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Federal Register / Vol. 86, No. 173 / Friday, September 10, 2021 / Rules and Regulations subject to assessment and administrative collection procedures.
This allows the IRS to prevent the avoidance of the purposes of the limitations under the credit provisions and to recover the erroneous refund amounts efficiently, while also preserving administrative protections afforded to taxpayers with respect to contesting their tax liabilities under the Code and avoiding unnecessary costs and burdens associated with litigation.
These assessment and administrative collection procedures may apply in the normal course in processing employment tax returns that include advances in excess of claimed credits and in examining returns for excess claimed credits. These assessment and administrative collection procedures do not replace the existing recapture methods, but rather represent an alternative method available to the IRS.
Specifically, these temporary regulations provide that any amount of the credits for qualified leave wages and certain collectively bargained contributions under sections 3131 and 3132, plus any amount of credits for qualified health plan expenses under sections 3131d and 3132d, and including any increases in these credits under section 3133, and any amount of the employee retention credit for qualified wages under section 3134 of the Code that are erroneously refunded or credited to an employer shall be 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, by the employer and may be administratively assessed and collected in the same manner as the taxes. These temporary regulations provide that the determination of any amount of credits erroneously refunded must take into account any credit amounts advanced to an employer under the process established by the IRS in accordance with sections 3131b4B, 3132b3B and 3134j2.
In certain situations, third-party payors claim tax credits on behalf of their common law employer clients.
These temporary regulations address this situation by providing that employers against which an erroneous refund of credits may be assessed as an underpayment include persons treated as the employer under sections 3401d, 3504, and 3511, consistent with their liability for the employment taxes against which the credits applied.
Sections 3131h and 3132h provide that the paid sick and family leave credits apply to wages paid with respect to a period of leave taken beginning on
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April 1, 2021 and ending on September 30, 2021. Section 3134n provides that the employee retention tax credit applies to wages paid after June 30, 2021, and before January 1, 2022.
Pursuant to section 7805b2 of the Code, these temporary regulations are permitted to apply before the dates provided under section 7805b1, including the date on which these temporary regulations are filed with the Federal Register, because these temporary regulations are being issued within 18 months of the date of the enactment of the relevant statutory provisions. Accordingly, these temporary regulations apply to all credits under sections 3131 and 3132, including any increases to the credits under section 3133, credited or refunded on or after April 1, 2021, including advanced refunds, as well as all credits under section 3134 that are credited or refunded on or after July 1, 2021, including advanced refunds.
These applicability dates correspond to the effective dates of the statutory sections that provide for these credits and that authorize guidance to allow for the administrative recapture of erroneous refunds of these credits.
Special Analyses The Office of Management and Budgets Office of Information and Regulatory Analysis has determined that these temporary regulations are not significant and not subject to review under section 6b of Executive Order 12866.
Pursuant to the Regulatory Flexibility Act 5 U.S.C. chapter 6, the Secretary certifies that these temporary regulations will not have a significant economic impact on a substantial number of small entities because these temporary regulations impose no compliance burden on any business entities, including small entities.
Although these temporary regulations will apply to all employers eligible for the tax credits under sections 3131, 3132, and 3134, including small businesses and tax-exempt organizations with fewer than 500
employees, and will therefore be likely to affect a substantial number of small entities, the economic impact will not be significant. These temporary regulations do not affect the employers employment tax reporting or the necessary information to substantiate entitlement to the credits. Rather, these temporary regulations merely implement the statutory authority granted under sections 3131g, 3132g, and 3134m that authorize the IRS to assess, reconcile, and recapture any portion of the credits erroneously
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credited, paid, or refunded in excess of the actual amount allowed as if the 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, subject to assessment and administrative collection procedures. Notwithstanding this certification, the Treasury Department and the IRS invite comments on any impact these temporary regulations would have on small entities.
Pursuant to section 7805f, these temporary regulations have been submitted to the Chief Counsel of the Office of Advocacy of the Small Business Administration for comment on its impact on small business.
The Treasury Department and the IRS
have determined that there is good cause to issue these regulations as temporary regulations. Employers were required to file Form 941, Employers Quarterly Federal Tax Return, for the second quarter of calendar year 2021 by July 31, 2021, as required by section 6071 of the Code and Treas. Reg.
31.6071a1. Employers use Form 941
to claim paid sick and family leave credits and the employee retention credit, as well as to report any advance of these credits they received during the calendar quarter. In filing their second quarter 2021 Form 941, some employers may have already received, as an advance, refund amounts in excess of the credits to which they are entitled. In addition to the statutory authority provided by section 3134j3 with regard to erroneous advance refunds of the employee retention credit, these temporary regulations authorize the assessment of any erroneous refunds of the credits. Without these temporary regulations, in some instances the IRS
may not be able to avoid bringing costly and burdensome litigation to recover the erroneous refunds. Further, comments are being solicited in the crossreferenced notice of proposed rulemaking that is in this issue of the Federal Register, and any comments will be considered before final regulations are issued.
Statement of Availability of IRS
Documents IRS notices and other guidance cited in this preamble are published in the Internal Revenue Bulletin or Cumulative Bulletin and are available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at http www.irs.gov.

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