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Employee Retention Tax Credit Laws Could be Getting a Massive Overhaul

By Jeffrey M. Glassman on January 23, 2024
Tax practitioners and employers should be aware that just last week leaders of the House Ways and Means and Senate Finance Committees announced (link) their bipartisan agreement on proposed legislation (read: not yet a law) that could have major implications for the Employee Retention Tax Credit (“ERTC” or “ERC”). The full bill can be read here.

Some of the more significant, non-ERTC, tax provisions include: (1) an extension of 100% bonus depreciation through 2025 (or through 2026 for longer production period property and certain aircraft), and (2) increased Section 179 expensing to $1.29 million (subject to inflation adjustments and phase-outs), (3) retroactive restoration of ability to deduct certain domestic research and experimentation costs, and (4) expanded business interest deduction provisions.

As it relates to the ERTC, Congress has proposed the following:

  1. Shorten the deadline to file all claims for the ERTC to January 31, 2024. Yes, just a few days from now.
  2. Increase penalties on promoters for aiding and abetting the understatement of tax liability to the greater of (i) $200,000 (or $10,000 for a natural person), or (ii) 75% of the gross income derived by the promoter. This is a major increase from current law.
  3. Loosen requirements to be found liable for aiding and abetting the understatement of tax liability.
  4. New penalty for failure to comply with due diligence requirements related to determining eligibility for, or the amount of, any COVID-related tax credit.
  5. Treating certain ERTC claims involving certain promoters as “listed transactions,” and treating such promoters as “material advisors.” I will elaborate more on this in soon-to-come blog posts.
  6. Extending the limitation period on assessment related to any ERTC by six years from the latest of (i) the date the original ERTC claim was filed or treated as filed, or (ii) the date on which the claim for credit or refund was made.
  7. Extending the refund period to claim a deduction for improperly claimed ERTC wages through the limitation period of assessment mentioned above.
This blog is just a summary, so please be aware that the legislation has more specifics and provisions than what appears here.

Having committees in both houses of Congress support this bill demonstrates that the chances of this bill becoming law are increasingly realistic.

Please contact me with any questions about this article, the Employee Retention Tax Credit, or any other civil or criminal tax matter. I can be reached at jglassman@meadowscollier.com or 214-749-2417.