United States

IRS updates Employee Retention Credit FAQ for exempt organizations

TAX ALERT  | 

On June 19, 2020, the IRS updated its FAQs providing guidance with respect to the employee retention credit created as part of the federal Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The updated FAQs define gross receipts for tax-exempt employers’ use in determining eligibility for the credit. 

Background

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides an employee retention credit to eligible employers that continue to compensate employees despite facing economic hardship due to COVID-19. An eligible employer is an organization that either: (1) fully or partially suspended operations during 2020 due to orders from a governmental authority in response to the COVID-19 pandemic, or (2) experienced a significant decline in gross receipts. A “significant decline in gross receipts” occurs when the employer’s gross receipts are less than 50% of its gross receipts for the same calendar quarter in 2019. 

The IRS has previously released and revised FAQs regarding the employee retention credit, as discussed in an earlier RSM Tax Alert. In the previous release, the definition of gross receipts for tax-exempt employers was reserved, with the indication that further guidance would be forthcoming.  

Guidance

The additional IRS FAQ issued on June 19, 2020 specifically defines gross receipts for purposes of determining an exempt organizations’ eligibility for the employee retention credit. For this purpose, gross receipts for a tax-exempt employer include gross receipts from all operations (related and unrelated). For example, an exempt organization would include all gifts, grants, and contributions; memberships dues; investment income; and receipts from sales and services (net of returns and allowances), whether or not related to the organization’s exempt function, for purposes of determining whether it experienced a “significant decline in gross receipts”.

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