The Treasury Department and IRS today released an advance version of Notice 2017-23 providing interim guidance for making the payroll tax credit election.
The Treasury Department and IRS are developing guidance to implement the payroll tax credit election available to certain small businesses under section 41(h) of the Internal Revenue Code to claim the payroll tax credit under section 3111(f). Sections 41(h) and 3111(f) allow a qualified small business to elect to apply a portion of the section 41(a) research credit for the tax year against the employer portion of the old-age, survivors, and disability insurance tax (social security tax) under the Federal Insurance Contributions Act. Sections 41(h) and 3111(f) are effective for tax years beginning after December 31, 2015.
Specifically, Notice 2017-23 [PDF 53 KB] provides interim guidance regarding the term “qualified small business,” including the applicable guidance for determining gross receipts for purposes of section 41(h). This notice also provides interim guidance relating to the time and manner of making the payroll tax credit election and claiming the credit.
Significantly, the notice provides that the term “gross receipts” means gross receipts as determined under section 448(c)(3) (without regard to section 448(c)(3)(A)) and section 1.448-1T(f)(2)(iii) and (iv) of the Income Tax Regulations. The definition of gross receipts under section 41(c)(7) and section 1.41-3(c) does not apply for purposes of section 41(h). Therefore, gross receipts for purposes of the notice do not include an exclusion for de minimis gross receipts similar to that in Treas. Reg. 1.41-3(c) which provides that “gross receipts do not include amounts representing *** Amounts received by a taxpayer in a tax year that precedes the first taxable year in which the taxpayer derives more than $25,000 in gross receipts other than investment income. For purposes of this paragraph (c)(2)(vi), investment income is interest or distributions with respect to stock (other than the stock of a 20% owned corporation as defined in section 243(c)(2)).”
The Treasury Department and the IRS request comments on the interim guidance described in this notice and other issues affecting payroll tax credit elections that may require additional guidance. Comments are requested by July 17, 2017.
For further background information regarding potential abilities to use the research and development (R&D) credit to offset payroll taxes and alternative minimum tax, read a 2016 report prepared by KPMG LLP: What’s News in Tax: Research Credit Made Permanent and New Potential Abilities to Use Credit to Offset AMT and Payroll Taxes
For more information, contact a tax professional with KPMG’s Research Credit Services (RCS) Practice:
Mike Brossmer | +1 (408) 367-4127 | firstname.lastname@example.org
Ed Jankun | +1 (704) 371-8090 | email@example.com
Joe Hainly | +1 (617) 988-1757 | firstname.lastname@example.org
Tyrone Montague | +1 (212) 954-6818 | email@example.com
Jaime Park | +1 (202) 533-5711 | firstname.lastname@example.org
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.