Revenue Procedure 2021-33 provides a safe harbor permitting employers to exclude certain amounts from gross receipts solely for determining eligibility for the ERC. These amounts are:
- The amount of the forgiveness of a Paycheck Protection Program (PPP) Loan;
- Shuttered Venue Operators Grants under the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act; and
- Restaurant Revitalization Grants under the American Rescue Plan Act of 2021.
An employer elects to apply the safe harbor by excluding these amounts solely for determining whether it is an eligible employer for a calendar quarter for purposes of claiming the ERC on its employment tax return.
Troas Bible College (TBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii). They are required to file Form 990 annually.
The Finance Team at TBC has been working on the possibility of their institution’s taking advantage of the Employee Retention Credit(s) (ERC). They are wondering whether Paycheck Protection Program loan/grant “proceeds” should be included in “gross receipts” for ERC purposes.
The answer is NO – you may omit the PPP funds!
But remember, you cannot “double dip” with PPP, ERC, and/or HEERF funds. In the words of Rev. Proc. 2021-33, “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.”
Assessing whether an institution is an “ERC Eligible Employer” can be complicated – but that should not deter you from making this assessment. Touch base with your qualified tax advisor.
From Revenue Procedure 2021-33:
.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.
(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 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. [Underlines added.]
- Rev. Proc. 2021-33 gives guidance that PPP loan/grant amounts are not counted in “gross receipts” for ERC purposes.
- Your institution should carefully review/assess whether you are an “eligible employer” for ERC purposes.
- Remember, you cannot “double dip” when it comes to funding for ERC, PPP forgiveness, and/or HEERF spending.
- More to follow on ERC “gross receipts” – stay tuned!
Specific questions? Email Dave Moja – firstname.lastname@example.org
The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.
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