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As a business owner, the prospect of applying for the Employee Retention Credit (ERC) may seem straightforward, but owning multiple businesses adds a layer of complexity to the process. The Internal Revenue Code (IRC), specifically Section 448, introduces Aggregation Rules that significantly impact companies seeking the ERC, especially when compared to the rules for the Paycheck Protection Program (PPP) under the CARES Act. This article delves into the intricacies of ERC application for owners of multiple businesses, shedding light on the Aggregation Rules, controlled group classifications, and the unique challenges posed by varying ownership structures.
Understanding Aggregation Rules:
When a single person or entity owns multiple businesses, the Aggregation Rules outlined in Section 448 of the IRC become pivotal. In contrast to PPP rules, ERC filings necessitate members of a controlled group to file for the credit collectively as a single employer. Three key categories define controlled groups for ERC purposes: Parent-Subsidiary Controlled Groups, Brother-Sister Controlled Groups, and Combined Groups of Corporations. In each case, the criterion involves ownership percentages and voting power within the group.
Controlled Group Classifications:
1. Parent-Subsidiary Controlled Groups: Requires one entity to own 50% or more of all entities in the group.
2. Brother-Sister Controlled Groups: Involves 5 or fewer individuals owning at least 80% of each entity with at least 50% voting power.
3. Combined Groups of Corporations: Encompasses a combination of brother-sister and parent-subsidiary companies.
Benefits and Implications of Aggregation Rule:
One notable advantage of the Aggregation Rule is that if any member of the controlled group qualifies for the ERC, all members are deemed eligible. This collective treatment proves beneficial, especially in scenarios where businesses within the group have experienced varying impacts due to factors like government orders during the COVID-19 pandemic. For instance, a restaurant forced to close and a software company remaining operational would both be eligible for the ERC as a single entity under the Aggregation Rule.
Application Process for Multiple Businesses:
When owning multiple businesses, each entity must undertake a separate ERC application process. This involves individual submissions with distinct application forms, records, and payroll reports. Since each business possesses its own unique tax identification number, a separate application is mandatory to receive the credit. In cases where businesses are part of a controlled group, applications for all group businesses must be submitted collectively.
Eligibility Criteria and Challenges:
The ERC is exclusive to certain businesses, primarily those with fewer than 500 employees. The total employee count becomes a critical factor, and businesses sharing ownership may become ineligible if the cumulative count exceeds 500. Additional challenges arise for businesses that received PPP funding, as specific details must be navigated. Importantly, only businesses that paid quarterly payroll taxes for W-2 employees qualify, with 1099 wages being excluded from eligibility.
Seeking Assistance from ERC Together:
To streamline the application process and maximize benefits, business owners with multiple entities can consider seeking professional assistance from companies like ERC Together. Their experts are equipped to handle ERC credit calculations and filings, ensuring a thorough understanding of the unique application requirements for multiple businesses. As the ERC proves to be a valuable resource during the pandemic recovery, comprehending the distinct application process becomes pivotal for businesses aiming to maximize their benefits. In instances where challenges arise or additional support is needed, engaging a company like ERC Together can provide invaluable assistance throughout the ERC application journey.
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