In a recent memorandum issued on July 18, 2023, by the Office of Chief Counsel of the Internal Revenue Service, comprehensive information has been provided regarding the newfound capacity of federal credit unions to both apply for and claim the Employee Retention Credit. This adjustment has opened up opportunities, allowing a broader spectrum of entities to access the credit that was previously beyond their reach.
Eligible and Non-Eligible ERC Timelines Related to Federal Credit Unions
Wages Paid: March 12, 2020 - January 1, 2021 During this period, the IRS concluded that federal credit unions were not eligible to claim the ERC due to their status as instrumentalities of the U.S. government. The CARES Act's Section 2301(f) explicitly prohibited such instrumentalities from accessing the credit.
Wages Paid: January 1, 2021 - June 30, 2021 Shifting gears, the IRS established that federal credit unions could indeed claim the ERC for quarters within this time frame. The Taxpayer Certainty and Disaster Tax Relief Act of 2020's Section 206 brought forth a game-changing exemption. It stipulated that the U.S. government instrumentalities' limitation would no longer apply to entities described in Code Sec. 501(c)(1) and enjoying tax exemption under Code Sec. 501(a). As a result, federal credit unions gained the green light to claim the ERC for wages paid during this period.
Wages Paid: June 30, 2021 - October 1, 2021 (or January 1, 2022, for recovery startup business) The IRS remained consistent in its stance for this subsequent period. Federal credit unions maintained their eligibility to access the ERC. Again, the prohibition targeting U.S. government instrumentalities was sidestepped, this time by the inclusion of Code Sec. 501(c)(1) organizations and those tax-exempt under Code Sec. 501(a).
Connecting With A Tax Credit Professional
There are many rules related to this complex payroll tax credit, making it difficult to understand and maximize on your own. It is important for businesses to consult with a seasoned tax incentives professional to determine if they are eligible for the ERC and to ensure they are accurately claiming the credit.
If you are interested in delving into the intricacies of the memorandum or are in the process of determining whether you or your clients might qualify as eligible candidates for the ERC, our firm is happy to connect with you.
Feel free to reach out to us at (214) 414-9881 or at hello@taxcreditcollective.com.