I agree.  I found the below-referenced article on Bloomberg from a Google search.  It describes how Code section 280C supports the position that if the credit is for the 2020 year, even cash basis taxpayers must reduce the wages in 2020: https://news.bloombergtax.com/daily-tax-report/when-is-the-amount-of-the-employee-retention-credit-subject-to-tax Quote from the above article: "Further, section 280C provides in relevant part that no deduction is allowed for wages “paid or incurred for the taxable year” in which the credit is “determined for the taxable year.” This suggests that expense disallowance occurs in 2020, and is consistent with the IRS position regarding section 280C more generally. See, e.g., Treas. Reg. Section 1.280C-1 (expense reduction occurs in the year the credit is “earned”). Thus, regardless of whether a cash-basis taxpayer claims the 2020 ERC in 2020 or 2021, expense disallowance likely occurs in 2020."

My question is does the payroll credit reduce BOTH wage expense, Form 1120S Lines 7 & 8, as well as payroll tax expense included in Line 12 (Taxes and Licenses).  The instructions you cite re Lines 7 & 8 seem pretty clear that wage expense must be reduced by the payroll tax credit, but nothing is mentioned about whether the otherwise deductible payroll tax expenses included in Line 12 must also be reduced.  If both are reduced, this is double counting. For example, say that wages are $10 million and payroll taxes are about $1 million and health insurance expenses are another $1 million so the company claims a $2 million ERTC (because the ERTC is also based on both payroll wages plus health insurance expenses I believe). The company must debit an asset for the $2 million payroll tax refund/credit, so say it debits $2 million to cash or refunds receivable.  Obviously it would credit payroll tax expense and/or health insurance expense by the same $2 million, which creates $2 million of taxable income in that expenses are reduced by $2 million.  So that should be the end of it.  The $2 million in reduced expenses is effectively taxed. But if, in addition, the $10 million in Line 7 & 8 wages must also be reduced by the $2 million, then we have a $4 million reduction in expenses for a $2 million credit. What am I missing?  All I can think of is that the $2 million credit, like the PPP loan forgiveness, is treated as tax exempt income as to the payroll tax & health insurance items.  In other words, when you get the $2 million credit, you do debit cash or refunds receivable but you do NOT credit an expense account.  Instead, you credit tax exempt income.  Then you go over to wages on Line 7 & 8 and do reduce the wages by the $2 million, according to the Form 1120S instructions.  The end result is that the $2 million ERTC does effectively increase taxable income by the $2 million (in the form of the wage expense reduction), but not by $4 million because we do not also have to reduce payroll tax or health insurance expense by the same $2 million?? UPDATE:  I believe my above analysis is correct.  Line 7 and 8 wages are indeed reduced, but no part of the ERTC will reduce payroll tax expense.  See the article, partial quote below (emphasis in bold added by me): Is the ERC Taxable? Yes and no. The ERC is not includible in gross income, but it is subject to expense disallowance rules, which effectively make it taxable. See Notice 2020-21, Q&As 60-61; IRS FAQs 85 & 86 . For example, if an employer received $200,000 in ERCs, then it would be required to reduce its deductible wage expenses, including qualified health plan expenses, by $200,000, thus subjecting it to tax on an extra $200,000 of income (or causing less of a loss if it was in a net loss position). The expense reduction rules apply to the wages, including qualified health plan expenses, paid or incurred in 2020 and that were reimbursed by the ERC. There is no reduction in the employer’s deduction for its share of Social Security and Medicare taxes by any portion of the ERC.

The title of Form 5884-A is actually "Employee Retention Credit for Employers Affected by Qualified Disasters".  The instructions then list all the "qualified disasters" that are eligible.  Covid is not listed as a qualified disaster.  It IS confusing, but I am pretty sure that you do not use this form 5884-A for the Covid-related PAYROLL TAX credit because it is not an INCOME TAX credit.

It is confusing, but Form 5884 is NOT used for the Covid-related PAYROLL tax ERTC credit.  The 5884 instructions say:  "Qualified wages do not include the following wages:  Any wages used to figure a coronavirus-related employee retention credit on an employment tax return, such as Form 941, Employer's QUARTERLY Federal Tax Return." 5884 is used for other disaster-related credits and is an income tax credit.  The Covid ERTC is a payroll tax, not an income tax, credit.  So booking the payroll tax credit as a receivable makes sense.  And I believe, but am not sure, that the amount of that payroll tax credit must reduce deductible wages on the Form 1120S.  But in any event, it is not an income tax credit and will not appear as a credit on any K-1.  Instead, as you say, you will have a receivable for the future receipt of your payroll tax refund arising from claiming the credit on an amended payroll tax return for the fourth quarter of 2020.

Trusts cannot have fiscal years, but there is a twist.  Estates CAN have fiscal years and if a client has a living trust and then dies, that trust can elect to be included in the estate's income tax return, so in that case, the trust, as part of the estate, can have a fiscal year, but only because it is part of an estate.