COVID-19-Related Employee Retention Credits: Determining Which Entities are Considered a Single Employer Under the Aggregation Rules FAQs

This FAQ is not included in the Internal Revenue Bulletin, and therefore may not be relied upon as legal authority. This means that the information cannot be used to support a legal argument in a court case.

An Eligible Employer, for purposes of the Employee Retention Credit, includes all members of an aggregated group that are treated as a single employer in accordance with the provisions of section 2301(d) of the CARES Act.

25. Which related employers are aggregated and treated as a single employer for purposes of the Employee Retention Credit?

For purposes of determining an employer's eligibility for and the amount of the Employee Retention Credit, all entities that are treated as a single employer under section 52(a) or (b) of the Internal Revenue Code (the "Code") or section 414(m) or (o) of the Code are considered one employer for purposes of the Employee Retention Credit. The section 52(a) and (b) aggregation rules generally apply to determine when related entities are treated as a single employer for purposes of the application of tax credits available to an employer under section 51 of the Code, as well as for other Code provisions. The section 414(m) and (o) rules generally apply to determine when related entities, including affiliated service groups, are treated as a single employer for purposes of retirement and other employee benefit rules under the Code, as well as for other Code provisions.

Under the section 52 rules, corporate taxpayers may be required to aggregate as a parent-subsidiary controlled group, a brother-sister controlled group, or a combined group of corporations. Section 52(a) of the Code describes a parent-subsidiary controlled group of corporations, generally, as one or more chains of corporations where the common parent corporation owns more than 50 percent of the total combined voting power of all classes of stock entitled to vote, or more than 50 percent of the value of all classes of stock of each corporation. A brother-sister controlled group of corporations, generally, is two or more corporations where: (1) five or fewer persons who are individuals, estates, or trusts own at least 80 percent of the total combined voting power of all classes of stock entitled to vote, or the total value of shares of all classes of stock of each corporation; and (2) the same five or fewer persons, taking into account ownership only to the extent that it is identical with respect to each corporation, own more than 50 percent of the total voting power of all classes of stock entitled to vote, or total value of shares of all classes of stock of each corporation. A combined group of corporations is three or more corporations, each of which is a member of either a parent-subsidiary or a brother-sister controlled group, and at least one of which is both the common parent of a parent-subsidiary controlled group and also a member of a brother-sister controlled group.

The section 52(b) aggregation rules apply to partnerships, trusts, estates, or sole proprietorships in trades or businesses under common control. Under this rule, entities are considered a single employer if they are under common control applying rules similar to the parent-subsidiary or brother-sister controlled group rules or the rules for a combined group of corporations.

Under section 414(m) of the Code, an "affiliated service group" is treated as a single employer based on rules related to the performance of services by one entity for another or by one entity in association with another for third parties, even if the entity does not have sufficient ownership or control of the other entity to form a controlled group.

26. What is the impact of the aggregations rules that treat related entities as a single employer?

All entities that are members of a controlled group of corporations or a group of entities under common control under section 52(a) or (b) of the Internal Revenue Code (the "Code") rules, members of an affiliated service group under section 414(m) of the Code, or otherwise aggregated under section 414(o) of the Code are considered a single employer for purposes of the application of the Employee Retention Credit rules. As a result, these employers must be aggregated for purposes of the following rules applicable to the Employee Retention Credit:

• Determining whether the employer has a trade or business operation that was fully or partially suspended due to orders related to COVID-19 from an appropriate governmental authority. For more information, see Determining When an Employer's Trade or Business Operations are Considered to be Fully or Partially Suspended Due to a Governmental Order.
• Determining whether the employer has a significant decline in gross receipts. For more information, see Determining When an Employer is Considered to have a Significant Decline in Gross Receipts.
• Determining whether the employer has more than 100 full-time employees. For more information, see Does an Eligible Employer identify the average number of full-time employees based on the aggregation rule?
• The application of the rules that preclude an employer from claiming the Employee Retention Credit if any member of the aggregated group received a Paycheck Protection Program (PPP) loan under the Small Business Act. For more information, see Interaction with Other Credit and Relief Provisions.

27. How is the Employee Retention Credit allocated to an Eligible Employer that is a member of an aggregated group?

The amount of the Employee Retention Credit must be apportioned among members of the aggregated group on the basis of each member's proportionate share of the qualified wages giving rise to the credit.

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