The IRS recently released advice (CCA 20233301) addressing the extent to which federal credit unions may be eligible to claim the employee retention credit (ERC).
There are essentially separate and distinct rules for claiming the ERC (1) for qualified wages paid after March 12, 2020, and before Jan. 1, 2021 (the “2020 ERC”), and (2) for qualified wages paid after Dec. 31, 2020, and before Oct. 1, 2021 (or before Jan. 1, 2022, for certain recovery start-up businesses) (the “2021 ERC”).
The eligibility rules for the 2020 ERC expressly provide that the 2020 ERC does not apply to the government of the U.S., the government of any state or political subdivision thereof, or any agency or instrumentality of the foregoing.
The eligibility rules for the 2021 ERC include the same language, but also provide an exception for any organization described in Section 501(c)(1) and exempt from tax under Section 501(a). Section 501(c)(1) provides that any corporation organized under an Act of Congress which is an instrumentality of the U.S. is exempt from tax under Section 501(a) if it is exempt from federal income taxes under the Act of Congress as amended and supplemented before July 18, 1984.
In the advice, the IRS concluded that federal credit unions which are organized under the Federal Credit Union Act, which was first enacted in 1934, are instrumentalities of the U.S. government under the factors enumerated in Revenue Ruling 57-128.
In addition, because federal credit unions are instrumentalities, and because they are exempt from tax, federal credit unions are organizations described in section 501(c)(1) and exempt from tax under Section 501(a).
As such, the IRS concluded in the advice that federal credit unions are not eligible for the 2020 ERC, but may be eligible for the 2021 ERC if the otherwise applicable eligibility conditions are satisfied.
Contact:
Jeff Martin
Partner, Washington National Tax Office
Washington, D.C.
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