Hi John, Sorry for late response. I was on vacation and had limited Internet access. But to belatedly respond, yes, absolutely, you are right. The way for many small employers to salvage ERC for Q4 is by “beginning to carry on” a new “trade or business.” I blogged about this here Recovery Startup Business Nine Awkward Questions and here Recovery Startup Business Credit and here The $100,000 Real Estate Employee Retention Credit Windfall.

You point, I’m sorry to say, a giant tax planning opportunity that too many taxpayers will miss.

Excellent analysis on the multitude of confusing aspects of the ERC! Trying to plan around possible infrastructure bill’s early ERC sunset provision. Wondering if you’ve given thought to using startup aggregate ownership theory to claim Q4 ERC for a not-recovery-startup business if Q4 ERC retroactively ends Sept 30?

If the infrastructure bill awaiting vote in the House becomes law, I understand it will sunset the ERC at the end of Q3 instead of Q4 for non-recovery-startups, but the ERC will continue throughout Q4 for recovery startups.

So do you think owners of a not-recovery business could create a recovery business to keep the ERC good times rolling if it retroactively ends early?

For example, assume Joe and Bob each own a 50% member interest in 4-year-old sub-s Restaurant LLC averaging $500k/annual gross with 8 employees earning $10k/qtr each, which qualifies and has received (or at least filed for) quarterly ERCs of $56k (8 employees x 70% of $10k) for Q1,2 and 3.

Restaurant LLC would qualify for same ERC during Q4 . . . but assume infrastructure bill becomes law and ERC retroactively terminates at end of Q3.

Joe and Bob are sad at the loss of Q4 ERC so they turn to blogging and decide to form Blogging LLC, a sub-s which is owned by either (a) Joe and Bob together or (b) Restaurant LLC. Blogging LLC has a $10k/yr non-owner employee and is popular, grossing $50k in 1099 Q4 advertising revenue.

Under your recovery startup aggregate theory, do you think it possible that startup Blogging LLC would allow Joe and Bob to claim a $50k Q4 ERC credit by aggregating Restaurant LLC’s payroll? And if so, do you think the credit is claimed on Blogging LLC’s 941 or Restaurant’s?

Or alternatively would it be easier (albeit perhaps less clean) to, instead of forming Blogging LLC, Joe and Bob create RestaurantPayroll LLC for liability protection purposes, and the employees of Restaurant LLC become new employees of RestaurantPayroll LLC? Similar result, except now the recovery startup RestaurantPayroll LLC can itself claim the full $50k ERC?

Any thoughts appreciated!

Thx

John