116-136
Rev. Proc. 2021-33
SECTION 1. PURPOSE
This revenue procedure provides a safe harbor that permits a taxpayer to exclude
certain items from “gross receipts” under §§ 448(c) and 6033 of the Internal Revenue
Code (Code), as applicable, solely for purposes of determining eligibility to claim the
employee retention credit under section 2301 of the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act), Public Law 116-136, 134 Stat. 281 (March 27,
2020), as amended by sections 206 and 207 of the Taxpayer Certainty and Disaster
Tax Relief Act of 2020 (Relief Act), enacted as Division EE of the Consolidated
Appropriations Act, 2021 (CAA), Public Law 116-260, 134 Stat. 1182 (December 27,
2020), and extended by section 9651 of the American Rescue Plan Act of 2021 (ARP),
Public Law 117-2, 135 Stat. 4 (March 11, 2021). The items covered by the safe harbor
are: (1) the amount of the forgiveness of a Paycheck Protection Program (PPP) loan
under section 7(a)(37) or 7A of the Small Business Act, (2) a grant under section 324 of
the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic
Aid Act), enacted as Title III of Division N of the CAA, and (3) a restaurant revitalization
grant under section 5003 of the ARP.
SECTION 2. BACKGROUND
.01 Employee Retention Credit.
(1) As originally enacted, section 2301 of the CARES Act permits eligible
employers, including tax-exempt organizations, that pay qualified wages after March 12,
2020, and before January 1, 2021, to claim an employee retention credit against
applicable employment taxes. Section 206 of the Relief Act adopted amendments and
technical changes to section 2301 of the CARES Act for qualified wages paid after
March 12, 2020, and before January 1, 2021. Section 207 of the Relief Act amended
section 2301 of the CARES Act to extend the application of the employee retention
credit to qualified wages paid after December 31, 2020, and before July 1, 2021, and to
modify the calculation of the credit amount for qualified wages paid during that time, in
addition to making other changes. Section 9651 of the ARP added § 3134 to the Code,
providing an employee retention credit for wages paid after June 30, 2021, and before
January 1, 2022. 1
1 The modifications made by the Relief Act or the ARP to the employee retention credit are not relevant
to this revenue procedure, except to the extent specifically discussed herein. Nonetheless, references to
the employee retention credit and other related terms in this revenue procedure should be read to
incorporate the changes to the applicable rules made by the Relief Act and the ARP for the relevant
calendar quarters in 2020 and 2021.
2
(2) Notice 2021-20, 2021-11 I.R.B. 922 (March 15, 2021), and Notice 2021-23,
2021-16 I.R.B. 1113 (April 19, 2021), provide additional guidance on eligibility for, and
the claiming of, the employee retention credit for qualified wages paid after March 12,
2020, and before January 1, 2021, and for qualified wages paid after December 31,
2020, and before July 1, 2021, respectively. Notice 2021-49, 2021-34 I.R.B. ___
(August 23, 2021) provides separate guidance on the employee retention credit under
§ 3134 of the Code for qualified wages paid after June 30, 2021, and before January 1,
2022.
.02 Eligible Employer. The employee retention credit is available only to employers
that are eligible employers, as defined in section 2301(c)(2) of the CARES Act, as
amended by section 207 of the Relief Act, or § 3134(c)(2) of the Code, for the
applicable calendar quarters in 2020 and 2021. An employer may be eligible for the
employee retention credit if its gross receipts for a calendar quarter decline by a certain
percentage as compared to a prior calendar quarter. The method used to determine if
an employer is an eligible employer based on experiencing the requisite percentage
decline in gross receipts varies depending on the calendar quarter for which the
employer is determining its eligibility for the employee retention credit. Taxpayers
should refer to section III.E. of Notice 2021-20, section III.C. of Notice 2021-23, and
section III.D of Notice 2021-49 for these rules, as applicable. All persons treated as a
single employer under § 52(a) or (b) of the Code, or § 414(m) or (o) of the Code, are
treated as a single employer for purposes of the employee retention credit. See Notice
2021-20, section III.E. and § 3134(d) of the Code.
.03 PPP Loans and interaction with the employee retention credit.
3
(1) Section 1102 and 1106 of the CARES Act, as amended by the Paycheck
Protection Program Flexibility Act of 2020 (Public Law 116–142) and the Economic Aid
Act, established the PPP, which allows “eligible recipients” to obtain loans guaranteed
by the Administrator of the Small Business Administration under section 7(a)(36) of the
Small Business Act (15 U.S.C. § 636(a)(36)) (PPP First Draw Loans). Section 1109 of
the CARES Act provides additional authority to permit certain lenders to participate in
the PPP by making loans (Section 1109 Loans) that must be consistent, to the
maximum extent practicable, with the terms and conditions for loans under the PPP.
Section 311 of the Economic Aid Act authorized additional loans to be made to “eligible
entities” (PPP Second Draw Loans) under section 7(a)(37) of the Small Business Act
(15 U.S.C. § 636(a)(37)).
(2) Section 1106 of the CARES Act, originally codified at 15 U.S.C. § 9005,
provides that an eligible recipient of a PPP First Draw Loan is eligible for forgiveness of
all or a portion of the principal amount of the PPP First Draw Loan if certain conditions
are met. Section 304 of the Economic Aid Act redesignated, transferred, and amended
section 1106 of the CARES Act as section 7A of the Small Business Act, to be inserted
after section 7 of the Small Business Act (15 U.S.C. § 636). Section 311 of the
Economic Aid Act provides that an eligible entity is eligible for forgiveness of a PPP
Second Draw Loan in the same manner as an eligible recipient with respect to a PPP
First Draw Loan made under section 7(a)(36) of the Small Business Act. Section
1109(d)(2)(D) of the CARES Act provides that the terms and conditions for forgiveness
of Section 1109 Loans must be consistent, to the maximum extent practicable, with the
terms and conditions under section 1106 of the CARES Act regarding PPP First Draw
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Loans. Collectively, this revenue procedure refers to PPP First Draw Loans, Section
1109 Loans, and PPP Second Draw Loans as “PPP Loans,” all of which are covered
loans under either section 7(a)(37) or 7A of the Small Business Act.
(3) An employer that receives a PPP Loan may claim the employee retention
credit available to it for the calendar quarter, subject to the restriction that the qualified
wages may not be counted both for the employee retention credit and as payroll costs
that are paid during the covered period (payroll costs) to the extent the payroll costs
qualify the eligible employer for forgiveness under the PPP. See section 2301(g) of the
CARES Act, section 7A(a)(12) of the Small Business Act, as amended by section
206(c)(1) of the Relief Act, and § 3134(h)(1)(A) and (h)(2) of the Code. See also
Section III.I of Notice 2021-20.
.04 Certain grants and interaction with the employee retention credit.
(1) Section 324 of the Economic Aid Act authorizes the Small Business
Administration to make grants to eligible live venue, performing arts, and museum
operators and promoters (shuttered venue operator grants). Shuttered venue operator
grant funds may be used for certain qualifying expenses, including payroll costs, which
has the same meaning as under section 7(a)(36)(A) of the Small Business Act. See
section 324(d)(2)(A) of the Economic Aid Act. Section 5003 of the ARP provides grants
to qualifying restaurants and food vendors (restaurant revitalization grants). Restaurant
revitalization grants may be used for certain qualifying expenses, including payroll
costs, which has the same meaning as under section 7(a)(36)(A) of the Small Business
Act, except that the term does not include qualified wages taken into account in
determining the employee retention credit under section 2301 of the CARES Act. See
5
section 5003(a)(8)(A) of the ARP. Collectively, these two grants are referred to as
“ERC-Coordinated Grants” in this revenue procedure.
(2) Under § 3134(h)(1)(B) and (C) of the Code, an employer that receives an ERC-
Coordinated Grant may claim the employee retention credit available to it for the
calendar quarter, subject to the restriction that the qualified wages may not be counted
both for the employee retention credit and as payroll costs in connection with an ERC-
Coordinated Grant.
.05 Exclusion from gross income.
(1) Sections 276(a)(1), 276(b), and 278(a) of the COVID-related Tax Relief Act
each provide that no amount is included in the gross income of an eligible recipient or
eligible entity, as applicable, by reason of the forgiveness of a PPP First Draw Loan,
Section 1109 Loan, or PPP Second Draw Loan, respectively, and that no deduction is
denied, no tax attribute is reduced, and no basis increase is denied, by reason of such
exclusion from gross income.
(2) Section 278(d) of the COVID-related Tax Relief Act provides guidance
regarding the Federal income tax consequences of shuttered venue operator grants.
Specifically, section 278(d) of the COVID-related Tax Relief Act provides that no
amount of a shuttered venue operator grant is included in the gross income of an
eligible recipient, and that no deduction is denied, no tax attribute is reduced, and no
basis increase is denied, by reason of such exclusion from gross income.
(3) Section 9673 of the ARP provides guidance regarding the Federal income tax
consequences of a restaurant revitalization grant. Specifically, section 9673 of the ARP
provides that no amount of the restaurant revitalization grant is included in the gross
6
income of an eligible recipient, and that no deduction is denied, no tax attribute is
reduced, and no basis increase is denied, by reason of such exclusion from gross
income.
.06 Gross receipts.
(1) For purposes of determining eligibility to claim the employee retention credit,
other than in the case of a tax-exempt entity, “gross receipts” are defined by reference
to § 448(c) of the Code. See section 2301(c)(2)(B)(i) of the CARES Act; section
2301(c)(2)(A)(ii)(II) of the CARES Act as amended by section 207(d) of the Relief Act;
§ 3134(c)(2)(A) of the Code. Section 1.448-1T(f)(2)(iv) of the Income Tax Regulations
provides, in relevant part, that “gross receipts” are the gross receipts of the taxable year
in which such receipts are properly recognized under the taxpayer's accounting method
used in that taxable year for Federal income tax purposes, determined without regard to
§ 1.448-1T. For this purpose, gross receipts include total sales, net of returns and
allowances, and all amounts received for services. In addition, gross receipts include
any income from investments, and from incidental or outside sources, regardless of
whether that income is included in the taxpayer’s gross income under § 61 of the Code.
For example, gross receipts include tax-exempt interest within the meaning of § 103 of
the Code even though that interest is not included in the taxpayer’s gross income under
§ 61 of the Code. In addition, gross receipts are reduced by the taxpayer's adjusted
basis in the property sold for sales of capital assets as defined in § 1221 of the Code, or
sales of property described in § 1221(2), relating to property used in a trade or
business.
7
(2) In the case of a tax-exempt organization determining eligibility to claim the
employee retention credit, “gross receipts” are defined by reference to § 6033 of the
Code. See section 2301(c)(2)(C) of the CARES Act as amended by section 206(a) of
the Relief Act; § 3134(c)(2)(C) of the Code. Section 1.6033-2(g)(4) of the Income Tax
Regulations provides, in relevant part, that “gross receipts” are the gross amount
received by the organization during its annual accounting period from all sources
without reduction for any costs or expenses including, for example, cost of goods or
assets sold, cost of operations, or expenses of earning, raising, or collecting those
amounts. Thus, for a tax-exempt organization, “gross receipts” includes, but is not
limited to (i) the gross amount received as contributions, gifts, grants, and similar
amounts without reduction for the expenses of raising and collecting those amounts,
(ii) the gross amount received as dues or assessments from members or affiliated
organizations without reduction for expenses attributable to the receipt of those
amounts, (iii) gross sales or receipts from business activities (including business
activities unrelated to the purpose for which the organization qualifies for exemption, the
net income or loss from which may be required to be reported on Form 990-T, Exempt
Organization Business Income Tax Return (and Proxy Tax Under Section 6033(e)),
(iv) the gross amount received from the sale of assets without reduction for cost or other
basis and expenses of sale, and (v) the gross amount received as investment income,
such as interest, dividends, rents, and royalties. In determining its gross receipts, a tax-
exempt organization should generally use the same accounting method that it regularly
uses to keep its books and records. For example, if a donor makes an unconditional
pledge to a tax-exempt organization and the pledge will be paid over three years, a tax-
8
exempt organization using an accrual method of accounting discounts the pledge to its
present value and treats that amount as gross receipts in the first year, whereas a tax-
exempt organization using the cash method of accounting treats only the amount of the
pledge it actually receives each year as gross receipts for that year.
SECTION 3. EMPLOYEE RETENTION CREDIT GROSS RECEIPTS SAFE HARBOR
.01 In general. Although the amount of forgiveness of a PPP Loan is not included in
gross income, that forgiveness amount would be included in gross receipts under
§ 448(c) of the Code and § 1.448-1T(f)(2)(iv), or § 6033 of the Code and § 1.6033-
2(g)(4), as applicable. Similarly, the amount of an ERC-Coordinated Grant received by
a taxpayer is not included in gross income, but the amount would be included in gross
receipts. Therefore, unless an employer uses the safe harbor as provided in this
section 3, the employer must include the amount of the forgiveness of a PPP Loan and
the amount of any ERC-Coordinated Grants in gross receipts for determining eligibility
to claim the employee retention credit with respect to applicable calendar quarters in
2020 and 2021.
.02 Safe Harbor. Section 2301(g) of the CARES Act and § 3134(h) of the Code set
forth a coordination rule providing that the employee retention credit does not apply to
so much of the qualified wages paid by an eligible employer as are taken into account
as payroll costs in connection with forgiveness of a PPP Loan or, in the case of
§ 3134(h), an ERC-Coordinated Grant (relief programs). This rule demonstrates a
congressional intent that an employer be able to participate in the relief programs and
also claim the employee retention credit, provided that the same dollar of wages that
are paid for or reimbursed with relief program funds may not be treated as qualified
9
wages for purposes of the employee retention credit. Including the amount of the
forgiveness of a PPP Loan or the amount of an ERC-Coordinated Grant in gross
receipts for determining eligibility to claim the employee retention credit could frustrate
this congressional intent. Specifically, an employer that participated in one or more of
the relief programs and that otherwise has the requisite percentage decline in gross
receipts might be precluded from claiming an employee retention credit with respect to a
calendar quarter in which there is the decline in gross receipts solely because its
participation in the relief program resulted in a temporary increase in gross receipts
within the meaning of the tax law. Accordingly, this revenue procedure provides a safe
harbor that permits an employer to exclude the amount of the forgiveness of a PPP
Loan and the amount of ERC-Coordinated Grants from the definition of gross receipts
solely for the purpose of determining eligibility to claim the employee retention credit
(safe harbor). An employer is not required to apply this safe harbor. This safe harbor
does not permit the exclusion of the amount of forgiveness of a PPP Loan or the
amount of ERC-Coordinated Grants from the definition of gross receipts under § 448(c)
or § 6033 of the Code for any other Federal tax purpose.
.03 Application of safe harbor. An employer may exclude the amount of the
forgiveness of a PPP Loan and the amount of any ERC-Coordinated Grants from its
gross receipts in determining eligibility to claim the employee retention credit for a
calendar quarter if the employer consistently applies this safe harbor in determining
eligibility to claim the employee retention credit. An employer consistently applies this
safe harbor by (i) excluding the amount of the forgiveness of any PPP Loan and the
amount of any ERC-Coordinated Grant from its gross receipts for each calendar quarter
10
in which gross receipts for that calendar quarter are relevant to determining eligibility to
claim the employee retention credit, and (ii) applying the safe harbor to all employers
treated as a single employer under the employee retention credit aggregation rules.
.04 Manner of electing to use the safe harbor. An employer elects to use the safe
harbor by excluding the amount of the forgiveness of a PPP Loan and the amount of
ERC-Coordinated Grants from its gross receipts when determining eligibility to claim the
employee retention credit on its employment tax return or adjusted employment tax
return for that calendar quarter or, for employers that file employment tax returns on an
annual basis, for the year including the calendar quarter.
.05 Revocation of safe harbor election. Subject to the rule in section 3.03 of this
revenue procedure, an employer may revoke its safe harbor election by including the
amount of the forgiveness of the PPP Loan or the amount of ERC-Coordinated Grants
in its gross receipts when determining eligibility to claim the employee retention credit
for a calendar quarter on its adjusted employment tax return for that calendar quarter or,
for employers that file employment tax returns on an annual basis, for the year including
the calendar quarter. Due to the consistency rule in section 3.03 of this revenue
procedure, the employer must adjust all employment tax returns that are affected by the
revocation of the safe harbor election.
SECTION 4. SUBSTANTIATION REQUIREMENTS
An employer must retain in the employer’s records support for the credit claimed,
including the use of the safe harbor set forth in this revenue procedure. See also
Notices 2021-20, 2021-23, and 2021-49.
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SECTION 5. EFFECT ON OTHER DOCUMENTS
.01 Notice 2021-20, 2021-11 I.R.B. 922 (March 15, 2021), is amplified.
.02 Notice 2021-23, 2021-16 I.R.B. 1113 (April 19, 2021), is amplified.
.03 Notice 2021-49, 2021-34 I.R.B. ___ (August 23, 2021), is amplified.
SECTION 6. EFFECTIVE DATE
This revenue procedure applies for purposes of determining eligibility to claim the
employee retention credit for wages paid after March 12, 2020, and before January 1,
2022.
SECTION 7. PAPERWORK REDUCTION ACT
Any collection of information associated with this notice has been submitted to the
Office of Management and Budget for review under OMB control number 1545-0029 in
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). An agency
may not conduct or sponsor and a person is not required to respond to a collection of
information unless it displays a valid OMB control number.
SECTION 8. DRAFTING INFORMATION
The principal author of this revenue procedure is Anna Gleysteen of the Office of the
Associate Chief Counsel (Income Tax & Accounting). However, other personnel from
the Department of the Treasury and the Internal Revenue Service participated in its
development. For further information on this revenue procedure regarding taxable
entities, contact Ms. Gleysteen at (202) 317-7007 (not a toll-free call). For further
information on this revenue procedure regarding exempt organizations, contact Amber
MacKenzie at (202) 317-4809 (not a toll-free call).
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