Can You Claim ERC as Owner of C or S Corporation

April 21st, 2021 at 7:07 PM

Members of the tax community struggle with the “solo corporate owner” qualification for the employee retention credit (ERC).

The IRS in one of its answers to frequently asked questions explains the rule as follows:

59. Are wages paid by an employer to employees who are related individuals considered qualified wages?

No. Wages paid to related individuals, as defined by section 51(i)(1) of the Internal Revenue Code (the “Code”), are not taken into account for purposes of the Employee Retention Credit. A related individual is any employee who has any of the following relationships to the employee’s employer who is an individual:

• A child or a descendant of a child;
• A brother, sister, stepbrother, or stepsister;
• The father or mother, or an ancestor of either;
• A stepfather or stepmother;
• A niece or nephew;
• An aunt or uncle;
• A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.

In addition, if the Eligible Employer is a corporation, then a related individual is any person that bears a relationship described above with an individual owning, directly or indirectly, more than 50 percent in value of the outstanding stock of the corporation.

If the Eligible Employer is an entity other than a corporation, then a related individual is any person that bears a relationship described above with an individual owning, directly or indirectly, more than 50 percent of the capital and profits interests in the entity.

If the Eligible Employer is an estate or trust, then a related individual includes a grantor, beneficiary, or fiduciary of the estate or trust, or any person that bears a relationship described above with an individual who is a grantor, beneficiary, or fiduciary of the estate or trust.

My take. Since the corporation is not going to have a daughter-in-law, the IRS created a reference to the individual who owns more than 50 percent of the corporation. The IRS does not single out the corporate owner and makes no reference to the spouse. Using this information, the solo corporate owner qualifies for the ERC.

Mark S. Fineberg, CPA