Frost Law
In a General Legal Advice Memorandum (GLAM) issued on 2/15/2024, the IRS Office of Chief Counsel stated that under current law, certain third-party payers (“TPP”) will be liable for the improper Employee Retention Credit ("ERC") claims of its clients.
The guidance confirms that a TPP that is a section 3504 agent, a Professional Employer Organization ("PEO") subject to section 31.3504-2, or a CPEO is liable for any underpayment resulting from an improperly claimed ERC which the TPP claimed for the client on the TPP’s employment tax return filed under the TPP’s EIN.
Under Treas. Reg. § 31.3504-1(a) and Treas. Reg. § 31.3504-2(c)(1), when improperly claimed credits are claimed by a section 3504 agent or PEO for its client, and the credit claim is based on wages paid by the TPP to the client’s employees and reported on the TPP’s employment tax return, both the TPP and its client will be liable for any resulting underpayment of tax. For Certified Professional Employer Organizations ("CPEO"), similar rules apply under §3511(c)(1) for improper credits relating to wages paid to its client’s non-worksite employees, however under §3511(a)(1), the CPEO is solely liable for improper credits relating to wages paid to its client’s worksite employees.
While the CARES Act specifically shielded TPPs from liability for deferring the employer’s share of FICA taxes, Congress did not provide for similar protection in relation to ERC and absent future legislative action, both the TPP and its client employer shall be liable for improperly claimed ERC.
In a General Legal Advice Memorandum (GLAM) issued on 2/15/2024, the IRS Office of Chief Counsel stated that under current law, certain third-party payers (“TPP”) will be liable for the improper Employee Retention Credit ("ERC") claims of its clients.
The guidance confirms that a TPP that is a section 3504 agent, a Professional Employer Organization ("PEO") subject to section 31.3504-2, or a CPEO is liable for any underpayment resulting from an improperly claimed ERC which the TPP claimed for the client on the TPP’s employment tax return filed under the TPP’s EIN.
Under Treas. Reg. § 31.3504-1(a) and Treas. Reg. § 31.3504-2(c)(1), when improperly claimed credits are claimed by a section 3504 agent or PEO for its client, and the credit claim is based on wages paid by the TPP to the client’s employees and reported on the TPP’s employment tax return, both the TPP and its client will be liable for any resulting underpayment of tax. For Certified Professional Employer Organizations ("CPEO"), similar rules apply under §3511(c)(1) for improper credits relating to wages paid to its client’s non-worksite employees, however under §3511(a)(1), the CPEO is solely liable for improper credits relating to wages paid to its client’s worksite employees.
While the CARES Act specifically shielded TPPs from liability for deferring the employer’s share of FICA taxes, Congress did not provide for similar protection in relation to ERC and absent future legislative action, both the TPP and its client employer shall be liable for improperly claimed ERC.
