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through Sept. 30, 2021), the employee retention Food or beverages provided by a restaurant
credit (ERC), as amended by the Infrastruc- For 2021 (and 2022) tax years, despite the general
ture Investment and Jobs Act, P.L. 117-58, for limitation of Sec. 274(n)(1) of a deduction for any
wages paid through Sept. 30, 2021, or, for recovery expense for food or beverages allowed under Sec.
startup businesses, Dec. 31, 2021, and the credit 274(k) of 50% of the cost, business taxpayers may
for premium assistance for COBRA continuation deduct the full cost paid or incurred before Jan. 1,
coverage — are all claimable against employment 2023, of food or beverages provided by a restaurant
taxes and therefore not directly implicated in (Sec. 274(n)(2)(D)). The meaning of the phrase
businesses’ income tax returns. However, employers “provided by a restaurant” in this provision of
claiming the credits will probably have to deal with the CAA was clarified by Notice 2021-25. Here,
the credits’ consequences for gross income. too, substantiation is important, not least to show
Employers claiming a credit for qualified sick that the erstwhile restaurant is not a disqualified
or family leave wages (qualified leave wages) must “business that primarily sells prepackaged food or
include the full amount of the credit in gross income beverages not for immediate consumption.”
(see IRS, “Special Issues for Employers,” FAQ 49,
available at tinyurl.com/3pxfyzb4) but may deduct Absence of key CARES Act special relief
as a business expense amounts paid to employees for Otherwise, business income tax returns for 2021
which the employer expects to claim the tax credits: will be most notable for what they don’t reflect,
qualified leave wages, any allocable qualified health specifically, the five-year carryback of net operat-
plan expenses, and the employer’s share of Medicare ing losses, the temporary repeal of the 80% of
tax on the qualified leave wages (FAQ 50). taxable income limitation for the net operating
The result of claiming an ERC is almost the loss deduction, the temporary increase in the
opposite: The ERC amount is not included in Sec. 163(j)(1)(B) business interest deduction
an eligible employer’s income, but it reduces any limitation to 50% (from 30%) of adjusted taxable
income tax deduction for the credit’s qualifying income, and the temporary suspension of the Sec.
wages (including qualified health plan expenses) by 461(l)(1) rule limiting excess business losses of
the amount of the ERC, pursuant to rules similar noncorporate taxpayers, which all expired at the
to those under Sec. 280C(a) (see Notices 2021-20 end of 2020, as provided by the Coronavirus Aid,
(especially Section III.L., Q&A 61), 2021-23, and Relief, and Economic Security (CARES) Act, P.L.
2021-49). Employers claiming the COBRA con- 116-136. Practitioners may well have occasion,
tinuation credit must increase their gross income by though, as they prepare 2021 business returns, to
the amount of the credit (Sec. 6432(e)). review returns for 2020 and previous years to make
In addition, qualified sick and family leave wages sure CARES Act elections were made properly
paid in 2021 must be reported to employees, so and to clients’ best advantage and, if advisable and
businesses issuing Forms W-2, Wage and Tax State- still possible, suggest that clients make any neces-
ment, in early 2022 must meet requirements for that sary elections and/or amend those returns.
reporting outlined in Notice 2021-53. Any taxpayer
who was self-employed and an employee during ALL EYES ON THE HILL
the tax year and both claims the self-employed Considering all that the nation has been through,
equivalent qualified leave credit and was paid quali- and compared with 2020 returns, those for 2021
fied leave wages as an employee will need this W-2 seem from the foregoing likely to be reasonably
information to compute the former. regular and comprehensible to preparers and most
taxpayers. Then again, tax law proposals now in the
offing, including some game-changing provisions,
could well eclipse most of these concerns by the
The Tax Adviser and Tax Section time tax season 2022 launches.
“What I find exciting and interesting about
AICPA Tax Section members receive a subscription to The Tax Adviser tax is the evolving changes in the tax code,” Graat
digital issues in addition to access to a tax resource library, member-only
newsletter, and four free webcasts. The Tax Section is leading tax forward said.
with the latest news, tools, webcasts, client support, and more. Learn Wherever these new directions may lead going
more at us.aicpa.org/tax-section. The current issue of The Tax Adviser and forward, CPA tax preparers can go to work each
many other resources are also available at thetaxadviser.com. day of this new busy season and the next with, one
hopes, that kind of excitement and interest. ■

10 | Journal of Accountancy January 2022