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Federal Register / Vol. 86, No. 173 / Friday, September 10, 2021 / Rules and Regulations
credits are to be advanced, according to forms and instructions provided by the Secretary, up to the total allowable amount of the credits and subject to applicable limits for the calendar quarter. Section 3134j2 provides that eligible employers for which the average number of full-time employees within the meaning of section 4980H
employed by the eligible employer during 2019 was not greater than 500
may elect for any calendar quarter to receive an advance payment of the employee retention credit for the quarter in an amount not to exceed 70 percent of the average quarterly wages paid in calendar year 2019.
To implement the advance payment provisions, employers that are eligible to receive an advance of the tax credits may use IRS Form 7200, Advance Payment of Employer Credits Due To COVID19, to request an advance of the paid sick and family leave credits and the employee retention credit.
Employers are required to reconcile any advance payments claimed on Form 7200 with total credits claimed and total taxes due on their employment tax returns.
A refund or credit of any portion of these tax credits, regardless of whether they are advanced, to a taxpayer in excess of the amount to which the taxpayer is entitled is an erroneous refund that the employer must repay.
V. Assessment Authority
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Section 6201 authorizes the Secretary to determine and assess tax liabilities including interest, additional amounts, additions to the tax, and assessable penalties. However, the general authority to assess tax liabilities under section 6201a does not provide for the assessment of any non-rebate 5 portion of an erroneous refund of a refundable tax credit, which may include a portion of the credits available under sections 3131, 3132, and 3134, if the refund exceeds the amounts to which an employer is properly entitled. While these types of erroneous refunds are generally recovered or recaptured through agreed upon voluntary repayments, setoff, or through litigation, the Code in some instances, such as in sections 3131, 3132, and 3134, provides for the administrative recapture of these non-rebate refunds either by directly authorizing assessment of the erroneous non-rebate refunds or by authorizing the 5 As a general matter, non-rebate refers to the portion of any refund of a tax credit that exceeds the IRSs determination of the recipients tax liability i.e., the remaining portion of the refund that is paid to the recipient after the refund has been applied to the recipients tax liability.

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promulgation of regulations or other guidance to do so.
Specifically, with regard to the paid sick and family leave credits, sections 3131g and 3132g provide, in relevant part, that the Secretary will provide such regulations or other guidance as may be necessary to carry out the purposes of the credits, including regulations or other guidance to prevent the avoidance of the purposes of the limitations under this provision and to recapture the benefit of the credit in cases where there is a subsequent adjustment to the credit. See sections 3131g1, 3131g4, 3132g1, and 3132g4. With regard to the employee retention credit, section 3134j3B
allows for the direct assessment of certain erroneous refunds of advanced portions of the credit by providing that if a small eligible employer specified in section 3134j2 receives excess advance payments of the credit, then the taxes imposed under section 3111b or so much of the taxes imposed under section 3221a as are attributable to the rate in effect under section 3111b, as applicable, for the calendar quarter are increased by the amount of the excess.
Section 3134m3 further provides that the Secretary will issue such forms, instructions, regulations, and other guidance as are necessary to prevent the avoidance of the purposes of the limitations under section 3134.
On July 29, 2020, temporary regulations TD 9904 amending the Employment Tax Regulations under sections 3111 and 3221 to provide for the recapture of erroneous refunds of the paid sick and family leave credits under the Families First Act and erroneous refunds of the employee retention credit under the CARES Act, pursuant to the authority granted under these acts to prescribe those regulations, were published in the Federal Register 85 FR 45514. A notice of proposed rulemaking REG11187920 crossreferencing the temporary regulations was published in the Federal Register on the same day 85 FR 45551. Because the ARP did not amend the Families First Act or CARES Act to extend the paid leave credits and employee retention credit provided thereunder, but rather enacted new Code sections that provide for similar credits, the temporary regulations in TD 9904 do not apply to the credits under the ARP.
Therefore, separate regulations are required to provide for the recapture of the erroneous refund of these credits pursuant to the authority granted under sections 3131, 3132, and 3134.
Accordingly, this document amends the Employment Tax Regulations 26
CFR part 31 by adding temporary
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regulations under new sections 3131, 3132, and 3134 of the Code. Concurrent with the publication of this Treasury decision, the Treasury Department and the IRS are publishing in the Proposed Rules section of this issue of the Federal Register a notice of proposed rulemaking REG10907721 on this subject that cross-references the text of these temporary regulations. See section 7805e1. Interested persons are directed to the ADDRESSES and Comments and Requests for a Public Hearing sections of the preamble to REG10907721 for information on submitting public comments or requesting a public hearing on the proposed regulations.
Explanation of Provisions Sections 3131b3, 3131b4A, 3131f1, 3132b2, 3132b3A, 3132f1, 3134b2, 3134b3, and 3134c1 provide that the credits described in these sections are taken against the taxes imposed under section 3111b and so much of the taxes imposed under section 3221a as are attributable to the rate in effect under section 3111b, as applicable, although for the employee retention credit, the taxes are first reduced by any paid sick and family leave credits. Additionally, if the amount of the credits exceeds these taxes for any calendar quarter, then the excess shall be treated as an overpayment to be refunded or credited under sections 6402a and 6413b. Any credits claimed that exceed the amount to which the employer is entitled and that are actually credited or refunded by the IRS are considered to be erroneous refunds of these credits. Section 3134j3B provides that if a small eligible employer specified in section 3134j2 receives excess advance payments of the credit, then the taxes imposed under section 3111b or so much of the taxes imposed under section 3221a as are attributable to the rate in effect under section 3111b, as applicable, for the calendar quarter are increased by the amount of the excess.
These temporary regulations provide that erroneous refunds of these credits are treated as underpayments of the taxes imposed under section 3111b and so much of the taxes imposed under section 3221a as are attributable to the rate in effect under section 3111b, as applicable. These temporary regulations authorize the IRS to assess any credits erroneously credited, paid, or refunded in excess of the amount allowed as if those amounts were taxes imposed under section 3111b and so much of the taxes imposed under section 3221a as are attributable to the rate in effect under section 3111b, as applicable,
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