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Article 22 Aug. 2023
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Client Alert 25 Nov. 2020
The alert is available for download here.
As part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), Congress created Employee Retention Credits (“ERCs”). An ERC is a refundable tax credit against certain employment taxes equal to 50 percent of the “qualified wages” (up to $10,000 per employee) an eligible employer pays to employees after March 12, 2020, and before January 1, 2021. In addition, the CARES Act authorized Paycheck Protection Program loans ( “PPP loans”) under which qualified businesses could obtain forgivable loans.
An entity that has received a PPP loan is ineligible for ERCs. In general, entities under common control are aggregated for purposes of determining the eligibility for both PPP loans and ERCs.
The mutual exclusiveness of the PPP loans and ERCs has created considerable uncertainty in situations where an entity that has claimed ERCs acquires a target entity that has obtained a PPP loan. The issue raised is whether the combination of the entities disqualifies the PPP loan, the ERCs, or both the PPP loan and the ERCs. This issue commonly arise in M&A transactions following the enactment of the CARES Act and has given rise to significant uncertainty in connection with the negotiation and execution of M&A transactions.
On November 16, 2020, the IRS released guidance which clarifies whether an entity’s ability to claim ERCs is impacted by its acquisition of a target entity that obtained a PPP loan. It should be noted that the November 16th guidance does not address the impact of an acquisition on the target’s eligibility for PPP loan forgiveness.
In general, the IRS guidance clarifies a number of issues, including:
The November 16 IRS guidance is arguably unclear whether a stock acquisition treated as an assets purchase pursuant to Section 338(h)(10) of the Internal Revenue Code, an acquisition of a disregarded entity, or an acquisition of a qualified S corporation subsidiary should be treated as a stock or an asset acquisition for the purpose of these rules.
Attorney advertising. The material contained in this Client Alert is only a general review of the subjects covered and does not constitute legal advice. No legal or business decision should be based on its contents.
Marco A. Blanco
Olga R. Beloded
+1 212 696 6000
+41 22 718 3500
+33 1 42 68 72 00
Client Alert 12 Sep. 2023
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