Legislative Update: IRS Revises FAQ on CARES Act Employee Retention Credit (ERC)

Max Shenker
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On November 16, 2020, IRS made a number of updates to FAQs concerning the CARES Act Employee Retention Credit (ERC).

Question 2, “Who is an Eligible Employer?” and Question 18, “Are Federal, State, or local government entities eligible to receive the Employee Retention Credit?” were edited slightly to change references to tribal governments.

Question 21, “Are tribal governments and tribal entities eligible for the Employee Retention Credit?” was updated to clarify that, despite not being subject to income tax, “a tribal government is treated as carrying on trade or business activities, and all activities conducted by the tribal government will be considered part of those trade or business activities.  In addition, solely for purposes of the Employee Retention Credit, any entity that a tribal government reasonably believes shares the same tax status as the tribal government (tribal entity employer) is treated as carrying on trade or business activities, and all activities conducted by the tribal entity employer will be considered part of those trade or business activities.”

Two new questions were added: 81a, “How is eligibility for the Employee Retention Credit affected if an employer acquires the stock or other equity interests of a target employer that had received a Paycheck Protection Program (PPP) loan and, under the aggregation rules, the employers are treated as a single employer as a result of the transaction?” and 81b, “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?”

In both cases, IRS explains how companies taking the ERC may continue to do so even after acquiring target companies that took PPP loans and are not subject to recapture of previously claimed ERC.

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