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IRS Guidance on Employee Retention Credit

Client Alert

The Employee Retention Credit created under Section 2302 of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act is a refundable tax credit against certain employment taxes equal to 50 percent of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021. Since the adoption of the CARES Act, employers have expressed concern that if one employer acquires another employer that previously received a PPP loan, the acquirer’s entire aggregated group may no longer be eligible to claim the Employee Retention Credit.

On November 16, 2020, the IRS added two new FAQs to their website addressing this Employee Retention Credit issue. Initially, the only way an employer that received a CARES Act Loan (e.g., PPP) would be eligible for an employee retention credit is if they paid the loan back by May 18, 2020, regardless of whether the loan is subsequently forgiven or paid back after May 18, 2020.

However, an employer acquiring an entity may remain eligible for the Employee Retention Credit after the May 18th deadline if certain conditions are met. Take the following example to understand the conditions. Company A is the Acquiring Employer in the transaction, while Company B is the Target Employer who has received PPP funds. For Employee Retention Credit eligibility conditions to apply, Company A’s acquisition of Company B’s stock or other equity interest must result in Company B becoming a member of the Aggregated Employer Group under the aggregation rules. Now, for the Acquiring Employer to remain eligible for the Employee Retention Credit, prior to the closing date of the transaction, the Target Employer must have:

  • fully satisfied the PPP loan; or
  • submitted a forgiveness application to the PPP lender and established an interest-bearing escrow account.

If one of the conditions are met, the Aggregated Employer Group, after the closing date, will not be treated as having received a PPP loan, provided that the Acquiring Employer – including any member of the Acquiring Employer’s pre-transaction Aggregated Employer Group – had not received a PPP loan before the closing date and no member of the Aggregated Employer Group receives a PPP loan on or after the closing date.  If so, any employer that is a member of the Aggregated Employer Group, including the Target Employer, may claim the Employee Retention Credit for qualified wages paid on and after the closing date, provided that the Aggregated Employer Group otherwise meets the requirements to claim the Employee Retention Credit.  In addition, any Employee Retention Credit claimed by the Acquiring Employer’s pre-transaction Aggregated Employer Group for qualified wages paid before the closing date will not be subject to recapture under section 2301(l)(3) of the CARES Act.

If the Target Employer had received a PPP loan, but prior to the transaction closing date, the PPP Loan is not fully satisfied and no escrow account is established, then, after the closing date, the Aggregated Employer Group (other than the Target Employer) will not be treated as having received a PPP loan, provided that the Acquiring Employer (including any member of the Acquiring Employer’s pre-transaction Aggregated Employer Group) had not received a PPP loan before the closing date and no member of the Aggregated Employer Group receives a PPP loan on or after the closing date. 

Any employer (other than the Target Employer) that is a member of the Aggregated Employer Group may claim the Employee Retention Credit for qualified wages paid on and after the closing date, provided that the Aggregated Employer Group otherwise meets the requirements to claim the Employee Retention Credit.  In addition, any Employee Retention Credit claimed by the Acquiring Employer’s pre-transaction Aggregated Employer Group for qualified wages paid before the closing date will not be subject to recapture under section 2301(l)(3) of the CARES Act. 

However, the Target Employer that received the PPP loan prior to the transaction closing date and that continues to be obligated on the PPP loan after the closing date is ineligible for the Employee Retention Credit for any wages paid to any employee of the Target Employer before or after the closing date.

To find out if you are eligible for the Employee Retention Credit due May 18th, contact the PPP Loan/SBA Loan BMD Practice Group Christopher Meager at cmeager@bmdllc.com.


Valley National Bank/Trulieve Loan: A Big Step Out of the Shadows

In a late December press release, Trulieve announced that it had secured a $71.5 million commercial bank loan. In addition to the amount of the loan, which may be the largest commercial bank loan to date to a cannabis company, the release prominently identified Valley Bank and featured both a quote from Valley’s Senior Vice President, John Myers, and a description of the Bank’s service platform and commitment to the cannabis industry.

The End of Non-Competes? The Impact It Will Have on the Healthcare Industry

On January 5, 2023, the Federal Trade Commission (“FTC”) announced a proposed rule that, if enacted, will ban employers from entering into non-compete clauses with workers (the “Rule”), and the Rule would void existing non-compete agreements. In their Notice, the FTC stated that if the Rule were to go into effect, they estimate the overall earnings of employees in the United States could increase by $250 billion to $296 billion per year. The Rule would also require employers to rescind non-competes that they had already entered into with their workers. For purposes of the Rule, the FTC has defined “worker” to also include any employees, interns, volunteers, and contractors.”

2022 Healthcare Recap and 2023 Healthcare Check-Up

As the country begins to return to a new “normal” following the COVID-19 pandemic, there are many healthcare rules changing on both the federal and state levels as a result. Thus, it is important for healthcare providers and their employers to be aware of these changing rules, and any implications they may have on their practice. Look back on healthcare in 2022 and find a checklist for 2023.

Direct Support Professional Retention Payments

On December 15, the Ohio Senate and House passed House Bill 45, which authorizes the Department of Developmental Disabilities (DODD), in conjunction with the county boards of developmental disabilities, to launch their initiative to issue retention payments to Direct Support Professionals (DSPs). These retention payments will be distributed quarterly to participating home and community-based waiver providers to address the workforce crisis in the direct provider sector. Governor DeWine needs to sign the Bill to begin the payments, but he is expected to do so by the end of 2022.

Real Estate Investors Position for 2023 Opportunities

Real estate investors weathered another year in a post-pandemic world, with the year closing with yet another interest rate increase coupled with both uncertainty and heightened interest carrying into 2023. Just last Wednesday, the Federal Reserve raised its benchmark interest rate 0.50 percentage points, shifting the target range to 4.25% to 4.50%. The new level is the highest the fed funds rate has been since December 2007 and marks the seventh rate hike this year. So what does this mean to investors, brokers, lenders, and others in the real estate world? Read a few perspectives below from stakeholders familiar with our BMD clients and the markets in which they do business.