# Bulletin No. 2021–34

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## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

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.

The IRS Mission
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
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
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
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

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

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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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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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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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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
Penalty for Private Use, $300

INTERNAL REVENUE BULLETIN

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If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it,
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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3Aaddb47624e0a66cc. Public record. Not legal advice.