8868 / How does a small employer that purchases another business during the year determine whether it is subject to the ACA shared responsibility provisions if the new business is a separate business entity?

When one small employer purchases another business, even if the two businesses are separate legal entities, the employer must generally combine the number of full-time employees working for each business during the year in order to determine whether it is subject to the shared responsibility provisions.¹ This is the case if the businesses are separate legal entities, but are controlled by the same business owner. The criteria for determining whether a group of businesses is a controlled group under IRC Section 1563 apply in determining whether two or more businesses must be aggregated for purposes of the shared responsibility provisions.

Therefore, a parent-subsidiary group must be aggregated if, within the group, stock representing 80 percent of the voting power of all stock in each corporation is owned by one or more of the other corporations in the group and the parent corporation owns at least 80 percent of voting power, or 80 percent of the total shares, of at least one other corporation in the group.

A “brother-sister” controlled group exists if five or fewer people who are individuals, estates or trusts own at least 50 percent of the combined voting power, or 50 percent or more of the stock value, of each corporation.² Similar ownership arrangements may also require aggregation in calculating whether the overall group employs 50 or more full-time employees and is thus subject to the shared responsibility provisions.

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1. IRC 4980H(c)(2)(C).