ERC in the Quarter of sale of business

Technical topics regarding tax preparation.
#1
IDCPA  
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They have been in business for a decade. Had increases of gross receipts in all quarters of 2020 and Q1 2021 relative to same quarters in 2019 (and prior quarter where applicable).

But in Q2 2021 they sold their business assets midway through the quarter, and thus their revenues for the quarter were down significantly.

Would they technically qualify for Q2 for the ERC on the wages that were paid before the sale, as a result of their decline in revenues.

I'm hoping there's some provision where you have to continue to keep the employees....or something. But if they do in fact qualify I want to make sure they know that and assist where I can. Fortunately we're not talking about a ton of wages but enough to make it worth our time if they qualify.

But I can't seem to find the answer to the question. To be clear, the company continues to operate today, and in fact has bought back most those assets and has employees again.
 

#2
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the silence leads me to believe this is unclear...
 

#3
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Does the sale price of the assets count as Gross Receipts?
If yes, does that change your conclusion?
 

#4
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Good question. It would if you count the entire proceeds, but not if you have to receive the cash to be considered gross receipts (installment sale).
 

#5
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I'm bumping this because it has come up again, and didn't really get resolved the first time to my memory (we didn't claim the ERC, but I don't recall why).

To be clear, this is an asset sale, with installment proceeds not received in the quarter of sale - Q2 2021. I would have to assume there's a provision that would prevent them from being eligible for the ERC (had sales continued for the quarter they would have not met the gross receipts decline test). But I'd like to get confirmation of that if possible.
 

#6
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I have from a respectable CPA who owns an ERC business (and hates the ERC mills and they tactics as much as I do) who thinks there is nothing to preclude this client from claiming the IRS that quarter.

I think I'm going to go forward with it even though it defies logic - even if on a technicality, I think they do in fact qualify.

Anyone feel that's not the case?
 

#7
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Gross receipts are rather simply defined. I wouldn't interpret any change in that for an installment sale. As long as you haven't elected out of installment method for that sale, I think you are on solid ground here.
~Captcook
 

#8
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Thank you. Someday I'll learn to let go and trust the force (code)....
 

#9
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One thing I would wonder about: If the asset sale means the trade or business stopped all activity at some point in Q2 of 2021, was it still an eligible employer? The statute says the eligible employer needs to be carrying on a trade or business. So if it stopped its ToB, did it lose its eligibility? Seems like it would.

If it's true the trade or business stopped, really stopped, full kaput, in Q2, if it restarted in Q3 or Q4, does it qualify for recovery startup business ERC? That would seem weird.

For what it's worth, and we weren't doing this, I know some eligible employers intentionally manipulated their revenues to qualify. Delaying billing by a few days, etc. And I think that "works" per the statutes and the notices.
 

#10
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I think that's a good point, but in this situation, they continued operating. Just sold the book of business.
 

#11
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IDCPA wrote:I think that's a good point, but in this situation, they continued operating. Just sold the book of business.


So now I agree with the respectable CPA. 8-)

BTW we did a lot of ERC work.
 


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