The U.S. Treasury Department and IRS on Friday afternoon, July 24, 2020, released for publication in the Federal Register temporary regulations (T.D. 9904) and, by cross-reference, proposed regulations (REG-111879-20) as rules for reconciling advance payments of refundable employment tax credits, as provided under legislation enacted earlier in 2020 as relief in response to the coronavirus (COVID-19) pandemic.
The Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) include a mandate for regulations to address the reconciliation of advance refundable employment tax credits provided under these acts and the recapture of the benefit of the credits (when necessary).
These regulations will be published in the Federal Register on July 29, 2020.
Read a related IRS release: IR-2020-169 (July 27, 2020).
Section 6201 allows the assessment of liabilities including interest, additional amounts, additions to the tax, and assessment of penalties. Section 6201 does not allow the assessment of any non-rebate portion (the portion that exceeds the tax liability) of an erroneous refundable credit. Non-rebate refunds are usually recovered through voluntary payment or litigation, and the IRS could bring a civil action. However, the Families First Act and CARES Act allow administrative recovery of erroneously refunded credits by authorizing regulations.
Accordingly, the temporary regulations and corresponding proposed regulations provide that any credits claimed that exceed the amount to which an employer is entitled and are actually credited and paid are considered to be an erroneous refund of the credits and treated as an underpayment of the taxes imposed under section 3111(a) or 3221(a). Therefore, these regulations authorize the IRS to assess any portion of the credits erroneously credited, paid or refunded. This mechanism allows the IRS to recover amounts and provides taxpayers with administrative protections, but avoids litigation.
These temporary regulations apply to all credits under provisions of the Families First Act (Act sections 7001 and 7003) refunded on or after April 1, 2020, as well as credits under a provision of the CARES Act (Act section 2301) that are refunded on or after March 13, 2020.
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