Recovery Start Up Business - asset purchase

Technical topics regarding tax preparation.
#1
IDCPA  
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Anybody here just sick and tired of the ERC? I love my weekly client phone call where they've been told they qualify from some expert based on supply chain issues their increasingly profitable construction company had..... it's exhausting.

That said, I have had a couple pop up who I think likely qualify under the Recovery Startup Business provision of the ERC for Q3 and Q4 2021.

But I cannot seem to get a clear cut answer to this question. If they set up their business and obtained their EIN after Feb 15, 2020, and then purchased the assets of an existing business (no shenanigans - purchase was made from an unrelated party, before the RSC was even a thought) do they qualify under the Recovery Startup provision?

I assume that has to be the case, but can't seem to find a definitive answer to that question anywhere. Obviously I'm asking if the business being owned by a previous entity, unrelated to my client, impacts their "startup" status.
 

#2
Nilodop  
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See discussion on page 33, here. https://www.irs.gov/pub/irs-drop/n-21-49.pdf.
 

#3
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So that discussion suggests an employer is "permitted" to use the prior owner 2019 revenues to determine if they have had a decline in gross receipts.

I'm asking if the seller's revenues are required to be considered when determining if a newly organized company meets the definition of a Recovery Start up Business.
 

#4
Nilodop  
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I'd look at Notice 2021-20 for guidance, (Pages 50-51). It's referenced as the basis for the same rule in 2021-49. They both are permitted (i.e., not required) safe harbors, and they both also say (redundantly) "to the extent the information is available".
 

#5
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Well, I guess that's as close as I'm going to get to a definitive answer, and I'm still not real sure how to interpret it. But I take it from the fact Taxpayers (in this scenario) are allowed to use 2019 data if they elect to do so and but are required to use 2020 data for purposes of the gross receipts test, would indicate there is no need to consider the 2019 business prior to their ownership in determining their recovery Start up Business status.

I feel like I just made 2 + 2 = 7, because I'm confident 7 is the correct answer, so the 2s must be different than they appear :). But neither your cites nor my other research is as crystal clear as I'd like, though I very much appreciate your time and responses.

I think I'm just going to go forward and tell these clients "I'm 95% confident you qualify..." Was just hoping to be 100....

Again, my thanks though.
 

#6
Nilodop  
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Wherein lies the 5% doubt, and the difficulty in interpretation? I take it you feel the absence of a specific statement that there is no need to consider the 2019 business prior to their ownership in determining their recovery Start up Business sta is what's bothering you. I'd say that's covered by the statute itself, which refers to the gross receipts
of such employer.


Maybe if the acquisition had been via a 368(a)(1) transaction, triggering the 381 rules, I might better understand your concerns.

And as an aside, isn't it nice that this is also in the law.
With respect to any employer for any calendar quarter, if such employer was not in existence as of the beginning of the same calendar quarter in calendar year 2019, clause (ii)(II) shall be applied by substituting “2020” for “2019”.
 


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