Controlled Groups: What You Need to Know about the ERC
April 12, 2021
30 Second Summary:
- Controlled groups can claim the ERC, too, but special rules may impact your eligibility
- Aggregation rules require members of a controlled group to calculate the ERC as a “single employer.”
- Contact Aprio’s dedicated ERC team to assess your eligibility under the ERC aggregation rules and understand the impact your company structure may have on your credit.
The Full Story:
If your company is part of a controlled group, you may still be eligible for the Employee Retention Credit (ERC). Being a part of an aggregated group of companies does not disqualify you as an eligible employer – it simply changes the rules.
Who do the aggregation rules apply to?
Three categories of aggregated companies fall under the special controlled group rules:
- Parent-Subsidiary Controlled Groups
- Brother-Sister Controlled Groups
- Combined Groups of Corporations
Existing within any of these corporate entity relationships will automatically trigger the aggregation rules and impact your credit amount and utilization.
Aggregate rules and the ERC
If your company falls into one of the categories above, you and all other group members will be treated as a single employer when applying the ERC rules for eligibility and qualified wages.
In other words, you must consider all companies collectively to determine if the group, as a whole, meets the threshold for an eligible employer. Similarly, thresholds for qualified wages will be based upon the combined full-time employee count across all aggregated companies.
As a reminder, an Eligible Employer must have:
- Experienced fully or partially suspended business operations due to governmental orders related to COVID-19; or
- Experienced a significant decline in gross receipts
Eligible Employers who still meet the criteria for the ERC under the aggregation rules will divide the resulting credit among other members of the group proportionally to each member’s share of the qualified wages.
The bottom line
It is still possible to qualify for and claim the ERC as part of a controlled group, but you need to understand the rules changes. Much like other tax credits, controlled groups will be considered a single employer for all credit thresholds and utilization requirements – this will impact employer eligibility, credit calculations, and even your credit utilization.
ERC eligibility requirements are complex, and the aggregation rules won’t make things simpler. Don’t let ERC aggregation rules stop you from maximizing the benefits of ERC for your controlled group. Contact Aprio’s dedicated ERC team to streamline the process and maximize your credit.
Disclaimer for services provided relative to SBA programs and the CARES Act
Aprio’s goal is to provide the most up to date information, along with our insights and current understanding of these programs and regulations to help you navigate your business response to COVID-19.
The rules regarding SBA programs are constantly being refined and clarified by the SBA and other agencies In certain instances, the guidance being provided by the agencies and/or the financial institutions is in direct conflict with other competing guidance, regulations and/or existing laws.
Due to the evolving nature of the situation and the lack of final published rules, Aprio cannot guarantee that additional changes or updates won’t be needed or forthcoming and the original advice given by Aprio may be affected by the evolving nature of the situation.
You need to evaluate and draw your own conclusions and determine your Company’s best approach relative to participation within these programs based on your Company’s specific circumstances, cash flow forecast and business strategy.
In situations where resources are provided by third parties, those services should be covered under a separate agreement directly with that service provider. Aprio is not responsible for the actions of any other third party.
Aprio encourages you to contact your legal counsel to address the legal implications of the impact of the CARES Act and specifically your participation in any of the SBA programs.
About the Author
Justin Elanjian, CPA, is the Partner-in-Charge of Aprio’s Paycheck Protection Program (PPP) & Employee Retention Credit (ERC) Services. As a national PPP expert, prominent speaker and strategic business advisor, Justin helps both lenders and borrowers navigate the complexities of the PPP. He also helps his clients realize benefits from other stimulus package programs, such as the ERC, and is committed to strengthening his clients’ balance sheets and helping them achieve what’s next. Justin also leads a team of more than 50 professionals who share his passion for helping businesses maximize the federal COVID relief programs.