On August 18, 2023, the Internal Revenue Service (IRS) issued Chief Counsel Memorandum 202333001 (CCM 202333001) clarifying whether federal credit unions (FCUs) are eligible to receive Employee Retention Credits (ERC) under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the Internal Revenue Code (IRC).
Background and Context
The CARES Act, enacted in March 2020, initially excluded FCUs from accessing the ERC, as indicated in Section 2301(f). In March 2020, Section 2301(f) of the CARES Act initially stated that the ERC wouldn’t apply to instrumentalities of the United States government, which included FCUs.
However, in late 2020, Congress extended and amended the ERC through the 2021 Consolidated Appropriations Act. This amendment changed the rules regarding eligible entities for claiming ERC in 2021. Specifically, it excluded entities defined under IRC §501(c)(1) that have tax exemptions under IRC §501(a). As a result, FCUs became eligible for the ERC tax credit under the 2021 Consolidated Appropriations Act.
Furthermore, the American Rescue Plan Act, effective as of March 2021, extended the ERC through the end of 2021. As stated in a prior IRS guidance, although this legislative change did not apply retroactively to 2020 claims, entities including FCUs were qualified for the ERC credits in the first and second quarters of 2021 under the American Rescue Plan Act.
Summary of Recent IRS Guidance
In the IRS guidance dated August 18, it affirms that given that FCUs are both instrumentalities of the federal government and also organizations exempt from tax under section 501(a), they would be eligible to claim the credit for eligible wages paid after December 31, 2020, and before October 1, 2021, so long as they meet other requirements under the law.
This recent guidance aims to clear up any uncertainty for FCUs that have already claimed the credit and may also prompt other credit unions to file claims if they meet the criteria. Generally, the deadline for making such claims for the 2021 tax periods is April 15, 2025.
Credit unions should consult with their tax advisor to determine if they meet the employer eligibility.
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