How To File ERTC if Your Business Was Part of a Merger

August 18, 2023
Dayes Law Firm

If your company was involved in mergers and acquisitions (M&A) during eligible periods of 2020 and 2021, your business may qualify to apply for the Employee Retention Tax Credit (ERTC). You must consider several factors to determine if you qualify to claim the ERTC after acquiring or merging with another company.

Can a Buyer Company Claim an Unclaimed ERTC by the Business It Acquired?

In short, the purchasing company is eligible to claim the ERTC:

  • If the seller company did not claim the credit but was eligible to claim the credit, AND
  • If the merger or acquisition did not eliminate the purchasing company’s eligibility to claim the ERTC as the primary claimant of the aggregate

Normally, a company must qualify for the ERTC through specific eligibility requirements, including:

  • Government-mandated shutdowns affected business operations during the qualifying period of 2020 and 2021, OR
  • Supply chain shortages affecting business operations, OR
  • Qualifying revenue loss for any applicable quarter in 2020 and 2021 compared to the same quarter in 2019

However, qualifying for the ERTC after a merger or acquisition can be more complex. 

How Does ERTC Eligibility Change for Merge Companies?

Controlled groups must follow the IRS’s rules for aggregate companies to file their ERTC claim. All companies of a controlled group would calculate their ERTC as a “single employer” under IRS ERTC rules. Aggregation rules apply for different controlled group structures, including:

  • Groups of corporations
  • Parent-subsidiary groups
  • Brother-sister company groups

To calculate your ERTC, all companies in the group would need to collectively meet the eligibility criteria for the credit. So what about parent companies that acquire target companies that didn’t claim the ERTC?

What if the Parent Company Claimed the ERTC Before the Acquisition?

The transaction type of the acquisition can affect whether a parent company is eligible to claim the ERTC on behalf of the acquisition. The two most common merger and acquisition types are stock and asset purchases.

In transactions where the new owner acquired the company through a stock transaction, the employer remains the same (same EIN), but ownership changes hands. The new owner can claim the ERTC retroactively in these types of transactions.

If the new owner acquired the target company’s assets, the employer changes to the purchasing company under their existing EIN, allowing the new owner to claim the ERTC for qualifying quarters after the acquisition. The seller can retroactively claim the ERTC for qualifying quarters from before the sale.

In instances where the parent company already claimed the ERTC, but the subsidiary company did not, the parent company must reassess their eligibility and the amount they claimed in accordance with IRS aggregation rules. They may then qualify to claim more in an adjusted ERTC claim or may owe some or all of their previously claimed credit back to the IRS if the acquisition reduces their eligibility.

What If the Target Companies Had PPP Loans?

Aggregate groups must also factor in whether any of the companies claimed a Paycheck Protection Program (PPP) loan. Wages paid using PPP loan funds do not count toward qualifying wages paid for the ERTC. If your company or any companies acquired or merged with your company used a PPP loan, it could affect ERTC value for the aggregate.

Contact an Experienced Business Tax Law Firm for Information About the ERTC and M&A

For questions about the ERTC and how mergers and acquisitions can affect eligibility, contact our experienced business tax legal team at Dayes Law Firm. Call today at (800) 503-2000 or contact us online to schedule a consultation.