The Employee Retention Tax Credit: Aggregation Aggravation

Alerts / April 9, 2020

Employers navigating the incentives included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) must undertake the complex analysis of determining whether, and to what extent, they qualify for the employee retention tax credit (ERTC). Several aspects of this determination, including the calculations of gross receipts or the average number of full-time employees, may vary based on whether related entities are aggregated as a single employer. Further, because the ERTC is not available to employers who receive forgivable SBA loans under the CARES Act’s Paycheck Protection Program, receipt of such loans by related entities may preclude an employer from claiming the ERTC. For a complete discussion of the ERTC requirements, see our alert, President Signs $2 Trillion CARES Act With Significant Tax and Workforce Relief for Businesses and Individuals.

The ERTC aggregation rules may be familiar to many employers as modified versions of retirement and savings plan nondiscrimination rules. Generally, employers will be aggregated if they are:

  • Members of a controlled group of corporations or entities under common control, including as parent-subsidiary, brother-sister or a combination thereof.
  • Part of the same affiliated service group.
  • Otherwise considered to be a single employer by the Department of Labor under its anti-abuse rules.

For ERTC purposes, a controlled group of corporations is based on the deemed or actual ownership of 50% or more shares, by vote or value. Common control of noncorporate entities generally is based on the deemed or actual ownership of certain 80% or greater interests and, for potential brother-sister entities, 50% or greater common interest among five or fewer common owners.

Application of the aggregation rules can be complex and fact-specific. Employers planning to take advantage of the ERTC should consult with their tax advisors to determine whether aggregation could impact this analysis.

Authorship Credit: Michelle M. Hervey and Brian M. Murray

Baker & Hostetler LLP publications are intended to inform our clients and other friends of the firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience.

Related Services

Related Emerging Issues