How is Eligibility for the Employee Retention Credit Affected if an Employer Acquires the Assets of an Employer that Received a Paycheck Protection Program (PPP) Loan?

The Employee Retention Credit (ERC) has been a valuable source of relief for many employers who have been adversely affected by the COVID-19 pandemic. However, the eligibility requirements for the ERC can be complex, particularly for employers who have acquired the assets of another employer who received a Paycheck Protection Program (PPP) loan. In this blog post, we’ll explore how eligibility for the ERC is affected if an employer acquires the assets of an employer that received a PPP loan.

First, it’s important to understand that an employer who receives a PPP loan is generally not eligible for the ERC. However, if an employer acquires the assets of another employer who received a PPP loan, the acquiring employer may still be eligible for the ERC under certain circumstances.

The rules governing the ERC and PPP loans are complex, but in general, an acquiring employer may be eligible for the ERC if:

1. The acquiring employer did not receive a PPP loan; and
2. The acquired employer did not claim the ERC for the same wages that the acquiring employer is claiming the ERC for.

In addition, there are certain safe harbor rules that may allow an acquiring employer to claim the ERC even if the acquired employer did claim the credit for the same wages. For example, an acquiring employer may still be eligible for the ERC if the acquired employer did not claim the credit for all eligible wages or if the acquired employer did not claim the maximum credit available for eligible wages.

It’s worth noting that the rules and requirements for claiming the ERC can be complex, particularly in the context of mergers and acquisitions. Employers who are considering an acquisition or who have already acquired another employer should consult with a tax professional or advisor to determine their eligibility for the ERC and to ensure that they are properly calculating and claiming the credit.

In conclusion, an acquiring employer may still be eligible for the Employee Retention Credit even if the acquired employer received a PPP loan, provided certain conditions are met. However, the rules governing the ERC and PPP loans are complex, and employers should consult with a tax professional or advisor to navigate the claiming process and ensure that they are maximizing their relief potential while minimizing audit risk.