Bulletin No. 2021–34

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2021–34

August 23, 2021

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

ADMINISTRATIVE, EMPLOYMENT TAX,

EXEMPT ORGANIZATIONS

Rev. Proc. 2021-33, page 327.

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), as amended by sections 206 and 207 of

the Taxpayer Certainty and Disaster Tax Relief Act of 2020,

enacted as Division EE of the Consolidated Appropriations

Act, 2021 (CAA), and under section 3134 of the Code as

enacted by section 9651 of the American Rescue Plan Act of

2021 (the ARP). The items covered by the safe harbor are:

(1) the amount of the forgiveness of a Paycheck Protection

Program 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,

enacted as Title III of Division N of the CAA, and (3) a restaurant revitalization grant under section 5003 of the ARP.

EMPLOYMENT TAX

Notice 2021-49, page 316.

Notice 2021-49 provides guidance on the employee retention credit provided under section 3134 of the Internal

Finding Lists begin on page ii.

Revenue Code (the Code), as added by section 9651 of the

American Rescue Plan Act (ARP), applicable to qualified wages paid after June 30, 2021, and before January 1, 2022.

Notice 2021-49 also provides guidance on several issues

that arise under both section 2301 of the Coronavirus Aid,

Relief and Economic Security Act (CARES Act) and section

3134 of the Code. The miscellaneous issues addressed in

this notice respond to various questions that the Treasury

Department and the Internal Revenue Service have received

about the employee retention credit applicable to both section 2301 of the CARES Act and section 3134 of the Code

for qualified wages paid after March 12, 2020 and before

January 1, 2022. Notice 2021-49 amplifies Notice 2021-20

and Notice 2021-23.

INCOME TAX

Rev. Proc. 2021-31, page 324.

This revenue procedure provides: (1) two tables of limitations

on depreciation deductions for owners of passenger automobiles placed in service by the taxpayer during calendar

year 2021; and (2) a table of dollar amounts that must be

used to determine income inclusions by lessees of passenger automobiles with a lease term beginning in calendar year

2021. The tables detailing these depreciation limitations and

amounts used to determine lessee income inclusions reflect

the automobile price inflation adjustments required by section 280F(d)(7). For purposes of this revenue procedure, the

term “passenger automobiles” includes trucks and vans.

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Provide America’s taxpayers top-quality service by helping

them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.

Introduction

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of the tax laws, including all rulings that supersede, revoke,

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identifying details and information of a confidential nature are

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Rulings and procedures reported in the Bulletin do not have the

force and effect of Treasury Department Regulations, but they

may be used as precedents. Unpublished rulings will not be

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This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

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August 23, 2021 

Bulletin No. 2021–34

Part III

Guidance on the Employee

Retention Credit under

Section 3134 of the Code

and on Miscellaneous

Issues Related to the

Employee Retention Credit

tion 2301 of the CARES Act and section

3134 of the Code. The Department of the

Treasury (Treasury Department) and the

Internal Revenue Service (IRS) will continue to monitor potential legislation related to the employee retention credit that

may impact certain rules described in this

notice.

Notice 2021-49

I. PURPOSE

II. BACKGROUND ON SECTION 2301

OF THE CARES ACT AND SECTION

3134 OF THE CODE

This notice provides guidance on the

employee retention credit available under section 3134 of the Internal Revenue

Code (Code), enacted by section 9651 of

the American Rescue Plan Act of 2021

(the ARP), Pub. L. No. 117-2, 135 Stat. 4

(March 11, 2021), which provides a credit for wages paid after June 30, 2021, and

before January 1, 2022.

This notice amplifies Notice 2021-20,

2021-11 IRB 922, which provides guidance on the employee retention credit

under section 2301 of the Coronavirus

Aid, Relief, and Economic Security Act

(CARES Act), Pub. L. No. 116-136, 134

Stat. 281 (2020), as amended by section

206 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act),

enacted as Division EE of the Consolidated Appropriations Act, 2021, Pub. L. No.

116-260, 134 Stat. 1182 (2020). This notice also amplifies Notice 2021-23, 202116 IRB 1113, which provides guidance on

the employee retention credit under section 2301 of the CARES Act, as amended

by section 207 of the Relief Act, for the

first and second calendar quarters of 2021.

Specifically, this notice amplifies both

Notice 2021-20 and Notice 2021-23 by

providing additional guidance on the employee retention credit, applicable to the

third and fourth calendar quarters of 2021.

As amplified by this notice, the rules set

forth in Notice 2021-20 and Notice 202123 addressing CARES Act provisions that

are the same as those provided under section 3134 of the Code continue to apply

for the third and fourth calendar quarters

of 2021. Finally, this notice provides additional guidance on issues regarding the

employee retention credit under both sec-

Section 2301 of the CARES Act, as

originally enacted, provides for an employee retention credit for eligible employers, including tax-exempt organizations, that pay qualified wages, including

certain health plan expenses, to some or

all employees after March 12, 2020, and

before January 1, 2021. Section 206 of the

Relief Act adopted amendments and technical changes to section 2301 for qualified

wages paid after March 12, 2020, and before January 1, 2021, primarily expanding

eligibility for certain employers to claim

the credit. Section 206 is effective retroactive to the effective date of section 2301.

Section 207 of the Relief Act, which is

effective for calendar quarters beginning

after December 31, 2020, further amends

section 2301 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. Section 9651

of the ARP enacted section 3134 of the

Code, effective for calendar quarters beginning after June 30, 2021, to provide an

employee retention credit for wages paid

after June 30, 2021, and before January 1,

2022.

On March 1, 2021, the Treasury Department and the IRS issued Notice 202120, providing guidance on the employee

retention credit under section 2301 of the

CARES Act, as amended by section 206

of the Relief Act. Notice 2021-20 continues to apply for calendar quarters in 2020.

On April 2, 2021, the Treasury Department and the IRS issued Notice 2021-23,

providing guidance on the employee retention credit under section 2301 of the

August 23, 2021

316

CARES Act, as amended by section 207

of the Relief Act. Notice 2021-23 continues to apply for the first and second calendar quarters in 2021.

Any reference to the “employee retention credit” in this notice generally refers

to the employee retention credit under

either section 2301 of the CARES Act or

section 3134 of the Code, as applicable to

the relevant calendar quarter.

III. GUIDANCE ON CHANGES MADE

BY SECTION 3134 OF THE CODE

A. Extension of Employee Retention

Credit

Section III.A. of Notice 2021-23 describes the extension of the employee retention credit for qualified wages paid by

an eligible employer after December 31,

2020, and before July 1, 2021. Section

3134(n) of the Code provides that section

3134 applies to wages paid after June 30,

2021, and before January 1, 2022. Accordingly, an eligible employer may also claim

the employee retention credit for qualified

wages paid in the third and fourth calendar

quarters of 2021.

B. Applicable Employment Taxes

Under both section 2301(a) of the

CARES Act and section 3134 of the Code,

the employee retention credit is claimed

against “applicable employment taxes.”

For purposes of the employee retention

credit under the CARES Act, section

2301(c)(1) defines “applicable employment taxes” to mean the taxes imposed

on employers by section 3111(a) of the

Code (employer’s share of the Old Age,

Survivors, and Disability Insurance (social security tax)), or so much of the

taxes imposed on employers by section

3221(a) of the Code (Tier 1 tax under the

Railroad Retirement Tax Act (RRTA))

that are attributable to the rate in effect

under section 3111(a). Section II.A. of

Notice 2021-20 provides that, under section 2301, eligible employers are entitled

to claim the employee retention credit

against the employer’s share of social

security tax after these taxes are reduced

Bulletin No. 2021–34

by any credits claimed under sections

3111(e) and (f), sections 7001 and 7003 of

the Families First Coronavirus Response

Act (FFCRA), Pub. L. No. 116-127, 134

Stat. 178 (2020), and section 303(d) of the

Relief Act. Section II.A. of Notice 202120 further provides that, under section

2301, eligible employers subject to the

RRTA are entitled to claim the employee

retention credit against the portion of Tier

1 tax under the RRTA that is equivalent to

the employer’s share of social security tax

after these taxes are reduced by any credits allowed under sections 7001 and 7003

of the FFCRA and section 303(d) of the

Relief Act.

For purposes of the employee retention

credit under section 3134 of the Code,

section 3134(c)(1) defines “applicable

employment taxes” to mean the taxes imposed under section 3111(b) of the Code

(employer’s share of Hospital Insurance

(Medicare) tax), or so much of the portion

of Tier 1 tax under the RRTA that is equivalent to the employer’s share of Medicare

tax. Section 3134(b)(2) provides that the

credit allowed under section 3134(a) with

respect to a calendar quarter will not exceed the applicable employment taxes,

reduced by any credits allowed under

sections 3131 and 3132 of the Code (tax

credits under the ARP for qualified sick

leave wages and qualified family leave

wages, respectively, paid with respect to

leave taken by employees beginning on

April 1, 2021, through September 30,

2021), on the wages paid with respect to

the employment of all the employees of

the eligible employer for such calendar

quarter. Section 3134(b)(3) provides that

if any amount of the credit under section

3134(a) exceeds the limitation under section 3134(b)(2) for any calendar quarter,

such excess will be treated as an overpayment that will be refunded under sections

6402(a) and 6413(b) of the Code.

Accordingly, for the third and fourth

quarters of 2021, eligible employers are

entitled to claim the employee retention

credit against the employer’s share of

Medicare tax, or the portion of Tier 1 tax

under the RRTA that is equivalent to the

employer’s share of Medicare tax, after

these taxes are reduced by any credits allowed under sections 3131 and 3132 of

the Code, with the excess refunded under

section 6402 or 6413 of the Code.

C. Maximum Amount of Employer’s

Employee Retention Credit

Section III.D. of Notice 2021-23 provides the rules related to the maximum

amount of an eligible employer’s employee retention credit for the first and second

calendar quarters in 2021. The employee

retention credit equals 70 percent of qualified wages (including allocable qualified

health plan expenses), and the amount

of qualified wages (including allocable

qualified health plan expenses) taken into

account with respect to any employee is

limited to $10,000 for any calendar quarter, for a maximum credit of $7,000 per

employee for each of the first and second

calendar quarter of 2021. Under section

3134(a) and (b)(1)(A) of the Code, these

limits continue to apply in the third and

fourth calendar quarters in 2021; however, a separate credit limit under section

3134(b)(1)(B) applies to “recovery startup

businesses” as discussed in section III.D.

of this notice.

D. Recovery Startup Businesses

Section 2301(c)(2) of the CARES Act,

as amended by section 206 of the Relief

Act, and sections III.A., III.D, and III.E.

of Notice 2021-20 provide the rules for

determining whether an employer is an

eligible employer for purposes of the employee retention credit for 2020; section

2301(c)(2), as amended by section 207

of the Relief Act, and sections III.B. and

III.C. of Notice 2021-23 provide those

rules for the first and second calendar

quarters of 2021.

Applying the same rules as for the first

two quarters of 2021, sections 3134(c)(2)

(A)(ii)(I) and (II) of the Code provide that,

for the third and fourth calendar quarters

of 2021, an employer may be eligible for

the employee retention credit with respect

to a calendar quarter if (i) the operation of

the employer’s trade or business is fully or

partially suspended due to orders from an

appropriate governmental authority limiting commerce, travel, or group meetings

(for commercial, social, religious, or other

purposes) due to the coronavirus disease

19 (COVID-19), or (ii) the employer experiences a decline in gross receipts.1

Section 3134 adds a third category of employers that are eligible for the employee

retention credit for the third and fourth

calendar quarters of 2021. Specifically,

section 3134(c)(2)(A)(ii)(III) provides

that “recovery startup businesses” may

be eligible employers for those calendar

quarters.

Section 3134(c)(5) of the Code defines

a “recovery startup business” as an employer (i) that began carrying on any trade

or business after February 15, 2020, (ii) for

which the average annual gross receipts of

the employer (as determined under rules

similar to the rules under section 448(c)

(3) of the Code) for the 3-taxable-year

period ending with the taxable year that

precedes the calendar quarter for which

the credit is determined does not exceed

$1,000,000, and (iii) that is not otherwise

an eligible employer due to a full or partial suspension of operations or a decline

in gross receipts. Section 3134(b)(1)(B)

provides that in the case of an eligible employer that is a recovery startup business,

the amount of the credit allowed under

subsection 3134(a) (after application of

the limit under subsection 3134(b)(1)(A))

for each of the third and fourth calendar

quarters of 2021 cannot exceed $50,000.

Section III.A. of Notice 2021-20 provides that for purposes of the employee

retention credit, “trade or business” has

the same meaning as when used in section 162 of the Code other than the trade

or business of performing services as an

employee. Section 3134(c)(5)(A) of the

Code provides that a recovery startup

business is an employer that began carrying on a trade or business after February

15, 2020. Therefore, the determination

of when an employer “began carrying on

a trade or business” is made in the same

manner as for purposes of section 162. In

general, for purposes of section 162, a taxpayer has not begun carrying on a trade or

1

The rules for determining a significant decline or decline in gross receipts are set forth in section III.E. of Notice 2021-20 and section III.C. of Notice 2021-23, respectively. As with the first

and second calendar quarters of 2021, the determination of whether an employer is an eligible employer due to a decline in gross receipts is made separately for each of the third and fourth

calendar quarters of 2021 and is based on an 80 percent threshold as set forth in section III.C. of Notice 2021-23.

Bulletin No. 2021–34

317

August 23, 2021

business “until such time as the business

has begun to function as a going concern

and performed those activities for which

it was organized.” Richmond Television

Corp. v. U.S., 345 F.2d 901, 907 (4th Cir.

1965), vacated and remanded on other

grounds per curiam, 382 U.S. 68 (1965),

on remand, 354 F.2d 410 (4th Cir. 1965),

overruled on other grounds; NCNB Corporation v. United States, 684 F.2d 285

(4th Cir. 1982); see also Rev. Rul. 81-150,

1981-1 C.B. 119.

Section 3134(c)(5) of the Code indicates that the average annual gross receipts

of an employer is determined by applying

rules similar to the rules in section 448(c)

(3) of the Code and that the 3-taxable-year

period ends with the taxable year preceding the calendar quarter for which the employer is claiming the employee retention

credit.

Section III.A. of Notice 2021-20 states

that, for purposes of the employee retention credit, a tax-exempt organization described in section 501(c) of the Code that

is exempt from tax under section 501(a)

is deemed to be engaged in a “trade or

business” with respect to all operations

of the organization, as provided in section

2301(c)(2)(C) of the CARES Act. Similar to the rule in section 2301(c)(2)(C),

section 3134(c)(2)(C)(i) provides that, in

the case of an organization described in

section 501(c) and exempt from tax under

section 501(a), the requirement in section

3134(c)(2)(A)(i) of carrying on a trade or

business to be an eligible employer and

the requirement in section 3134(c)(2)(A)

(ii)(I) that a trade or business has been

fully or partially suspended due to an

appropriate governmental order to be an

eligible employer apply to all operations

of the organization. Section 3134(c)(2)(C)

(ii) further provides that, in the case of a

tax-exempt organization, any reference to

gross receipts will be treated as a reference to gross receipts within the meaning

of section 6033 of the Code. While section

3134(c)(2)(C)(i) does not specifically reference the trade or business requirement

in the definition of a recovery startup business in section 3134(c)(5)(A), because of

the broad language in section 3134(c)(2)

(C)(ii) for measuring gross receipts and

the other language in section 3134(c)(2)

(C)(i) indicating an intent by Congress

to fully include tax-exempt organizations

within the three categories of an eligible

employer, the Treasury Department and

the IRS have determined that it is appropriate for an organization described in

section 501(c) and exempt from tax under

section 501(a) to be able to be treated as

an eligible employer due to being a recovery startup business based on all of its operations and average annual gross receipts

determined under section 6033 as defined

in section III.E. of Notice 2021-20.

The Treasury Department and the IRS

have also determined that it is appropriate

for the term “qualified wages” to include

wages paid by a recovery startup business.

The definition of “qualified wages” in section 3134(c)(3)(A) of the Code is identical to the definition in section 2301(c)(3)

(A) of the CARES Act. Section 3134(c)

(3)(A)(i), the large eligible employer rule,

defines qualified wages as wages paid

with respect to which an employee is not

providing services due to circumstances

described in section 3134(c)(2)(A)(ii)(I)

(relating to a full or partial suspension)

or section 3134(c)(2)(A)(ii)(II) (relating

to a decline in gross receipts). Section

3134(c)(3)(A)(ii), the small eligible employer rule, defines qualified wages as

wages paid during any period described

in section 3134(c)(2)(A)(ii)(I) (relating to

a full or partial suspension) or paid with

respect to any employee during a quarter

described in section 3134(c)(2)(A)(ii)(II)

(relating to a decline in gross receipts).

Neither the large eligible employer rule

in section 3134(c)(3)(A)(i) nor the small

eligible employer rule in section 3134(c)

(3)(A)(ii) was updated to include section

3134(c)(2)(A)(ii)(III) (relating to a recovery startup business). Thus, the language

of the statute does not include a definition

of qualified wages applicable to a recovery startup business. However, the inclusion of recovery startup businesses as a

new category of eligible employer and the

provision of a specific limitation on the

amount of the employee retention credit

to which recovery startup businesses are

entitled indicates that Congress intended

that this new category of eligible employer be able to claim the employee retention

credit. In order to carry out this intent, the

Treasury Department and the IRS have

concluded that it is appropriate to read

the small eligible employer rule in section

3134(c)(3)(A)(ii)(II) as if section 3134(c)

(2)(A)(ii)(III) were included after the reference to section 3134(c)(2)(A)(ii)(II).2

Accordingly, in the third and fourth calendar quarters of 2021, a recovery startup

business that is a small eligible employer

within the meaning of section 3134(c)(3)

(A)(ii) may treat all wages paid with respect to an employee during the quarter as

qualified wages.

The determination of whether an employer is a recovery startup business is

made separately for each calendar quarter. For example, if an eligible employer

is a recovery startup business in the third

quarter of 2021 but is not a recovery startup business in the fourth quarter of 2021

because it is an eligible employer due to

a full or partial suspension or a decline in

gross receipts during the fourth quarter of

2021, the $50,000 limitation applies to the

third quarter of 2021 but does not apply to

the fourth quarter of 2021.

The aggregation rules described in section III.B. of Notice 2021-20 apply when

determining whether an employer’s trade

or business is fully or partially suspended

or the employer experiences a decline in

gross receipts. Similarly, the aggregation

rules described in section III.B. of Notice

2021-20 apply when determining if an employer is a recovery startup business. The

aggregation rules also apply with respect

to the $50,000 limitation on the credit.

E. Qualified Wages

Section III.G. of Notice 2021-20 and

section III.E. of Notice 2021-23 set forth

the rules for determining qualified wages paid after March 12, 2020, and before

January 1, 2021, and qualified wages paid

after December 31, 2021, and before July

1, 2021, respectively. Section 3134 of the

Code generally includes the same rules for

determining qualified wages as the rules

Based on the definition of a recovery startup business as requiring average annual gross receipts for the prior 3 taxable years of not more than $1,000,000, the Treasury Department and the

IRS do not anticipate that any recovery startup business would be a large eligible employer within the meaning of section 3134(c)(2)(A)(i).

2

August 23, 2021

318

Bulletin No. 2021–34

for wages paid in the first and second calendar quarters of 2021, with a few exceptions, discussed below.

Section 3134(c)(3)(A) of the Code

defines the term “qualified wages” and

provides the distinction in treatment between large eligible employers and small

eligible employers. Section 3134(c)(3)

(B) provides that in the case of any employer that was not in existence in 2019,

section 3134(c)(3)(A) is applied by substituting “2020” for “2019” each place it

appears and requires eligible employers

not in existence in 2019 to determine the

average number of full-time employees

in 2020 instead of 2019. Section III.G. of

Notice 2021-20 provides rules for determining the average number of full-time

employees, including for employers that

came into existence in 2020. Accordingly,

the rules set forth in section III.G. of Notice 2021-20 for determining the average

number of full-time employees continue

to apply in the third and fourth calendar

quarters of 2021.3

Section 3134(c)(3)(C) of the Code provides a different rule for qualified wages

paid by “severely financially distressed

employers.” Section 3134(c)(3)(C)(ii)

defines a “severely financially distressed

employer” as an employer that is an eligible employer based on a decline in gross

receipts, but the gross receipts for the

eligible employer for the calendar quarter are less than 10 percent of the gross

receipts as compared to the same calendar quarter in calendar year 2019, instead

of less than 80 percent. Accordingly, for

purposes of the employee retention credit

for the third and fourth calendar quarters

of 2021, an eligible employer with gross

receipts that are less than 10 percent of

the gross receipts for the same calendar

quarter in calendar year 2019 (or 2020,

if the employer was not in existence in

2019) is a severely financially distressed

employer.

The rules for how an employer determines whether it has experienced a decline in gross receipts for purposes of the

employee retention credit are set forth in

section III.C. of Notice 2021-23. Whether

an employer has met the decline in gross

receipts test generally is determined by

comparing the quarter in 2020 or 2021 to

the same quarter in 2019. Notice 2021-23

also provides rules that address the circumstance in which the employer was not

in existence as of the beginning of a calendar quarter in 2019 and rules for how an

employer may elect to use an alternative

quarter to determine whether it has experienced a decline in gross receipts. These

rules that apply for purposes of determining whether an employer is an eligible employer based on a decline in gross receipts

also apply, in the third and fourth calendar

quarters of 2021, for purposes of determining whether an eligible employer is a

severely financially distressed employer

based on the 10 percent threshold.4 For example, an eligible employer that has gross

receipts of 5 percent in the second quarter

of 2021 compared to gross receipts in the

second quarter of 2019 is a severely financially distressed employer for the third

quarter of 2021 based on the alternative

quarter election.

If an employer is a severely financially

distressed employer, section 3134(c)(3)

(C)(i) of the Code provides that, notwithstanding section 3134(c)(3)(A)(i) (which

limits qualified wages for large eligible

employers to wages paid to an employee

for time the employee is not providing

services due to a full or partial suspension

or a decline in gross receipts), the term

“qualified wages” means wages paid by

such employer with respect to an employee during any calendar quarter.5 Accordingly, for the third and fourth calendar

quarters of 2021, a severely financially

distressed employer that is a large eligible

employer may treat all wages paid to its

employees during the quarter in which the

employer is considered severely financially distressed as qualified wages.

Example: Employer A is a large eligible employer with gross receipts in the third quarter of

2021 equal to 15 percent of its gross receipts in the

third quarter of 2019. Employer A is not a severely

financially distressed employer for the third quarter

of 2021 based on the third quarter’s gross receipts.

However, Employer A’s gross receipts in the second

quarter of 2021 are less than 10 percent of its gross

receipts in the second quarter of 2019; therefore,

Employer A may elect to use the alternative election

rule to meet the definition of a severely financially

distressed employer under section 3134(c)(3)(C)(ii)

of the Code in the third quarter of 2021.

In the third quarter of 2021, Employer A pays

Employee B $10,000 in wages for services Employee B provided during the third quarter. Employer A

may claim the employee retention credit in the third

quarter of 2021 (the quarter in which Employer A is

determined to be severely financially distressed under the alternative election rule) and may treat all of

the wages paid to Employee B during the third quarter of 2021 as qualified wages.

In the fourth quarter of 2021, Employer A’s gross

receipts equal 20 percent of its gross receipts in the

fourth quarter of 2019. Employer A is not a severely

financially distressed employer for the fourth quarter

of 2021 based on the fourth quarter’s gross receipts.

In addition, Employer A cannot use the alternative

election rule in the fourth quarter of 2021 to qualify

as a severely distressed employer because Employer A’s gross receipts in the third quarter of 2021 are

not less than 10 percent of its gross receipts in 2019;

therefore, Employer A is not a severely financially

distressed employer (though it is still an eligible employer) in the fourth quarter of 2021.

Employer A pays Employee B $10,000 in wages

in the fourth quarter of 2021 for services Employee B provided during the fourth quarter of 2021.

Employer A may not treat any of the wages paid to

Employee B for services provided during the fourth

quarter as qualified wages because Employer A is a

large eligible employer and does not meet the definition of a severely financially distressed employer for

the fourth quarter of 2021.

Section 3134(c)(3)(D) of the Code

provides that for the third and fourth calendar quarters of 2021, the term “qualified wages” does not include any wages taken into account under sections 41,

45A, 45P, 45S, 51, 1396, 3131, and 3132

of the Code. That is, if wages are taken

Questions have arisen about whether full-time equivalents are included in determining the average number of full-time employees. See section IV.A. of this notice for a clarification.

These rules apply for determining whether an eligible employer that has already met the decline in gross receipts test will be treated as a severely financially distressed employer with respect

to qualified wages; a severely financially distressed employer is not a separate category of eligible employer. An employer should first determine whether it satisfies the definition of eligible

employer before determining whether it is considered a severely financially distressed employer.

5

The language of section 3134(c)(3)(C)(i) of the Code is ambiguous as to the calendar quarter in which wages paid by a severely financially distressed employer may be treated as qualified

wages. Due to the reference to section 3134(c)(3)(A)(i) of the Code, however, the Treasury Department and the IRS have determined that Congress intended section 3134(c)(3)(C)(i) to extend

the small eligible employer rule to a severely financially distressed employer that is also a large eligible employer, and not to change the timing of when qualified wages are paid for purposes

of claiming the employee retention credit. Therefore, a severely financially distressed employer may claim the employee retention credit only with respect to qualified wages the employer

paid in the same calendar quarter in which it is claiming the credit.

3

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August 23, 2021

into account for purposes of those sections, those wages cannot be taken into

account for purposes of the employee retention credit.6

F. Coordination with Certain

Programs

Section 3134(h)(1) of the Code provides that section 3134 does not apply to

qualified wages paid by an eligible employer if the qualified wages are taken

into account as payroll costs in connection

with certain programs. Section 3134(h)(1)

(A) provides that section 3134 does not

apply to so much of the qualified wages

as are taken into account as payroll costs

in connection with a covered loan under

section 7(a)(37) or 7A of the Small Business Act (a first or second draw PPP loan).

Section 3134(h)(1)(B) provides that section 3134 does not apply to so much of the

qualified wages as are taken into account

as payroll costs in connection with a grant

under section 324 of the Economic Aid to

Hard-Hit Small Businesses, Non-Profits,

and Venues Act (shuttered venue operators grant), enacted as Title III of Division

N of the Consolidated Appropriations Act,

2021. Section 3134(h)(1)(C) provides that

section 3134 does not apply to so much of

the qualified wages as are taken into account as payroll costs in connection with

a restaurant revitalization grant under section 5003 of the ARP (restaurant revitalization grant).

Section 3134(h)(2) of the Code states

that the Secretary will issue guidance providing that payroll costs paid during the

covered period will not fail to be treated as

qualified wages under section 3134 to the

extent that a first or second draw PPP loan

is not forgiven by reason of a decision under section 7(a)(37)(J) or section 7A(g) of

the Small Business Act.

Section III.I. of Notice 2021-20 provides rules related to the interaction

between PPP loans and the employee

retention credit; under those rules, the

employee retention credit does not apply

to the qualified wages for which an election or deemed election to not take the

wages into account for purposes of the

credit is made. These rules are derived

from section 2301(g)(1) and (g)(2) of the

CARES Act, as amended by the Relief

Act. Section 3134(g) of the Code retains

the same language as section 2301(g)(1)

of the CARES Act and section 3134(h)

(1) and (h)(2) is similar in operation to

section 2301(g)(1) and (g)(2); accordingly, the rules related to the interaction

between PPP loans and the employee retention credit under section III.I. of Notice

2021-20 continue to apply in the third and

fourth calendar quarters of 2021. Thus, the

determination of whether section 3134 applies to amounts of qualified wages taken

into account as payroll costs for PPP loans

for purposes of section 3134(h)(1)(A) and

(h)(2) are made in the same manner and

under the same principles as prescribed in

section III.I. of Notice 2021-20.

The shuttered venue operators grant

was established by section 324 of the Economic Aid to Hard-Hit Small Businesses,

Non-Profits, and Venues Act and amended

by the ARP. The restaurant revitalization

grant was established by the ARP. Coordination between the employee retention

credit and these grants is not required under section 2301 of the CARES Act, which

governs the employee retention credit for

2020 and the first two quarters of 2021.

However, pursuant to section 3134(h)(1)

(B) and (C) of the Code, an eligible employer receiving a shuttered venue operators grant or restaurant revitalization grant

may not treat any amounts reported to the

Small Business Administration (SBA) or

otherwise taken into account as payroll

costs in connection with either program

as qualified wages for purposes of the

employee retention credit in the third and

fourth quarters of 2021. An eligible employer receiving a shuttered venue operators grant or restaurant revitalization grant

must retain in its records support for the

employee retention credit claimed, which

includes any documentation supporting

that the eligible employer did not claim

the employee retention credit on amounts

taken into account as payroll costs paid

in the third and fourth quarters of 2021 in

connection with the shuttered venue operators grant or restaurant revitalization

grant programs.

G. Claiming the Credit

Section III.J. of Notice 2021-20 and

section III.F. of Notice 2021-23 set forth

the rules for claiming the employee retention credit in 2020 and the first and second

calendar quarters in 2021, respectively.

The rules as set forth in Notice 2021-20

and Notice 2021-23, including the rules

pertaining to claiming an advance and relevant limitations, continue to apply for the

third and fourth quarters in 2021.

Section 3134(j)(3)(B) of the Code provides for the reconciliation of the employee retention credit with advance payments

of the credit. If an employer receives excess advance payments of the credit, then

the tax imposed under section 3111(b) of

the Code or so much of the tax imposed

under section 3221(a) of the Code as is attributable to the rate in effect under section

3111(b), as applicable, for the calendar

quarter is increased by the amount of the

excess. Section 2301 of the CARES Act,

as amended by section 207 of the Relief

Act, also provides for the reconciliation

of the credit with advance payments, but

the reconciliation under section 3134(j)(3)

(B) is modified due to the change in the

definition of applicable employment taxes

as discussed in section III.B of this notice

and to specifically provide that excess advances for employers described in section

3134(j)(2) are treated as an additional tax.7

Section 3134(l) of the Code extends the

limitation on assessment. Section 3134(l)

provides that, notwithstanding section

6501 of the Code, the limitation on the

time period for the assessment of any

amount attributable to a credit claimed

under section 3134 will not expire before

the date that is 5 years after the later of

These Code sections, with the exception of sections 3131 and 3132, were included in the denial of double benefit provisions for the first and second calendar quarters of 2021 and applied

in the inverse order, meaning that any wages taken into account as qualified wages for the employee retention credit could not be taken into account for those sections. See section III.E. of

Notice 2021-23.

7

On July 29, 2020, the Treasury Department and the IRS issued temporary regulations (T.D. 9904) amending the employment tax regulations under sections 3111 and 3221 of the Code to

provide for the recapture of erroneous refunds of the credits under section 2301 of the CARES Act pursuant to the authority granted under section 2301 of the CARES Act (81 FR 45514). A

notice of proposed rulemaking cross-referencing the temporary regulations was published in the Federal Register on the same day as the temporary regulations (85 FR 45551).

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(i) the date on which the original return

that includes the calendar quarter with respect to which the credit is determined is

filed, or (ii) the date on which the return is

treated as filed under section 6501(b)(2).

The extension of limitation on assessment

applies to the employee retention credit

claimed for the third and fourth calendar

quarters of 2021 under section 3134 but

does not apply to the employee retention

credit under section 2301 of the CARES

Act.

IV. GUIDANCE ON

MISCELLANEOUS ISSUES

APPLICABLE TO THE EMPLOYEE

RETENTION CREDIT FOR BOTH

2020 AND 2021

This section IV addresses several issues related to the employee retention

credit available during both 2020 and

2021. Unless otherwise provided below in

this section, the provisions of this section

IV apply to, and are intended to clarify

the application of, the employee retention credit under both section 2301 of the

CARES Act, as amended by the Relief

Act, and section 3134 of the Code for calendar quarters in 2020 and 2021. To the

extent that an employer files an adjusted

or amended return to reflect these clarifications and consequently owes additional

tax, any penalties for failure to timely pay

or deposit tax will not apply if the taxpayer can show reasonable cause and not willful neglect for those failures.

A. Full-time Employees and Full-time

Equivalents

The Treasury Department and the IRS

have been asked about the definition of

“full-time employee” 8 for the purpose of

the employee retention credit, including

(i) whether “full-time equivalents” (within the meaning of section 4980H(c)(2)(E)

of the Code) are required to be included

in the determination of whether an eligible employer is a large eligible employer

or small eligible employer and (ii) whether wages paid to employees who are not

full-time employees may be treated as

qualified wages if all other requirements

to treat the amounts as qualified wages

are satisfied. For purposes of determining

whether an eligible employer is a large

eligible employer or a small eligible employer, eligible employers are not required

to include full-time equivalents when determining the average number of full-time

employees. However, for purposes of

identifying qualified wages, an employee’s status as a full-time employee is irrelevant and wages paid to an employee who

is not full-time may be treated as qualified

wages if all other requirements to treat the

amounts as qualified wages are satisfied.

B. Treatment of Tips and the Section

45B Credit

The Treasury Department and the IRS

have been asked whether tips are qualified

wages. In general, qualified wages are limited to wages as defined in section 3121(a)

of the Code and compensation as defined

in section 3231(e) of the Code, with certain modifications relating to the inclusion

of qualified health plan expenses and, for

calendar quarters in 2021, remuneration

paid for services to certain governmental employers. In addition, under section

2301(c)(6) of the CARES Act and section

3134(c)(6) of the Code, any term used in

section 2301 or section 3134, respectively, has the same meaning as when used in

chapter 21 or chapter 22 of the Code.

Section 3121(a)(12) of the Code excludes from the definition of “wages” tips

paid in any medium other than cash and

cash tips received by an employee in any

calendar month in the course of employment by an employer unless the amount of

the cash tips is $20 or more. Accordingly,

if cash tips received by an employee in a

calendar month amount to $20 or more, all

of the cash tips received by the employee in that calendar month are included in

wages. Similarly, section 3231(e)(3) of

the Code provides that the term “compensation” includes cash tips received by an

employee in any calendar month in the

course of employment by an employer un-

less the amount of such cash tips is less

than $20. Under section 3121(q), tips received by an employee in the course of the

employee’s employment are considered

remuneration for that employment (i.e.,

wages) and are deemed to have been paid

by the employer for purposes of the taxes

imposed by section 3111(a) and (b) of the

Code. Thus, for purposes of chapters 21

and 22 of the Code, cash tips of $20 or

more in a month are treated as wages paid

by the employer.

Therefore, any cash tips treated as wages within the definition of section 3121(a)

of the Code or compensation within the

definition of section 3231(e)(3) of the

Code are treated as qualified wages if all

other requirements to treat the amounts as

qualified wages are satisfied.

The Treasury Department and the IRS

have also been asked whether an eligible

employer may claim both the employee

retention credit and the credit available

under section 45B of the Code on the

same wages. Section 45B(a) provides that,

for purposes of the general business credit

under section 38 of the Code, the credit

for employer social security and Medicare

taxes paid on certain employee tips is an

amount equal to the “excess employer social security tax” paid or incurred by the

employer. The term “excess employer social security tax” means any tax paid by an

employer under section 3111 of the Code

(both social security tax and Medicare

tax) on its employees’ tip income without

regard to whether the employees reported

the tips to the employer pursuant to section 6053(a) of the Code. Consequently,

the section 45B credit is available with respect to unreported tips in an amount equal

to the “excess employer social security

tax” paid or incurred by the employer. No

credit, however, is allowed to the extent

tips are used to meet the federal minimum

wage rate. For purposes of this limitation,

the federal minimum wage rate is the rate

that was in effect on January 1, 2007. The

credit is available with respect to Federal

Insurance Contributions Act (FICA) taxes

paid on tips received from customers in

connection with the providing, delivering,

The term “full-time employee” means an employee who, with respect to any calendar month in 2019, had an average of at least 30 hours of service per week or 130 hours of service in the

month (130 hours of service in a month is treated as the monthly equivalent of at least 30 hours of service per week), as determined in accordance with section 4980H of the Code. See Q/A-31

of Notice 2021-20 and section III.E. of Notice 2021-23.

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321

August 23, 2021

or serving of food or beverages for consumption, if it is customary for customers

to tip the employees.

Section 2301 of the CARES Act and

section 3134 of the Code cross-reference specific provisions in the Code, the

CARES Act, the FFCRA, the Consolidated Appropriations Act, 2021, and the ARP

that prevent the receipt of a double benefit

with respect to wages for which the employee retention credit is claimed. Neither

section 2301 nor section 3134 cross-references section 45B of the Code. Section

45B(c) denies a deduction under chapter 1

of the Code for any amount taken into account in determining the credit under section 45B; however, this provision does not

prevent the receipt of both the employee

retention credit and the section 45B credit for the same wages. Therefore, eligible

employers are not prevented from receiving both the employee retention credit and

the section 45B credit for the same wages.

tion 206(c) of the Relief Act (relating to

eligibility of PPP borrowers to claim the

employee retention credit) or otherwise

files an adjusted employment tax return

to claim the employee retention credit,

the taxpayer should file an amended federal income tax return or administrative

adjustment request (AAR), if applicable,

for the taxable year in which the qualified

wages were paid or incurred to correct any

overstated deduction taken with respect to

those same wages on the original federal

tax return. Section 2301(e) generally provides, in relevant part, that rules similar to

the rules of section 280C(a) of the Code

shall apply. Section 280C(a) requires tracing to the specific wages generating the

applicable credit. See, generally, Treas.

Reg. § 1.280C-1. To satisfy this tracing

requirement, the taxpayer must file an

amended return or AAR, as applicable.

C. Timing of Qualified Wages

Deduction Disallowance

The Treasury Department and the IRS

have been asked whether wages paid to an

employee who owns more than 50 percent

(majority owner) of the value of a corporation may be treated as qualified wages,

as well as whether wages paid to a spouse

of a majority owner may be treated as

qualified wages.

Section 2301(e) of the CARES Act and

section 3134(e) of the Code provide, in

relevant part, that rules similar to the rules

of section 51(i)(1) of the Code apply. Section 51(i)(1) generally provides that wages paid to certain related individuals are

not taken into account for purposes of the

work opportunity credit. Specifically, section 51(i)(1) and Treas. Reg. § 1.51-1(e)

(1) provide that wages are not taken into

account with respect to an individual who

bears any of the relationships described in

section 152(d)(2)(A)-(H) of the Code to

the following:

(i) the taxpayer, or

(ii) if the taxpayer is a corporation, to an

individual who owns, directly or indirectly more than 50 percent in value

of the outstanding stock of the corporation (majority owner of a corporation), or

Section 2301(e) of the CARES Act, as

explained in section III.L. of Notice 202120, and section 3134(e) of the Code provide the general rule that an employer’s

deduction for qualified wages, including

qualified health plan expenses, is reduced

by the amount of the employee retention

credit. The Treasury Department and the

IRS have been asked about the timing of the

reduction, specifically in the circumstance

in which a taxpayer files an adjusted employment tax return to claim the employee

retention credit for prior calendar quarters

and has already filed a federal income tax

return for the tax year in which the credit is

claimed on the adjusted return.

Under section III.L. of Notice 2021-20,

a reduction in the amount of the deduction

allowed for qualified wages, including

qualified health plan expenses, caused by

receipt of the employee retention credit occurs for the tax year in which the qualified

wages were paid or incurred. When a taxpayer claims the employee retention credit

because of the retroactive amendment of

section 2301 of the CARES Act by sec-

D. Related Individuals

(iii) if the taxpayer is an entity other than

a corporation, to any individual who

owns, directly or indirectly, more

than 50 percent of the capital and

profits interests in the entity (majority

owner of a noncorporate entity).

Section 51(i)(1)(A) includes a parenthetical at the end of the subparagraph stating that an individual’s ownership is determined with the application of section

267(c) of the Code. The Treasury Department and the IRS have concluded that the

section 267(c) ownership attribution rules

apply for purposes of determining both an

individual’s ownership of stock of a corporation and an individual’s capital and

profits interests in a partnership or other

entity, consistent with the language in

Treas. Reg. § 1.51-1(e)(1)(iii) and section

51(i)(1)(A).

Initially, simply applying the rules of

section 152(d)(2)(A)-(H) of the Code for

purposes of the employee retention credit,

before taking into consideration the attribution rules of section 267(c), the wages

paid to employees with the following relationships to a majority owner of a corporation or of a partnership or other entity are

not qualified wages:

(A) A child or a descendant of a child.

(B) A brother, sister, stepbrother, or stepsister.

(C) The father or mother, or an ancestor

of either.

(D) A stepfather or stepmother.

(E) A niece or nephew.

(F) An aunt or uncle.

(G) A son-in-law, daughter-in-law, fatherin-law, mother-in-law, brother-in-law,

or sister-in-law.

(H) An individual (other than a spouse,

determined without regard to section

7703, of the taxpayer) who, for the

taxable year of the taxpayer, has the

same principal place of abode as the

taxpayer and is a member of the taxpayer’s household.

Section 267(c) of the Code provides

rules regarding the constructive ownership of stock for purposes of determining whether an individual is considered a majority owner of a corporation.9

Section 267(c) sets forth the following

­

This discussion is limited to a majority owner of a corporation because the owner of a partnership, or other noncorporate entity, generally cannot be an employee of that entity, and therefore

cannot be paid wages within the meaning of section 3121(a) of the Code. A partner or other self-employed individual is not eligible for the employee retention credit on the individual’s

earned income.

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rules to determine whether an individual

has constructive ownership of stock of a

corporation:

(1) stock owned, directly or indirectly,

by or for a corporation, partnership,

estate, or trust is considered as being

owned proportionately by or for its

shareholders, partners, or beneficiaries;

(2) an individual is considered to own the

stock owned, directly or indirectly, by

or for the individual’s family;

(3) an individual owning (otherwise than

by the application of (2)) any stock in

a corporation is considered to own the

stock owned, directly or indirectly, by

or for his partner;

(4) the family of an individual includes

only his brothers and sisters (whether

by the whole or half-blood), spouse,

ancestors, and lineal descendants; and

(5) stock constructively owned by a person by reason of the application of

(1) will be treated, for the purpose

of applying (1), (2), or (3), as actually owned by that person. Stock constructively owned by an individual by

reason of the application of (2) or (3)

will not be treated as owned by the

individual to again apply either rule

to reattribute and make another individual the constructive owner of the

stock.

Applying the rules of sections 152(d)(2)

(A)-(H) and 267(c) of the Code, a majority owner of a corporation is a related individual for purposes of the employee retention credit, whose wages are not qualified

wages, if the majority owner has a brother

or sister (whether by whole or half-blood),

ancestor, or lineal descendant. That is, applying the constructive ownership rules of

section 267(c), the direct majority owner’s

ownership of the corporation is attributed

to each of the owner’s family members

with a relationship described in section

267(c)(4); further, because each of those

family members is considered to own

more than 50 percent of the stock of the

corporation after applying section 267(c),

the direct majority owner of the corporation would have a relationship as defined

in section 152(d)(2)(A)-(H) to the family

member who is a constructive majori-

ty owner. Therefore, the direct majority

owner is a related individual for purposes

of the employee retention credit.10

The spouse of a majority owner is a

related individual for purposes of the employee retention credit, whose wages are

not qualified wages, if the majority owner

has a family member who is a brother or

sister (whether by whole or half-blood),

ancestor, or lineal descendant (and thus is

deemed to own the majority owner’s shares

under section 267(c) of the Code) and the

spouse bears a relationship described in

section 152(d)(2)(A)-(H) of the Code to the

family member. For example, a direct majority owner’s brother would be a constructive majority owner under section 267(c)

(2) and (4) and the spouse of the direct majority owner would be considered a related individual to the constructive majority

owner by virtue of the in-law relationship

described in section 152(d)(2)(G).

In the event that the majority owner

of a corporation has no brother or sister

(whether by whole or half-blood), ancestor, or lineal descendant as defined in section 267(c)(4) of the Code, then neither

the majority owner nor the spouse is a

related individual within the meaning of

section 51(i)(1) of the Code and the wages paid to the majority owner and/or the

spouse are qualified wages for purposes of

the employee retention credit, assuming

the other requirements for qualified wages

are satisfied.

The following examples illustrate the

application of these rules:

Example 1: Corporation A is owned 80 percent

by Individual E and 20 percent by Individual F.

Individual F is the child of Individual E. Corporation A is an eligible employer with respect to the

first calendar quarter of 2021. Both Individual E

and Individual F are employees of Corporation A.

Pursuant to the attribution rules of section 267(c)

of the Code, both Individual E and Individual F

are treated as 100 percent owners of Corporation

A. Individual E has the relationship to Individual

F described in section 152(d)(2)(C) of the Code,

and Individual F has the relationship to Individual

E described in section 152(d)(2)(A). Accordingly,

Corporation A may not treat as qualified wages any

wages paid to either Individual E or Individual F

because both Individual E and Individual F are each

related individuals for purposes of the employee retention credit.

Example 2: Corporation B is owned 100 percent

by Individual G. Individual H is the child of Individual G. Corporation B is an eligible employer with re-

spect to the first calendar quarter of 2021. Individual

G is an employee of Corporation B, but Individual

H is not. Pursuant to the attribution rules of section

267(c) of the Code, Individual H is attributed 100

percent ownership of Corporation B, and both Individual G and Individual H are treated as 100 percent

owners. Individual G has the relationship to Individual H described in section 152(d)(2)(C) of the Code.

Accordingly, Corporation B may not treat as qualified wages any wages paid to Individual G because

Individual G is a related individual for purposes of

the employee retention credit.

Example 3: Corporation C is owned 100 percent

by Individual J. Corporation C is an eligible employer with respect to the first calendar quarter of 2021.

Individual J is married to Individual K, and they have

no other family members as defined in section 267(c)

(4) of the Code. Individual J and Individual K are

both employees of Corporation C. Pursuant to the

attribution rules of section 267(c), Individual K is

attributed 100 percent ownership of Corporation C,

and both Individual J and Individual K are treated as

100 percent owners. However, Individuals J and K

do not have any of the relationships to each other

described in section 152(d)(2)(A)-(H) of the Code.

Accordingly, wages paid by Corporation C to Individual J and Individual K in the first calendar quarter of 2021 may be treated as qualified wages if the

amounts satisfy the other requirements to be treated

as qualified wages.

Example 4: Corporation D is owned 34 percent

by Individual L, 33 percent by Individual M, and 33

percent by Individual N. Individual L, Individual M,

and Individual N are siblings. Corporation D is an

eligible employer with respect to the first calendar

quarter of 2021. Individual L, Individual M, and Individual N are employees of Corporation D. Pursuant to the attribution rules of section 267(c) of the

Code, Individual L, Individual M, and Individual N

are treated as 100 percent owners. Individual L, Individual M, and Individual N have the relationship to

each other described in section 152(d)(2)(B) of the

Code. Accordingly, Corporation D may not treat as

qualified wages any wages paid to Individual L, Individual M, or Individual N.

E. Alternative Quarter Election for

Calendar Quarters in 2021

Section III.C. of Notice 2021-23 provides rules for determining whether an employer had a decline in gross receipts for

purposes of the employee retention credit

for the first and second calendar quarters of

2021. Section 3134 of the Code extends the

same rules to the third and fourth calendar

quarters of 2021; thus, the rules provided in

section III.C. of Notice 2021-23 continue

to apply for these quarters.

Section III.C. of Notice 2021-23 also

provides rules for using the alternative

quarter election when determining wheth-

Depending on the facts, the application of the rules of sections 152(d)(2)(A)-(H) and 267(c) may also result in a minority owner of a corporation being a related individual for purposes of

the employee retention credit. See, example 4.

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August 23, 2021

er there has been a decline in gross receipts

for purposes of the employee retention

credit for a calendar quarter in 2021. The

Treasury Department and the IRS have

been asked whether an eligible employer

must consistently use the alternative quarter election once it has made the election.

As noted in section III.C. of Notice

2021-23, the determination of whether an

employer is an eligible employer based on

a decline in gross receipts is made separately for each calendar quarter. Thus,

employers are not required to use the alternative quarter election consistently. For

example, an employer may be an eligible

employer due to a decline in gross receipts

for the second quarter of 2021 if its gross

receipts for the second quarter are equal

to 75 percent of its gross receipts in the

second quarter of 2019 (i.e., the employer does not rely on the alternative quarter

election for the second quarter); the employer could then use the alternative quarter election to be an eligible employer for

the third quarter of 2021.

F. Gross Receipts Safe Harbor in

Notice 2021-20

Section III.E. of Notice 2021-20 permits an employer that acquires a business

in 2020 to include the gross receipts of the

acquired business in its gross receipts for

2019 to determine whether the employer

experienced a significant decline in gross

receipts. The safe harbor allows the employer to include the gross receipts of the

acquired business regardless of the fact

that the employer did not own the acquired

business during a calendar quarter in 2019.

The Treasury Department and the IRS have

been asked whether this rule continues to

apply to employers that acquire businesses

in 2021. This rule continues to apply to employers that acquire businesses in 2021 for

purposes of measuring whether a decline in

gross receipts occurred.

The Treasury Department and the IRS

have also been asked how to calculate gross

receipts of employers that came into existence in the middle of a calendar quarter in

2020. Section III.E. of Notice 2021-20 provides rules for determining gross receipts

for an employer that came into existence

in 2019. The same rule set forth in section

III.E. of Notice 2021-20 continues to apply

for 2021. For example, an employer that

August 23, 2021

came into existence in the third quarter of

2020 should use that quarter as the base period to determine whether it experienced a

significant decline in gross receipts for the

first three quarters in 2021 and should use

the fourth quarter of 2020 for comparison

to the fourth quarter of 2021 to determine

whether it experienced a significant decline

in gross receipts.

V. EFFECT ON OTHER DOCUMENTS

Notice 2021-20 and Notice 2021-23

are amplified and clarified as provided in

this notice.

VI. 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.

VII. DRAFTING INFORMATION

The principal authors of this notice are

Dixie Pond and Danchai Mekadenaumporn, of the Office of the Associate Chief

Counsel (Employee Benefits, Exempt

Organizations, and Employment Taxes),

although other Treasury Department and

IRS officials participated in its development. For further information on the provisions of this notice, please contact Ms.

Pond or Mr. Mekadenaumporn at 202317-6798 (not a toll-free number).

26 CFR 601.105: Examination of returns and

claims for refund, credit, or abatement; determination of correct tax liability. (Also Part I, §§ 280F;

1.280F-7.)

Rev. Proc. 2021-31

SECTION 1. PURPOSE

This revenue procedure provides: (1)

two tables of limitations on depreciation

deductions for owners of passenger auto-

324

mobiles placed in service by the taxpayer

during calendar year 2021; and (2) a table of dollar amounts that must be used to

determine income inclusions by lessees of

passenger automobiles with a lease term

beginning in calendar year 2021. These tables reflect the automobile price inflation

adjustments required by § 280F(d)(7) of

the Internal Revenue Code. For purposes

of this revenue procedure, the term “passenger automobiles” includes trucks and

vans.

SECTION 2. BACKGROUND

.01 For owners of passenger automobiles, § 280F(a) imposes dollar limitations

on the depreciation deduction for the year

the taxpayer places the passenger automobile in service and for each succeeding

year. For passenger automobiles placed in

service after 2018, § 280F(d)(7) requires

the Internal Revenue Service to increase

the amounts allowable as depreciation deductions by a price inflation adjustment

amount that is determined using the automobile component of the Chained Consumer Price Index for all Urban Consumers published by the Department of Labor

(“C-CPI-U”).

.02 Section 168(k)(1) provides that, in

the case of qualified property, the depreciation deduction allowed under § 167(a)

for the taxable year in which the property

is placed in service includes an allowance

equal to the applicable percentage of the

property’s adjusted basis (hereinafter, referred to as “§ 168(k) additional first year

depreciation deduction”). Pursuant to §

168(k)(6)(A), the applicable percentage

is 100 percent for qualified property acquired and placed in service after September 27, 2017, and placed in service

before January 1, 2023, and is phased

down 20 percent each year for property

placed in service through December 31,

2026. Pursuant to § 168(k)(8)(D)(i), no

§ 168(k) additional first year depreciation deduction is allowed or allowable

for qualified property acquired by the

taxpayer before September 28, 2017, and

placed in service by the taxpayer after

2019. For qualified property acquired

and placed in service after September

27, 2017, § 168(k)(2)(F)(i) increases the

first-year depreciation allowed under §

280F(a)(1)(A)(i) by $8,000.

Bulletin No. 2021–34

.03 Tables 1 and 2 of this revenue

procedure provide depreciation limitations for passenger automobiles placed in

service by the taxpayer during calendar

year 2021. Table 1 provides depreciation

limitations for passenger automobiles acquired by the taxpayer after September

27, 2017, and placed in service by the

taxpayer during calendar year 2021, for

which the § 168(k) additional first year

depreciation deduction applies. Table

2 provides depreciation limitations for

passenger automobiles placed in service

by the taxpayer during calendar year

2021 for which no § 168(k) additional

first year depreciation deduction applies.

The § 168(k) additional first year depreciation deduction does not apply for

2021 if the taxpayer: (1) did not use the

passenger automobile during 2021 more

than 50 percent for business purposes;

(2) elected out of the § 168(k) additional

first year depreciation deduction pursuant

to § 168(k)(7) for the class of property

that includes passenger automobiles; (3)

acquired the passenger automobile used

and the acquisition of such property did

not meet the acquisition requirements in

§ 168(k)(2)(E)(ii) and § 1.168(k)-2(b)(3)

(iii) of the Income Tax Regulations; or

(4) acquired the passenger automobile

before September 28, 2017, and placed it

in service after 2019.

.04 Section 280F(c)(2) requires a reduction to the amount allowable as a

deduction to the lessee of a leased passenger automobile. Pursuant to § 280F(c)

(3), the reduction must be substantially

equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. Under

§ 1.280F-7(a), this reduction is accomplished by requiring the lessee to include

in gross income an amount determined

by applying a formula to a dollar amount

obtained from a table.

.05 Table 3 of this revenue procedure

provides the dollar amount used by lessees of passenger automobiles with a lease

term beginning in 2021 to determine the

income inclusion amount for those passenger automobiles. The table provides

dollar amounts for a range of fair market

values.

Bulletin No. 2021–34

SECTION 3. SCOPE

.01 The limitations on depreciation

deductions in Tables 1 and 2 in section

4.01(2) of this revenue procedure apply to

passenger automobiles, other than leased

passenger automobiles, that are placed in

service by the taxpayer in calendar year

2021, and continue to apply for each taxable year that the passenger automobile

remains in service.

.02 The dollar amount in Table 3 of this

revenue procedure applies to leased passenger automobiles with a lease term beginning in calendar year 2021, and continues to apply for each taxable year during

the lease.

.03 See Rev. Proc. 2016-23, 2016-16

I.R.B. 581, for passenger automobiles

placed in service or leased during calendar year 2016, Rev. Proc. 2017-29, 201714 I.R.B. 1065, for passenger automobiles

placed in service or leased during calendar year 2017, Rev. Proc. 2018-25, 201818 I.R.B. 543, for passenger automobiles

placed in service or leased during calendar

year 2018, Rev. Proc. 2019-26, 2019-24

I.R.B. 1323, for passenger automobiles

placed in service or leased during calendar

year 2019, and Rev. Proc. 2020-37, 202033 I.R.B. 381, for passenger automobiles

placed in service or leased during calendar

year 2020.

SECTION 4. APPLICATION

.01 Limitations on Depreciation Deductions for Certain Automobiles.

(1) Amount of the inflation adjustment.

Under § 280F(d)(7)(B)(i), the automobile

price inflation adjustment for any calendar

year is the percentage (if any) by which the

C-CPI-U automobile component for October of the preceding calendar year exceeds

the automobile component of the CPI (as

defined in § 1(f)(4)) for October of 2017,

multiplied by the amount determined under § 1(f)(3)(B). The amount determined

under § 1(f)(3)(B) is the amount obtained

by dividing the new vehicle component of

the C-CPI-U for calendar year 2016 by the

new vehicle component of the CPI for calendar year 2016, where the C-CPI-U and

the CPI for calendar year 2016 means the

325

average of such amounts as of the close

of the 12-month period ending on August

31, 2016. Section 280F(d)(7)(B)(ii) defines the term “C-CPI-U automobile component” as the automobile component of

the Chained Consumer Price Index for All

Urban Consumers as described in § 1(f)

(6). The product of the October 2017 CPI

new vehicle component (144.868) and

the amount determined under § 1(f)(3)(B)

(0.694370319) is 100.592. The new vehicle component of the C-CPI-U released in

November 2020 was 102.878 for October

2020. The October 2020 C-CPI-U new vehicle component exceeded the product of

the October 2017 CPI new vehicle component and the amount determined under

§ 1(f)(3)(B) by 2.286 (102.878 - 100.592).

The percentage by which the C-CPI-U

new vehicle component for October 2020

exceeds the product of the new vehicle

component of the CPI for October of 2017

and the amount determined under § 1(f)

(3)(B) is 2.273 percent (2.286/100.592 x

100%), the automobile price inflation adjustment for 2021 for passenger automobiles. The dollar limitations in § 280F(a)

are therefore multiplied by a factor of

0.02273, and the resulting increases, after

rounding to the nearest $100, are added to

the 2018 limitations to give the depreciation limitations applicable to passenger

automobiles for calendar year 2021. This

adjustment applies to all passenger automobiles that are placed in service in calendar year 2021.

(2) Amount of the limitation. Tables

1 and 2 of this revenue procedure contain the depreciation limitation for each

taxable year for passenger automobiles a

taxpayer placed in service during calendar year 2021. Use Table 1 for a passenger automobile to which the § 168(k) additional first year depreciation deduction

applies that is acquired by the taxpayer

after September 27, 2017, and placed in

service by the taxpayer during calendar

year 2021; use Table 2 for a passenger

automobile for which no § 168(k) additional first year depreciation deduction

applies.

August 23, 2021

REV. PROC. 2021-31 TABLE 1

DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES ACQUIRED AFTER SEPTEMBER 27, 2017, AND

PLACED IN SERVICE DURING CALENDAR YEAR 2021, FOR WHICH THE § 168(k) ADDITIONAL FIRST YEAR

DEPRECIATION DEDUCTION APPLIES

Tax Year

Amount

1st Tax Year

$ 18,200

2nd Tax Year

$ 16,400

3rd Tax Year

$ 9,800

Each Succeeding Year

$ 5,860

REV. PROC. 2021-31 TABLE 2

DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES

PLACED IN SERVICE DURING CALENDAR YEAR 2021 FOR WHICH NO § 168(k) ADDITIONAL FIRST YEAR

DEPRECIATION DEDUCTION APPLIES

Tax Year

Amount

1st Tax Year

$ 10,200

2nd Tax Year

$ 16,400

3rd Tax Year

$ 9,800

Each Succeeding Year

$ 5,860

.02 Inclusions in Income of Lessees of

Passenger Automobiles.

A taxpayer must follow the procedures in § 1.280F-7(a) for determining

the inclusion amounts for passenger automobiles with a lease term beginning

in calendar year 2021. In applying these

procedures, lessees of passenger automo-

biles should use Table 3 of this revenue

procedure.

REV. PROC. 2021-31 TABLE 3

DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES

WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2021

Fair Market Value of Passenger

Automobile

Tax Year During Lease

st

nd

Over

Not Over

1

2

3rd

4th

$51,000

$52,000

0

0

1

0

52,000

53,000

1

1

1

2

53,000

54,000

1

2

2

3

54,000

55,000

1

3

3

5

55,000

56,000

2

3

5

6

56,000

57,000

2

4

6

7

57,000

58,000

2

5

7

8

58,000

59,000

3

5

8

10

59,000

60,000

3

6

9

11

60,000

62,000

3

7

11

13

62,000

64,000

4

9

13

15

64,000

66,000

5

10

15

18

66,000

68,000

5

12

17

21

68,000

70,000

6

13

20

23

70,000

72,000

7

14

22

26

72,000

74,000

7

16

24

29

August 23, 2021

326

5th & later

1

2

4

5

6

8

10

11

13

15

18

21

24

27

30

33

Bulletin No. 2021–34

74,000

76,000

78,000

80,000

85,000

90,000

95,000

100,000

110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,000

190,000

200,000

210,000

220,000

230,000

240,000

76,000

78,000

80,000

85,000

90,000

95,000

100,000

110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,000

190,000

200,000

210,000

220,000

230,000

240,000

and over

SECTION 5. EFFECTIVE DATE

This revenue procedure applies to

passenger automobiles placed in service

during calendar year 2021 or with a lease

term beginning in calendar year 2021.

SECTION 6. DRAFTING

INFORMATION

The principal author of this revenue

procedure is Bernard P. Harvey of the Office of Associate Chief Counsel (Income

Tax & Accounting). For further information regarding this revenue procedure,

contact Mr. Harvey at (202) 317-4640 (not

a toll-free number).

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

Bulletin No. 2021–34

8

9

9

11

12

14

16

18

21

25

28

31

35

38

41

45

48

51

55

58

61

65

18

19

21

23

27

30

34

40

47

54

62

69

76

84

91

98

106

113

120

128

135

142

26

28

30

34

40

45

50

58

70

81

91

103

114

124

135

146

157

168

179

190

201

212

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

327

31

34

37

41

47

55

61

71

83

96

110

123

136

149

163

176

188

202

215

227

241

254

36

39

42

48

55

62

70

81

97

112

127

141

157

172

187

202

218

232

247

263

278

293

by section 9651 of the American Rescue

Plan Act of 2021 (ARP), Public Law 1172, 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

August 23, 2021

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

(2) Notice 2021-20, 2021-11 I.R.B.

922 (March 15, 2021), and Notice 202123, 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, 202134 I.R.B. 316 (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 cred-

it. 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.

.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

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.

1

August 23, 2021

328

Bulletin No. 2021–34

retention credit under section 2301 of

the CARES Act. See 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 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

Bulletin No. 2021–34

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.

(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

329

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-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 § 1.4481T(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

August 23, 2021

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 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 em-

August 23, 2021

ployer 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

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.

330

See also Notices 2021-20, 2021-23, and

2021-49.

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.

316 (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

number).

Bulletin No. 2021–34

Definition of Terms

Revenue rulings and revenue procedures

(hereinafter referred to as “rulings”) that

have an effect on previous rulings use the

following defined terms to describe the

­effect:

Amplified describes a situation where

no change is being made in a prior published position, but the prior position is

being extended to apply to a variation of

the fact situation set forth therein. Thus, if

an earlier ruling held that a principle applied to A, and the new ruling holds that

the same principle also applies to B, the

earlier ruling is amplified. (Compare with

modified, below).

Clarified is used in those instances

where the language in a prior ruling is being made clear because the language has

caused, or may cause, some confusion. It

is not used where a position in a prior ruling is being changed.

Distinguished describes a situation

where a ruling mentions a previously published ruling and points out an essential

difference between them.

Modified is used where the substance

of a previously published position is being

changed. Thus, if a prior ruling held that a

principle applied to A but not to B, and the

new ruling holds that it applies to both A

and B, the prior ruling is modified because

it corrects a published position. (Compare

with amplified and clarified, above).

Obsoleted describes a previously published ruling that is not considered determinative with respect to future transactions.

This term is most commonly used in a ruling

that lists previously published rulings that

are obsoleted because of changes in laws or

regulations. A ruling may also be obsoleted

because the substance has been included in

regulations subsequently adopted.

Revoked describes situations where the

position in the previously published ruling

is not correct and the correct position is

being stated in a new ruling.

Superseded describes a situation where

the new ruling does nothing more than

restate the substance and situation of a

previously published ruling (or rulings).

Thus, the term is used to republish under

the 1986 Code and regulations the same

position published under the 1939 Code

and regulations. The term is also used

when it is desired to republish in a single

ruling a series of situations, names, etc.,

that were previously published over a

period of time in separate rulings. If the

new ruling does more than restate the substance of a prior ruling, a combination of

terms is used. For example, modified and

superseded describes a situation where the

substance of a previously published ruling

is being changed in part and is continued

without change in part and it is desired to

restate the valid portion of the previously published ruling in a new ruling that is

self contained. In this case, the previously

published ruling is first modified and then,

as modified, is superseded.

Supplemented is used in situations in

which a list, such as a list of the names of

countries, is published in a ruling and that

list is expanded by adding further names

in subsequent rulings. After the original

ruling has been supplemented several

times, a new ruling may be published that

includes the list in the original ruling and

the additions, and supersedes all prior rulings in the series.

Suspended is used in rare situations to

show that the previous published rulings

will not be applied pending some future

action such as the issuance of new or

amended regulations, the outcome of cases in litigation, or the outcome of a Service study.

Abbreviations

The following abbreviations in current use

and formerly used will appear in material

published in the Bulletin.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

Del. Order—Delegation Order.

DISC—Domestic International Sales Corporation.

DR—Donor.

E—Estate.

EE—Employee.

E.O.—Executive Order.

ER—Employer.

Bulletin No. 2021–34

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

FC—Foreign Country.

FICA—Federal Insurance Contributions Act.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

I.R.B.—Internal Revenue Bulletin.

LE—Lessee.

LP—Limited Partner.

LR—Lessor.

M—Minor.

Nonacq.—Nonacquiescence.

O—Organization.

P—Parent Corporation.

PHC—Personal Holding Company.

PO—Possession of the U.S.

PR—Partner.

PRS—Partnership.

i

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

S.P.R.—Statement of Procedural Rules.

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

TFR—Transferor.

T.I.R.—Technical Information Release.

TP—Taxpayer.

TR—Trust.

TT—Trustee.

U.S.C.—United States Code.

X—Corporation.

Y—Corporation.

Z—Corporation.

August 23, 2021

Numerical Finding List1

Bulletin 2021–34

Announcements:

2021-12, 2021-31 I.R.B. 267

2021-13, 2021-33 I.R.B. 314

2021-14, 2021-33 I.R.B. 315

Notices:

2021-39, 2021-27 I.R.B. 3

2021-40, 2021-28 I.R.B. 15

2021-41, 2021-29 I.R.B. 17

2021-42, 2021-29 I.R.B. 19

2021-38, 2021-30 I.R.B. 155

2021-44, 2021-31 I.R.B. 166

2021-45, 2021-31 I.R.B. 170

2021-47, 2021-32 I.R.B. 269

2021-46, 2021-33 I.R.B. 303

2021-48, 2021-33 I.R.B. 305

2021-49, 2021-34 I.R.B. 316

Proposed Regulations:

REG-107705-21, 2021-30 I.R.B. 162

REG-102951-16, 2021-32 I.R.B. 272

Revenue Procedures:

2021-28, 2021-27 I.R.B. 5

2021-29, 2021-27 I.R.B. 12

2021-24, 2021-29 I.R.B. 19

2021-14, 2021-30 I.R.B. 158

2021-30, 2021-31 I.R.B. 172

2021-31, 2021-33 I.R.B. 324

2021-33, 2021-34 I.R.B. 327

Revenue Rulings:

2021-12, 2021-27 I.R.B. 1

2021-13, 2021-30 I.R.B. 152

2021-14, 2021-31 I.R.B. 164

Treasury Decisions:

9951, 2021-30 I.R.B. 25

A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2021–27 through 2021–52 is in Internal Revenue Bulletin

2021–52, dated December 27, 2021.

1

August 23, 2021

ii

Bulletin No. 2021–34

Finding List of Current Actions on

Previously Published Items1

Bulletin 2021–34

A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2021–27 through 2021–52 is in Internal Revenue Bulletin

2021–52, dated December 27, 2021.

1

Bulletin No. 2021–34

iii

August 23, 2021

Internal Revenue Service

Washington, DC 20224

Official Business

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