Federal Register / Vol. 86, No. 173 / Friday, September 10, 2021 / Rules and Regulations 50637 

1Section 9641 of the ARP added sections 

3131(f)(5) and 3132(f)(5) to the Code, which extend 

paid sick and family leave credits to certain 

governmental employers (without regard to the 

number of employees). However, the credits are not 

allowed for the government of the United States, or 

any agency or instrumentality of the United States 

government, except for an organization described in 

section 501(c)(1) of the Code and exempt from tax 

under section 501(a) of the Code. 

cabin or adjoining property owner’s 

dock, pier, boathouse, or boatwells. 

* * * * * 

Monolithic frame means the 

supporting floor structure of a floating 

cabin that is constructed as one rigid 

component. It specifically excludes any 

attached structures, such as decks and 

platforms, regardless of when they were 

connected or how they are connected 

(e.g., pins, hinges, bolts, ropes). 

New floating cabin means a floating 

cabin that was not located or moored on 

the Tennessee River System as of 

December 16, 2016. 

* * * * * 

Rebuilding means replacement of all 

or a significant portion of an approved 

obstruction to the same configuration, 

total footprint, and dimensions (length, 

width, and height of the obstruction or 

enclosed or open space) as the approved 

plans, standards, and conditions of the 

section 26a permit. 

* * * * * 

Structural modification means any 

alteration to the dimensions (length, 

width, and height of the obstruction or 

enclosed or open space), footprint, or 

approved plans of a structure. 

* * * * * 

Allen A. Clare, 

Vice President, River and Resources 

Stewardship. 

[FR Doc. 2021–19098 Filed 9–9–21; 8:45 am] 

BILLING CODE 8120–08–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 31 

[TD 9953] 

RIN 1545–BQ09 

Recapture of Excess Employment Tax 

Credits Under the American Relief Plan 

Act of 2021 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Temporary regulations. 

SUMMARY: This document sets forth 

temporary regulations under sections 

3131, 3132, and 3134 of the Internal 

Revenue Code (Code), added by sections 

9641 and 9651 of the American Rescue 

Plan Act of 2021. These temporary 

regulations authorize the assessment of 

any erroneous refund of the tax credits 

paid under sections 3131, 3132 

(including any increases in those credits 

under section 3133), and 3134 of the 

Code. The text of these temporary 

regulations also serves as the text of the 

proposed regulations (REG–109077–21) 

set forth in the notice of proposed 

rulemaking on this subject in the 

Proposed Rules section of this issue of 

the Federal Register. 

DATES: 

Effective date: These temporary 

regulations are effective on September 

10, 2021. 

Applicability date: For date of 

applicability, see §§ 31.3131–1T, 

31.3132–1T, and 31.3134–1T of these 

temporary regulations. 

FOR FURTHER INFORMATION CONTACT: 

Concerning these temporary regulations, 

NaLee Park at 202–317–6798. 

SUPPLEMENTARY INFORMATION: 

Background 

The Families First Coronavirus 

Response Act (Families First Act), 

Public Law 116–127, 134 Stat. 178 

(March 18, 2020), the Coronavirus Aid, 

Relief, and Economic Security Act 

(CARES Act), Public Law 116–136, 134 

Stat. 281 (March 27, 2020), the COVIDrelated Tax Relief Act of 2020 (Tax 

Relief Act), enacted as Subtitle B of Title 

II of Division N of the Consolidated 

Appropriations Act, 2021, Public Law 

116–260, 134 Stat.1182 (December 27, 

2020), the Taxpayer Certainty and 

Disaster Relief Tax Act of 2020 (Relief 

Act), enacted as Division EE of the 

Consolidated Appropriations Act, 2021, 

and the American Rescue Plan Act of 

2021 (the ARP), Public Law 117–2, 135 

Stat. 4 (March 11, 2021), provide relief 

to taxpayers from economic hardships 

resulting from the Coronavirus Disease 

2019 (COVID–19). As described below, 

this relief includes employment tax 

credits for certain wages paid by 

employers. 

I. Paid Sick and Family Leave Credits 

The Emergency Paid Sick Leave Act 

(EPSLA) and the Emergency Family and 

Medical Leave Expansion Act 

(EFMLEA), enacted as Divisions E and 

C of the Families First Act, respectively, 

generally required employers with fewer 

than 500 employees to provide paid 

leave due to certain circumstances 

related to COVID–19. Sections 7001 and 

7003 of the Families First Act generally 

provided that non-governmental 

employers subject to the paid leave 

requirements under EPSLA and 

EFMLEA were entitled to fully 

refundable tax credits to cover the 

wages paid for leave taken for those 

periods of time during which employees 

are unable to work or telework for 

specified reasons related to COVID–19, 

plus allocable qualified health plan 

expenses. 

Although the requirement to provide 

employees with paid leave under 

EPSLA and EFMLEA expired December 

31, 2020, the tax credits for qualified 

leave wages paid for periods of leave 

taken beginning on April 1, 2020, and 

ending on December 31, 2020, were 

extended by the Tax Relief Act through 

March 31, 2021, for paid leave that 

would have satisfied the requirements 

of EPSLA and EFMLEA. 

The ARP added sections 3131 through 

3133 of the Code, which extend the 

refundable tax credits for paid leave to 

non-governmental employers with fewer 

than 500 employees, and certain 

governmental entities 1 without regard 

to the number of employees, that 

provide paid sick and family leave for 

specified reasons related to COVID–19 

with respect to periods of leave 

beginning on April 1, 2021, through 

September 30, 2021. The paid sick leave 

credit and the paid family leave credit 

(collectively, ‘‘paid sick and family 

leave credits’’) under sections 3131 

through 3133 are available to eligible 

employers that provide employees with 

paid leave that would have satisfied the 

requirements of EPSLA and EFMLEA, 

with certain modifications made 

pursuant to the ARP. 

Under section 3131, a credit is 

available to eligible employers who pay 

qualified sick leave wages to an 

employee for up to 80 hours leave 

provided during the period beginning 

April 1, 2021, and ending September 30, 

2021, if the employee is unable to work 

or telework because the employee: 

(1) Is subject to a Federal, State, or 

local quarantine or isolation order 

related to COVID–19; 

(2) has been advised by a health care 

provider to self-quarantine due to 

concerns related to COVID–19; 

(3) is experiencing symptoms of 

COVID–19 and seeking a medical 

diagnosis, is seeking or awaiting the 

results of a diagnostic test for, or a 

medical diagnosis of, COVID–19 and the 

employee has been exposed to COVID– 

19 or the employee’s employer has 

requested the test or diagnosis, or the 

employee is obtaining immunization 

related to COVID–19 or recovering from 

any injury, disability, illness, or 

condition related to the immunization; 

(4) is caring for an individual who is 

subject to a Federal, State, or local 

quarantine or isolation order related to 

COVID–19, or has been advised by a 


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50638 Federal Register / Vol. 86, No. 173 / Friday, September 10, 2021 / Rules and Regulations 

2For more information on the paid sick and 

family leave credits, including who is an 

‘‘individual’’ for purposes of this ‘‘substantially 

similar’’ condition, see Tax Credits for Paid Leave 

Under the American Rescue Plan Act of 2021 for 

Leave After March 31, 2021 | Internal Revenue 

Service (irs.gov) at https://www.irs.gov/newsroom/ 

tax-credits-for-paid-leave-under-the-americanrescue-plan-act-of-2021-for-leave-after-march-31- 

2021. 

health care provider to self-quarantine 

due to concerns related to COVID–19; 

(5) is caring for a son or daughter of 

such employee if the school or place of 

care of the son or daughter has been 

closed, or the child care provider of the 

son or daughter is unavailable, due to 

COVID–19 precautions; or 

(6) is experiencing any other 

substantially similar condition specified 

by the Secretary of Health and Human 

Services (HHS) in consultation with the 

Secretaries of the Treasury and Labor. 

The Secretary of HHS has specified, 

after consultation with the Secretaries of 

Treasury and Labor, that a substantially 

similar condition is one in which the 

employee takes leave: 

• To accompany an individual to 

obtain immunization related to COVID– 

19, or 

• to care for an individual who is 

recovering from any injury, disability, 

illness, or condition related to the 

immunization.2

If an employee is unable to work or 

telework for reasons related to COVID– 

19 described in (1), (2), or (3) above, 

qualified sick leave wages are wages 

paid at the employee’s regular rate of 

pay or, if higher, the Federal minimum 

wage or any applicable State or local 

minimum wage, up to a maximum of 

$511 per day and $5,110 in the 

aggregate. If an employee is unable to 

work or telework for reasons related to 

COVID–19 described in (4), (5), or (6) 

above, qualified sick leave wages are 

two-thirds of the wages paid at the 

employee’s regular rate of pay or, if 

higher, the Federal minimum wage or 

any applicable State or local minimum 

wage, up to a maximum of $200 per day 

and $2,000 in the aggregate. 

Under section 3132, a credit is 

available to eligible employers who pay 

qualified family leave wages to an 

employee for up to 12 weeks of paid 

family leave provided during the period 

beginning April 1, 2021, and ending 

September 30, 2021, if the employee is 

unable to work or telework due to any 

of the conditions for which eligible 

employers may provide paid sick leave. 

Qualified family leave wages are twothirds of the wages paid at the 

employee’s regular rate of pay, up to a 

maximum of $200 per day and $12,000 

in the aggregate. 

An eligible employer may not receive 

the paid family leave credit for the same 

wages for which it received the paid 

sick leave credit. Further, an eligible 

employer that receives the credits for 

qualified sick leave wages under section 

3131 of the Code and qualified family 

leave wages under section 3132 of the 

Code (collectively, ‘‘qualified leave 

wages’’) may not receive the employee 

retention credit allowed under section 

2301 of the CARES Act or section 3134 

of the Code based on the same wages. 

For the second calendar quarter of 2021, 

if an eligible employer receives the 

employee retention credit under section 

2301 of the CARES Act based on wages 

paid that are also qualified leave wages 

on which the employer may claim the 

paid sick and family leave credits, the 

employer must reduce any paid sick and 

family leave credits by the amount of 

the credit allowed under section 2301 of 

the CARES Act that is attributable to 

those same wages. See sections 

3131(f)(3) and 3132(f)(3). For the third 

and fourth calendar quarters of 2021, 

any qualified leave wages eligible 

employers take into account for 

purposes of the paid sick and family 

leave credits may not be taken into 

account for purposes of the employee 

retention credit under section 3134 of 

the Code. See section 3134(c)(3)(D). 

The paid sick and family leave credits 

are also reduced by the amount of the 

credit allowed under section 41 (the 

credit for increasing research activities) 

with respect to wages taken into account 

for determining both the credit under 

section 41 and the paid sick and family 

leave credits. In addition, any wages 

taken into account in determining paid 

sick and family leave credits cannot be 

taken into account as wages for 

purposes of the credits under sections 

45A, 45P, 45S, and 51. See sections 

3131(f)(3) and 3132(f)(3). 

Sections 3131(f)(2) and 3132(f)(2) 

provide that, for purposes of sections 

3131 and 3132, respectively, the term 

‘‘wages’’ means wages as defined in 

section 3121(a), determined without 

regard to paragraphs (1) through (22) of 

section 3121(b), and compensation as 

defined in section 3231(e), determined 

without regard to the sentence in 

section 3231(e)(1) that begins ‘‘Such 

term does not include remuneration’’. 

Eligible employers are entitled to 

receive a credit equal to the amount of 

qualified leave wages paid under 

sections 3131 and 3132. Under sections 

3131(d) and 3132(d), the credit is 

increased by the eligible employer’s cost 

of maintaining health insurance 

coverage allocable to the qualified leave 

wages (‘‘allocable qualified health plan 

expenses’’). Under sections 3131(e) and 

3132(e), the credit is also increased by 

certain amounts paid under collectively 

bargained agreements by the eligible 

employer that are properly allocable to 

the qualified leave wages (‘‘certain 

collectively bargained contributions’’), 

subject to the daily and aggregate credit 

limitations. The credits for the qualified 

leave wages and the collectively 

bargained contributions combined 

cannot exceed the $511 daily and $5110 

aggregate limitation or $200 daily and 

$2000 aggregate limitation for paid sick 

leave and the $200 daily and $12,000 

aggregate limitation for paid family 

leave. However, the credit for the 

allocable qualified health expenses is in 

addition to the credit for the qualified 

leave wages and not subject to the daily 

and aggregate credit limitations. 

Under sections 3131 and 3132, 

qualified leave wages are subject to the 

taxes imposed on employers by sections 

3111(a) (employer’s share of social 

security tax), 3111(b), and 3221(a), but 

section 3133(a) provides that the paid 

sick and family leave credits under 

sections 3131 and 3132 are increased by 

the amount of the taxes imposed by 

sections 3111(a), 3111(b), and 3221(a) 

on qualified leave wages. 

The paid sick and family leave credits 

under sections 3131 and 3132 are 

allowed against the taxes imposed on 

employers under section 3111(b) (the 

Hospital Insurance tax (Medicare tax)), 

and against so much of the taxes 

imposed under section 3221(a) (the 

Railroad Retirement Tax Act Tier 1 tax) 

as are attributable to the rate in effect 

under section 3111(b), as applicable, on 

all wages and compensation paid to all 

employees, and any credit amounts in 

excess of these taxes are treated as an 

overpayment to be refunded under 

sections 6402(a) and 6413(b) of the 

Code. See sections 3131(b)(4)(A), 

3131(f)(1), 3132(b)(3)(A), and 3132(f)(1). 

II. Employee Retention Credit 

Section 2301 of the CARES Act, as 

originally enacted, provides for an 

employee retention credit for eligible 

employers, including tax-exempt 

organizations, that pay qualified wages, 

including certain health plan expenses, 

to some or all employees after March 12, 

2020, and before January 1, 2021. 

Section 206 of the Relief Act adopted 

amendments and technical changes to 

section 2301 of the CARES Act for 

qualified wages paid after March 12, 

2020, and before January 1, 2021, 

primarily expanding eligibility for 

certain employers to claim the credit. 

Section 206 of the Relief Act is effective 

retroactive to the effective date of 

section 2301 of the CARES Act. Section 

207 of the Relief Act, which is effective 


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Federal Register / Vol. 86, No. 173 / Friday, September 10, 2021 / Rules and Regulations 50639 

3For purposes of certain governmental 

organizations or entities as described in section 

3134(f)(2) of the Code, wages as defined in section 

3121(a) are determined without regard to 

paragraphs (5), (6), (7), (10), and (13) of section 

3121(b) (except with respect to services performed 

in a penal institution by an inmate thereof). 

4Section 6413(a) addresses interest-free 

adjustments of overpayments. The section provides 

that if more than the correct amount of employment 

tax imposed by section 3101, 3111, 3201, 3221, or 

3402 is paid with respect to any payment of 

remuneration, proper adjustments with respect to 

both the tax and the amount to be deducted, shall 

be made, without interest, in such manner and at 

such times as the Secretary may by regulations 

prescribe. 

for calendar quarters beginning after 

December 31, 2020, further amends 

section 2301 of the CARES Act to 

extend the application of the employee 

retention credit to qualified wages paid 

after December 31, 2020, and before July 

1, 2021, and to modify the calculation 

of the credit amount for qualified wages 

paid during that time. Section 9651 of 

the ARP enacted section 3134 of the 

Code, effective for calendar quarters 

beginning after June 30, 2021, to provide 

an employee retention credit for 

qualified wages paid after June 30, 2021, 

and before January 1, 2022. The 

Department of the Treasury (Treasury 

Department) and the Internal Revenue 

Service (IRS) will continue to monitor 

potential legislation related to the 

employee retention credit that may 

impact certain rules described in this 

preamble. 

The employee retention credit is 

available to any employer carrying on a 

trade or business during a calendar 

quarter that meets the requirements to 

be an eligible employer under section 

3134, which include experiencing a full 

or partial suspension of business 

operations due to orders from an 

appropriate governmental authority 

limiting commerce, travel, or group 

meetings (for commercial, social, 

religious, or other purposes) due to 

COVID–19, experiencing a decline in 

gross receipts, or qualifying as a 

recovery startup business. 

For eligible employers that averaged 

more than 500 full-time employees 

(within the meaning of section 4980H) 

during 2019 (large eligible employers), 

qualified wages are wages and 

compensation (including allocable 

qualified health plan expenses), up to 

$10,000 per employee per calendar 

quarter, paid to employees for the time 

during which they are not providing 

services due to a full or partial 

suspension of business operations or a 

decline in gross receipts. For eligible 

employers that averaged 500 full-time 

employees or fewer during 2019 (small 

eligible employers), and for severely 

financially distressed employers as 

defined in section 3134(c)(3)(C)(ii) that 

are also large eligible employers, 

qualified wages are the wages and 

compensation (including allocable 

qualified health plan expenses), up to 

$10,000 per employee per calendar 

quarter, paid with respect to an 

employee (regardless of whether the 

employee is performing services) during 

any period in the calendar quarter in 

which the business operations are fully 

or partially suspended due to a 

governmental order or during any 

calendar quarter in which the employer 

is experiencing a decline in gross 

receipts. If an employer was not in 

existence in 2019, an employer may use 

the average number of full-time 

employees in 2020 rather than 2019. If 

an employer is an eligible employer due 

to being a recovery startup business, the 

maximum aggregate employee retention 

credit the employer may claim in a 

calendar quarter is $50,000. In the third 

and fourth calendar quarters of 2021, a 

recovery startup business that is a small 

eligible employer may treat all wages 

paid with respect to an employee during 

the quarter as qualified wages. See 

Notice 2021–49. 

The same wages or compensation 

cannot be counted for both the paid sick 

and family leave credits under sections 

3131 and 3132 and the employee 

retention credit under section 3134. 

Qualified wages for the employee 

retention credit also do not include any 

wages taken into account under sections 

41, 45A, 45P, 45S, 51, and 1396 of the 

Code. See section 3134(c)(3)(D). 

Additionally, qualified wages do not 

include amounts taken into account as 

payroll costs for Paycheck Protection 

Program loan forgiveness and certain 

grants. See section 3134(h). 

Section 3134(c)(4)(A) provides that, 

for purposes of section 3134, the term 

‘‘wages’’ means wages as defined in 

section 3121(a) 3 and compensation as 

defined in section 3231(e). 

The employee retention credit under 

section 3134 is equal to 70 percent of 

qualified wages paid. The credit is 

allowed against the taxes imposed on 

employers under section 3111(b), first 

reduced by any tax credits allowed 

under sections 3131 and 3132, and 

against so much of the taxes imposed 

under section 3221(a) as are attributable 

to the rate in effect under section 

3111(b), as applicable, first reduced by 

any credits allowed under sections 3131 

and 3132, on all wages and 

compensation paid to all employees. 

Any credit amounts in excess of these 

taxes are treated as an overpayment that 

shall be refunded under sections 6402(a) 

and 6413(b) of the Code. 

III. Refundability of Credits 

Sections 3131(b)(4)(A), 3132(b)(3)(A), 

and 3134(b)(3) provide that if the 

amount of the paid sick and family 

leave credits (which would include any 

increases in the credits under section 

3133(a)) and employee retention credit 

exceeds the taxes imposed under 

section 3111(b) and so much of the taxes 

imposed under section 3221(a) as are 

attributable to the rate in effect under 

section 3111(b), as applicable, for any 

calendar quarter, after application of the 

other credits previously applied, such 

excess shall be treated as an 

overpayment that shall be refunded 

under sections 6402(a) and 6413(b). 

Section 6402(a) generally provides 

that, within the applicable period of 

limitations, overpayments may be 

credited against any liability in respect 

of an internal revenue tax on the part of 

the person who made the overpayment 

and any remaining balance refunded to 

such person. Section 6413(b) provides 

that if more than the correct amount of 

employment tax imposed by sections 

3101, 3111, 3201, 3221, or 3402 is paid 

or deducted and the overpayment 

cannot be adjusted under section 

6413(a).4 the amount of the 

overpayment shall be refunded (subject 

to the applicable statute of limitations) 

as the Secretary may prescribe in 

regulations. 

The IRS revised Form 941, Employer’s 

Quarterly Federal Tax Return, Form 

943, Employer’s Annual Federal Tax 

Return for Agricultural Employees, 

Form 944, Employer’s Annual Federal 

Tax Return, and Form CT–1, Employer’s 

Annual Railroad Retirement Tax 

Return, so that employers may use these 

returns to claim the paid sick and family 

leave credits under sections 3131 

through 3133 and the employee 

retention credit under section 3134. The 

revised employment tax returns allow 

for any of these credits in excess of the 

taxes imposed under section 3111(b) 

and so much of the taxes imposed under 

section 3221(a) as are attributable to the 

rate in effect under section 3111(b), as 

applicable, to be credited against other 

employment taxes and then for any 

remaining balance to be credited or 

refunded to the employer in accordance 

with section 6402(a) or section 6413(b). 

IV. Advance Payment of Credits and 

Erroneous Refunds 

Sections 3131(b)(4)(B) and 

3132(b)(3)(B) provide that, in 

anticipation of the paid sick and family 

leave credits under these sections 

(which would include any increases in 

the credits under section 3133(a)), 

including any refundable portions, these 


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50640 Federal Register / Vol. 86, No. 173 / Friday, September 10, 2021 / Rules and Regulations 

5As a general matter, ’’non-rebate’’ refers to the 

portion of any refund of a tax credit that exceeds 

the IRS’s determination of the recipient’s tax 

liability (i.e., the remaining portion of the refund 

that is paid to the recipient after the refund has 

been applied to the recipient’s tax liability). 

credits are to be advanced, according to 

forms and instructions provided by the 

Secretary, up to the total allowable 

amount of the credits and subject to 

applicable limits for the calendar 

quarter. Section 3134(j)(2) provides that 

eligible employers for which the average 

number of full-time employees (within 

the meaning of section 4980H) 

employed by the eligible employer 

during 2019 was not greater than 500 

may elect for any calendar quarter to 

receive an advance payment of the 

employee retention credit for the quarter 

in an amount not to exceed 70 percent 

of the average quarterly wages paid in 

calendar year 2019. 

To implement the advance payment 

provisions, employers that are eligible 

to receive an advance of the tax credits 

may use IRS Form 7200, Advance 

Payment of Employer Credits Due To 

COVID–19, to request an advance of the 

paid sick and family leave credits and 

the employee retention credit. 

Employers are required to reconcile any 

advance payments claimed on Form 

7200 with total credits claimed and total 

taxes due on their employment tax 

returns. 

A refund or credit of any portion of 

these tax credits, regardless of whether 

they are advanced, to a taxpayer in 

excess of the amount to which the 

taxpayer is entitled is an erroneous 

refund that the employer must repay. 

V. Assessment Authority 

Section 6201 authorizes the Secretary 

to determine and assess tax liabilities 

including interest, additional amounts, 

additions to the tax, and assessable 

penalties. However, the general 

authority to assess tax liabilities under 

section 6201(a) does not provide for the 

assessment of any non-rebate 5 portion 

of an erroneous refund of a refundable 

tax credit, which may include a portion 

of the credits available under sections 

3131, 3132, and 3134, if the refund 

exceeds the amounts to which an 

employer is properly entitled. While 

these types of erroneous refunds are 

generally recovered or recaptured 

through agreed upon voluntary 

repayments, setoff, or through litigation, 

the Code in some instances, such as in 

sections 3131, 3132, and 3134, provides 

for the administrative recapture of these 

non-rebate refunds either by directly 

authorizing assessment of the erroneous 

non-rebate refunds or by authorizing the 

promulgation of regulations or other 

guidance to do so. 

Specifically, with regard to the paid 

sick and family leave credits, sections 

3131(g) and 3132(g) provide, in relevant 

part, that the Secretary will provide 

such regulations or other guidance as 

may be necessary to carry out the 

purposes of the credits, including 

regulations or other guidance to prevent 

the avoidance of the purposes of the 

limitations under this provision and to 

recapture the benefit of the credit in 

cases where there is a subsequent 

adjustment to the credit. See sections 

3131(g)(1), 3131(g)(4), 3132(g)(1), and 

3132(g)(4). With regard to the employee 

retention credit, section 3134(j)(3)(B) 

allows for the direct assessment of 

certain erroneous refunds of advanced 

portions of the credit by providing that 

if a small eligible employer specified in 

section 3134(j)(2) receives excess 

advance payments of the credit, then the 

taxes imposed under section 3111(b) or 

so much of the taxes imposed under 

section 3221(a) as are attributable to the 

rate in effect under section 3111(b), as 

applicable, for the calendar quarter are 

increased by the amount of the excess. 

Section 3134(m)(3) further provides that 

the Secretary will issue such forms, 

instructions, regulations, and other 

guidance as are necessary to prevent the 

avoidance of the purposes of the 

limitations under section 3134. 

On July 29, 2020, temporary 

regulations (TD 9904) amending the 

Employment Tax Regulations under 

sections 3111 and 3221 to provide for 

the recapture of erroneous refunds of 

the paid sick and family leave credits 

under the Families First Act and 

erroneous refunds of the employee 

retention credit under the CARES Act, 

pursuant to the authority granted under 

these acts to prescribe those regulations, 

were published in the Federal Register 

(85 FR 45514). A notice of proposed 

rulemaking (REG–111879–20) crossreferencing the temporary regulations 

was published in the Federal Register 

on the same day (85 FR 45551). Because 

the ARP did not amend the Families 

First Act or CARES Act to extend the 

paid leave credits and employee 

retention credit provided thereunder, 

but rather enacted new Code sections 

that provide for similar credits, the 

temporary regulations in TD 9904 do 

not apply to the credits under the ARP. 

Therefore, separate regulations are 

required to provide for the recapture of 

the erroneous refund of these credits 

pursuant to the authority granted under 

sections 3131, 3132, and 3134. 

Accordingly, this document amends 

the Employment Tax Regulations (26 

CFR part 31) by adding temporary 

regulations under new sections 3131, 

3132, and 3134 of the Code. Concurrent 

with the publication of this Treasury 

decision, the Treasury Department and 

the IRS are publishing in the Proposed 

Rules section of this issue of the Federal 

Register a notice of proposed 

rulemaking (REG–109077–21) on this 

subject that cross-references the text of 

these temporary regulations. See section 

7805(e)(1). Interested persons are 

directed to the ADDRESSES and 

Comments and Requests for a Public 

Hearing sections of the preamble to 

REG–109077–21 for information on 

submitting public comments or 

requesting a public hearing on the 

proposed regulations. 

Explanation of Provisions 

Sections 3131(b)(3), 3131(b)(4)(A), 

3131(f)(1), 3132(b)(2), 3132(b)(3)(A), 

3132(f)(1), 3134(b)(2), 3134(b)(3), and 

3134(c)(1) provide that the credits 

described in these sections are taken 

against the taxes imposed under section 

3111(b) and so much of the taxes 

imposed under section 3221(a) as are 

attributable to the rate in effect under 

section 3111(b), as applicable, (although 

for the employee retention credit, the 

taxes are first reduced by any paid sick 

and family leave credits). Additionally, 

if the amount of the credits exceeds 

these taxes for any calendar quarter, 

then the excess shall be treated as an 

overpayment to be refunded or credited 

under sections 6402(a) and 6413(b). Any 

credits claimed that exceed the amount 

to which the employer is entitled and 

that are actually credited or refunded by 

the IRS are considered to be erroneous 

refunds of these credits. Section 

3134(j)(3)(B) provides that if a small 

eligible employer specified in section 

3134(j)(2) receives excess advance 

payments of the credit, then the taxes 

imposed under section 3111(b) or so 

much of the taxes imposed under 

section 3221(a) as are attributable to the 

rate in effect under section 3111(b), as 

applicable, for the calendar quarter are 

increased by the amount of the excess. 

These temporary regulations provide 

that erroneous refunds of these credits 

are treated as underpayments of the 

taxes imposed under section 3111(b) 

and so much of the taxes imposed under 

section 3221(a) as are attributable to the 

rate in effect under section 3111(b), as 

applicable. These temporary regulations 

authorize the IRS to assess any credits 

erroneously credited, paid, or refunded 

in excess of the amount allowed as if 

those amounts were taxes imposed 

under section 3111(b) and so much of 

the taxes imposed under section 3221(a) 

as are attributable to the rate in effect 

under section 3111(b), as applicable, 


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Federal Register / Vol. 86, No. 173 / Friday, September 10, 2021 / Rules and Regulations 50641 

subject to assessment and 

administrative collection procedures. 

This allows the IRS to prevent the 

avoidance of the purposes of the 

limitations under the credit provisions 

and to recover the erroneous refund 

amounts efficiently, while also 

preserving administrative protections 

afforded to taxpayers with respect to 

contesting their tax liabilities under the 

Code and avoiding unnecessary costs 

and burdens associated with litigation. 

These assessment and administrative 

collection procedures may apply in the 

normal course in processing 

employment tax returns that include 

advances in excess of claimed credits 

and in examining returns for excess 

claimed credits. These assessment and 

administrative collection procedures do 

not replace the existing recapture 

methods, but rather represent an 

alternative method available to the IRS. 

Specifically, these temporary 

regulations provide that any amount of 

the credits for qualified leave wages and 

certain collectively bargained 

contributions under sections 3131 and 

3132, plus any amount of credits for 

qualified health plan expenses under 

sections 3131(d) and 3132(d), and 

including any increases in these credits 

under section 3133, and any amount of 

the employee retention credit for 

qualified wages under section 3134 of 

the Code that are erroneously refunded 

or credited to an employer shall be 

treated as underpayments of the taxes 

imposed under section 3111(b) and so 

much of the taxes imposed under 

section 3221(a) as are attributable to the 

rate in effect under section 3111(b), as 

applicable, by the employer and may be 

administratively assessed and collected 

in the same manner as the taxes. These 

temporary regulations provide that the 

determination of any amount of credits 

erroneously refunded must take into 

account any credit amounts advanced to 

an employer under the process 

established by the IRS in accordance 

with sections 3131(b)(4)(B), 

3132(b)(3)(B) and 3134(j)(2). 

In certain situations, third-party 

payors claim tax credits on behalf of 

their common law employer clients. 

These temporary regulations address 

this situation by providing that 

employers against which an erroneous 

refund of credits may be assessed as an 

underpayment include persons treated 

as the employer under sections 3401(d), 

3504, and 3511, consistent with their 

liability for the employment taxes 

against which the credits applied. 

Sections 3131(h) and 3132(h) provide 

that the paid sick and family leave 

credits apply to wages paid with respect 

to a period of leave taken beginning on 

April 1, 2021 and ending on September 

30, 2021. Section 3134(n) provides that 

the employee retention tax credit 

applies to wages paid after June 30, 

2021, and before January 1, 2022. 

Pursuant to section 7805(b)(2) of the 

Code, these temporary regulations are 

permitted to apply before the dates 

provided under section 7805(b)(1), 

including the date on which these 

temporary regulations are filed with the 

Federal Register, because these 

temporary regulations are being issued 

within 18 months of the date of the 

enactment of the relevant statutory 

provisions. Accordingly, these 

temporary regulations apply to all 

credits under sections 3131 and 3132, 

including any increases to the credits 

under section 3133, credited or 

refunded on or after April 1, 2021, 

including advanced refunds, as well as 

all credits under section 3134 that are 

credited or refunded on or after July 1, 

2021, including advanced refunds. 

These applicability dates correspond to 

the effective dates of the statutory 

sections that provide for these credits 

and that authorize guidance to allow for 

the administrative recapture of 

erroneous refunds of these credits. 

Special Analyses 

The Office of Management and 

Budget’s Office of Information and 

Regulatory Analysis has determined that 

these temporary regulations are not 

significant and not subject to review 

under section 6(b) of Executive Order 

12866. 

Pursuant to the Regulatory Flexibility 

Act (5 U.S.C. chapter 6), the Secretary 

certifies that these temporary 

regulations will not have a significant 

economic impact on a substantial 

number of small entities because these 

temporary regulations impose no 

compliance burden on any business 

entities, including small entities. 

Although these temporary regulations 

will apply to all employers eligible for 

the tax credits under sections 3131, 

3132, and 3134, including small 

businesses and tax-exempt 

organizations with fewer than 500 

employees, and will therefore be likely 

to affect a substantial number of small 

entities, the economic impact will not 

be significant. These temporary 

regulations do not affect the employer’s 

employment tax reporting or the 

necessary information to substantiate 

entitlement to the credits. Rather, these 

temporary regulations merely 

implement the statutory authority 

granted under sections 3131(g), 3132(g), 

and 3134(m) that authorize the IRS to 

assess, reconcile, and recapture any 

portion of the credits erroneously 

credited, paid, or refunded in excess of 

the actual amount allowed as if the 

amounts were taxes imposed under 

section 3111(b) and so much of the taxes 

imposed under section 3221(a) as are 

attributable to the rate in effect under 

section 3111(b), as applicable, subject to 

assessment and administrative 

collection procedures. Notwithstanding 

this certification, the Treasury 

Department and the IRS invite 

comments on any impact these 

temporary regulations would have on 

small entities. 

Pursuant to section 7805(f), these 

temporary regulations have been 

submitted to the Chief Counsel of the 

Office of Advocacy of the Small 

Business Administration for comment 

on its impact on small business. 

The Treasury Department and the IRS 

have determined that there is good 

cause to issue these regulations as 

temporary regulations. Employers were 

required to file Form 941, Employer’s 

Quarterly Federal Tax Return, for the 

second quarter of calendar year 2021 by 

July 31, 2021, as required by section 

6071 of the Code and Treas. Reg. 

§ 31.6071(a)–1. Employers use Form 941 

to claim paid sick and family leave 

credits and the employee retention 

credit, as well as to report any advance 

of these credits they received during the 

calendar quarter. In filing their second 

quarter 2021 Form 941, some employers 

may have already received, as an 

advance, refund amounts in excess of 

the credits to which they are entitled. In 

addition to the statutory authority 

provided by section 3134(j)(3) with 

regard to erroneous advance refunds of 

the employee retention credit, these 

temporary regulations authorize the 

assessment of any erroneous refunds of 

the credits. Without these temporary 

regulations, in some instances the IRS 

may not be able to avoid bringing costly 

and burdensome litigation to recover the 

erroneous refunds. Further, comments 

are being solicited in the crossreferenced notice of proposed 

rulemaking that is in this issue of the 

Federal Register, and any comments 

will be considered before final 

regulations are issued. 

Statement of Availability of IRS 

Documents 

IRS notices and other guidance cited 

in this preamble are published in the 

Internal Revenue Bulletin (or 

Cumulative Bulletin) and are available 

from the Superintendent of Documents, 

U.S. Government Publishing Office, 

Washington, DC 20402, or by visiting 

the IRS website at http://www.irs.gov. 


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50642 Federal Register / Vol. 86, No. 173 / Friday, September 10, 2021 / Rules and Regulations 

Drafting Information 

The principal author of these 

temporary regulations is NaLee Park, 

Office of the Associate Chief Counsel 

(Employee Benefits, Exempt 

Organizations, and Employment Taxes). 

However, other personnel from the 

Treasury Department and the IRS 

participated in the development of these 

temporary regulations. 

List of Subjects in 26 CFR Part 31 

Employment taxes, Income taxes, 

Penalties, Pensions, Railroad retirement, 

Reporting and recordkeeping 

requirements, Social security, 

Unemployment compensation. 

Adoption of Amendments to the 

Regulations 

Accordingly, 26 CFR part 31 is 

amended as follows: 

PART 31—EMPLOYMENT TAXES AND 

COLLECTION OF INCOME TAX AT 

SOURCE 

■ Paragraph 1. The authority citation 

for part 31 is amended by adding entries 

for §§ 31.3131–1T, 31.3132–1T, and 

31.3134–1T in numerical order to read 

in part as follows: 

Authority: 26 U.S.C. 7805. 

* * * * * 

Section 31.3131–1T also issued under 26 

U.S.C. 3131(g). 

Section 31.3132–1T also issued under 26 

U.S.C. 3132(g). 

Section 31.3134–1T also issued under 26 

U.S.C. 3134(m)(3). 

* * * * * 

■ Par. 2. Section 31.3131–1T is added to 

read as follows: 

§ 31.3131–1T Recapture of credits. 

(a) Recapture of erroneously refunded 

credits. Any amount of credits for 

qualified sick leave wages under section 

3131(a), including any increase to the 

amount of the credits under sections 

3131(d), 3131(e), and 3133, that are 

treated as overpayments and refunded 

or credited to an employer under 

section 6402(a) or section 6413(b) and to 

which the employer is not entitled, 

resulting in an erroneous refund to the 

employer, shall be treated as an 

underpayment of the taxes imposed 

under section 3111(b) and so much of 

the taxes imposed under section 3221(a) 

as are attributable to the rate in effect 

under section 3111(b), as applicable, 

and may be assessed and collected by 

the Secretary in the same manner as the 

taxes. 

(b) Advance credit amounts 

erroneously refunded. The 

determination of any amount of credits 

erroneously refunded as described in 

paragraph (a) of this section must take 

into account any amount of credits 

advanced to an employer under the 

process established by the Internal 

Revenue Service in accordance with 

sections 3131(b)(4)(B) and 3131(g)(6). 

(c) Third party payors. For purposes 

of this section, employers against whom 

an erroneous refund of the credits under 

section 3131 (including any increases in 

those credits under section 3133), can 

be assessed as an underpayment of the 

taxes imposed under section 3111(b) 

and so much of the taxes imposed under 

section 3221(a) as are attributable to the 

rate in effect under section 3111(b), as 

applicable, include persons treated as 

the employer under sections 3401(d), 

3504, and 3511, consistent with their 

liability for the section 3111(b) or 

3121(a) taxes against which the credit 

applied. 

(d) Applicability date. This section 

applies to all credit refunds under 

section 3131 (including any increases in 

those credits under section 3133), 

advanced or paid on or after April 1, 

2021. 

■ Par. 3. Section 31.3132–1T is added to 

read as follows: 

§ 31.3132–1T Recapture of credits. 

(a) Recapture of erroneously refunded 

credits. Any amount of credits for 

qualified family leave wages under 

sections 3132, including any increase to 

the amount of the credits under sections 

3132(d), 3132(e), and 3133, that are 

treated as overpayments and refunded 

or credited to an employer under 

section 6402(a) or section 6413(b) and to 

which the employer is not entitled, 

resulting in an erroneous refund to the 

employer, shall be treated as an 

underpayment of the taxes imposed 

under section 3111(b) and so much of 

the taxes imposed under section 3221(a) 

as are attributable to the rate in effect 

under section 3111(b), as applicable, 

and may be assessed and collected by 

the Secretary in the same manner as the 

taxes. 

(b) Advance credit amounts 

erroneously refunded. The 

determination of any amount of credits 

erroneously refunded as described in 

paragraph (a) of this section must take 

into account any amount of credits 

advanced to an employer under the 

process established by the Internal 

Revenue Service in accordance with 

sections 3132(b)(3)(B) and 3132(g)(6). 

(c) Third party payors. For purposes 

of this section, employers against whom 

an erroneous refund of the credits under 

section 3132 (including any increases in 

those credits under section 3133), can 

be assessed as an underpayment of the 

taxes imposed under section 3111(b) 

and so much of the taxes imposed under 

section 3121(a) as are attributable to the 

rate in effect under section 3111(b), as 

applicable, include persons treated as 

the employer under sections 3401(d), 

3504, and 3511, consistent with their 

liability for the section 3111(b) or 

3121(a) taxes against which the credit 

applied. 

(d) Applicability date. This section 

applies to all credit refunds under 

section 3132 (including any increases in 

those credits under section 3133) 

advanced or paid on or after April 1, 

2021. 

■ Par. 4. Section 31.3134–1T is added to 

read as follows: 

§ 31.3134–1T Recapture of credits. 

(a) Recapture of erroneously refunded 

credits. Any amount of credits for 

qualified wages under section 3134 of 

the Code that is treated as an 

overpayment and refunded or credited 

to an employer under section 6402(a) or 

section 6413(b) of the Code and to 

which the employer is not entitled, 

resulting in an erroneous refund to the 

employer, shall be treated as an 

underpayment of the taxes imposed 

under section 3111(b) and so much of 

the taxes imposed under section 3221(a) 

as are attributable to the rate in effect 

under section 3111(b), as applicable, 

and may be assessed and collected by 

the Secretary in the same manner as the 

taxes. 

(b) Advance credit amounts 

erroneously refunded. The 

determination of any amount of credits 

erroneously refunded as described in 

paragraph (a) of this section must take 

into account any amount of credits 

advanced to an employer under the 

process established by the Internal 

Revenue Service in accordance with 

sections 3134(j) and 3134(m). 

(c) Third party payors. For purposes 

of this section, employers against whom 

an erroneous refund of the credits under 

section 3134 can be assessed as an 

underpayment of the taxes imposed 

under section 3111(b) and so much of 

the taxes imposed under section 3121(a) 

as are attributable to the rate in effect 

under section 3111(b), as applicable, 

include persons treated as the employer 

under sections 3401(d), 3504, and 3511, 

consistent with their liability for the 

section 3111(b) or 3121(a) taxes against 

which the credit applied. 

(d) Applicability date. This section 

applies to all credit refunds under 


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Federal Register / Vol. 86, No. 173 / Friday, September 10, 2021 / Rules and Regulations 50643 

1 ‘‘Improving Air Quality with Economic 

Incentive Programs’’ (EPA–452/R–01–001, January 

2001). 

section 3134 advanced or paid on or 

after July 1, 2021. 

Douglas W. O’Donnell, 

Deputy Commissioner for Services and 

Enforcement. 

Approved: August 18, 2021. 

Mark J. Mazur, 

Acting Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. 2021–19524 Filed 9–8–21; 4:15 pm] 

BILLING CODE 4830–01–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[EPA–R09–OAR–2021–0333; FRL–8609–02– 

R9] 

Air Plan Limited Approval and Limited 

Disapproval, California; Mojave Desert 

Air Quality Management District 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Final rule. 

SUMMARY: The Environmental Protection 

Agency (EPA) is finalizing a limited 

approval and limited disapproval of a 

revision to the Mojave Desert Air 

Quality Management District’s 

(MDAQMD or District) portion of the 

California State Implementation Plan 

(SIP). This revision concerns oxides of 

nitrogen (NOX) emissions from 

stationary internal combustion engines. 

Under the authority of the Clean Air Act 

(CAA or the ‘‘Act’’), this action approves 

a local rule that regulates these emission 

sources into the federally-enforceable 

SIP, thereby strengthening the SIP, 

while identifying deficiencies with the 

rule that must be corrected by the 

MDAQMD in order for the EPA to grant 

full approval of the rule. 

DATES: This rule will be effective on 

October 12, 2021. 

ADDRESSES: The EPA has established a 

docket for this action under Docket No. 

EPA–R09–OAR–2021–0333. All 

documents in the docket are listed on 

the https://www.regulations.gov 

website. Although listed in the index, 

some information is not publicly 

available, e.g., Confidential Business 

Information (CBI) or other information 

whose disclosure is restricted by statute. 

Certain other material, such as 

copyrighted material, is not placed on 

the internet and will be publicly 

available only in hard copy form. 

Publicly available docket materials are 

available through https://

www.regulations.gov, or please contact 

the person identified in the FOR FURTHER

INFORMATION CONTACT section for 

additional availability information. If 

you need assistance in a language other 

than English or if you are a person with 

disabilities who needs a reasonable 

accommodation at no cost to you, please 

contact the person identified in the FOR

FURTHER INFORMATION CONTACT section. 

FOR FURTHER INFORMATION CONTACT: 

Kevin Gong, EPA Region IX, 75 

Hawthorne St., San Francisco, CA 

94105. By phone: (415) 972–3073 or by 

email at gong.kevin@epa.gov. 

SUPPLEMENTARY INFORMATION: 

Throughout this document, ‘‘we,’’ ‘‘us’’ 

and ‘‘our’’ refer to the EPA. 

Table of Contents 

I. Proposed Action 

II. Public Comments and EPA Responses 

III. EPA Action 

IV. Incorporation by Reference 

V. Statutory and Executive Order Reviews 

I. Proposed Action 

On June 1, 2021 (86 FR 29227), the 

EPA proposed a limited approval and 

limited disapproval of the following 

rule that was submitted for 

incorporation into the California SIP. 

TABLE 1—SUBMITTED RULE

Rule # Rule title Amended Submitted 

1160 ................................................. Internal Combustion Engines .................................................................... 01/22/2018 05/23/2018 

We proposed a limited approval 

because we determined that this rule 

improves the SIP and is largely 

consistent with the relevant CAA 

requirements. We simultaneously 

proposed a limited disapproval because 

some rule provisions conflict with 

section 110 and part D of the Act. The 

following provisions do not satisfy the 

requirements of section 110 and part D 

of title I of the Act and prevent full 

approval of the SIP revision. 

1. MDAQMD Rule 1160 section 

(C)(2)(b) allows for engines to comply 

with an alternative emission reduction 

provision instead of the concentrationbased emission limits for NOX. 

Specifically, this alternative provision 

allows for owners or operators of 

applicable equipment to submit a plan 

for alternative emissions reduction that 

would achieve an 80% or 90% 

reduction of emissions from a baseline 

emission rate. Because the rule does not 

clearly specify how to calculate the 

baseline emission rate, the rule is not 

sufficiently clear to constitute an 

enforceable emission limitation, control 

measure, means or technique, as 

required under section 110(a)(2) of the 

Act. Furthermore, the rule leaves the 

approval of the NOX emission reduction 

alternative to the District without EPA 

review or approval of the alternative 

into the SIP. Because the rule is not 

clear with respect to how to calculate 

the baseline emission rate, and the 

approval of an alternative limit lies 

solely with the District, this provision 

allows for overbroad discretion on the 

part of the Director to modify 

requirements of the SIP without the 

procedures required under section 110 

of the Act. In addition, the ambiguous 

alternative emission reduction provision 

could allow many units to emit more 

than the concentration limit in the rule 

by, in some cases, more than two times. 

Additionally, the alternative limits have 

not been justified as meeting the 

reasonably available control technology 

(RACT) requirement. 

2. Under section (C)(2)(b)(v), the 

alternative emission reduction option 

also allows for units operating at the 

same facility to aggregate their 

emissions in order to comply with the 

percentage reduction. This type of 

provision (emissions aggregation) 

constitutes an economic incentive 

program (EIP) under the EPA’s 2001 EIP 

guidance.1 As discussed in the proposed 

rule, the rule provisions do not meet the 

criteria for EIP integrity because they 

fail to require that any excess emission 

reductions credited through the 

provision be surplus (i.e., not required 

by any other federally enforceable 

provision). This omission could allow 

reductions that are otherwise federally 

required to be aggregated and therefore 

allow greater emissions at other units. 

3. The compliance determination 

requirements described in section 

(E)(1)(c) do not require adequate source 

testing for emission units without 

emission control equipment. The 

requirements do not specify any 


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