USA ERTC payments from IRS - how to register in Chart of Accounts?

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Dear fellow bookkeepers,



The following question is advanced (maybe not for an experienced tax professional, but definitely for me) and I greatly appreciate your help!



As you all know, from IRS Notice 2021-49, qualified wages used to claim the ERTC become a disallowed deduction and amending returns is required.



Please consider the following:

1. The IRS makes four separate disbursements of $10,000 each.

2. Two checks are from tax year 2021 and two from tax year 2022.

3. These checks are deposited in the company bank account.



Questions:

1. What account in Chart of Accounts should the checks be categorized for an S-Corp? Please explain in terms of 1120-S.

2. Do I create a journal entry to register these payments for tax years 2021 and 2022?

3. What date should I put on those journal entries?

4. What category should I put on those journal entries? Specifically, what category with respect to IRS form 1120-S?





Please note the following as a reference:

https://www.irs.gov/irb/2021-34_IRB#NOT-2021-49

https://www.irs.gov/coronavirus/employee-retention-credit

https://www.irs.gov/newsroom/irs-provides-guidance-for-employers-claiming-the-employee-retention-cre...



Below is an excerpt from IRS Notice 2021-49. It is clear that the qualified wages used to claim the ERTC become a disallowed deduction and amending returns is required.



Under section III.L. of Notice 2021-20, a reduction in the amount of the deduction allowed for qualified wages, including qualified health plan expenses, caused by receipt of the employee retention credit occurs for the tax year in which the qualified wages were paid or incurred. When a taxpayer claims the employee retention credit because of the retroactive amendment of section 2301 of the CARES Act by section 206(c) of the Relief Act (relating to eligibility of PPP borrowers to claim the employee retention credit) or otherwise files an adjusted employment tax return to claim the employee retention credit, the taxpayer should file an amended federal income tax return or administrative adjustment request (AAR), if applicable, for the taxable year in which the qualified wages were paid or incurred to correct any overstated deduction taken with respect to those same wages on the original federal tax return.
 

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