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Blog / State & Local Tax / IRS clarifies government orders for ERC claims

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State & Local Tax


IRS CLARIFIES GOVERNMENT ORDERS FOR ERC CLAIMS

November 13, 2023

ARTICLE | BY RSM US LLP


EXECUTIVE SUMMARY: IRS INDICATES OSHA COMMUNICATIONS ARE NOT GOVERNMENT ORDERS

The IRS continues to issue additional guidance related to the Employee Retention
Credit (ERC) in its attempt to combat scam promotions and ineligible credit
applications. A recent memorandum clarifies the Service’s position on what is a
government order and concludes OSHA communications generally do not suffice to
establish eligibility for the ERC.


NEW IRS GUIDANCE CLARIFIES DEFINITION OF GOVERNMENT ORDERS FOR EMPLOYEE
RETENTION CREDIT

As part of ongoing IRS efforts to combat widespread ERC fraud, the IRS released
a new Generic Legal Advice Memorandum (GLAM) 2023-007 on Nov. 3, 2023. The
memorandum offers insight into the IRS position on the use of OSHA
communications as support for ERC filings, namely that OSHA communications may
not be considered government orders for purposes of qualifying for the ERC.

The eligibility tests for the ERC hinge on employers identifying either a
qualifying drop in gross receipts by comparing gross receipts by quarter in 2019
to the corresponding quarter in 2020 or 2021 or by identifying a full or partial
suspension of operations related to government orders implemented to mitigate
the spread of COVID-19. What constitutes a “government order” has been a hotly
contested point, since as the IRS acknowledges, neither the CARES Act nor the
Internal Revenue Code explicitly define the term “orders.” Absent such guidance,
certain ERC consulting firms have taken the position that nationally-issued OSHA
recommendations related to COVID constitute government orders, and thus that the
impact of government orders qualifying employers for the ERC was extremely
widespread.

GLAM 2023-007 provides insight into the IRS’ position on the definition of
government orders and reiterates other IRS positions limiting the ability of
employers to argue eligibility for ERC, namely:

 * An order is a command or mandate delivered by a governmental official and
   valid orders for purposes of claiming the ERC must be issued from an
   appropriate governmental authority.
 * Orders must limit commerce, travel or group meetings due to COVID-19 to be
   used in ERC claims.
 * Recommendations, guidelines and suggestions (such as OSHA communications in
   2020 and 2021 related to the ways employers could make workplaces safer and
   comply with preexisting OSHA standards during the pandemic) do not qualify as
   orders.
 * Assumptions, vague statements and news articles are not government orders.
 * Guidelines or nonbinding guidance without mandatory obligations with which
   employers must comply are not government orders.
 * Valid government orders must be shown to have had a more than nominal impact
   on employer operations to substantiate a full or partial suspension of the
   business related to COVID-19.

Specifically in reference to OSHA standards as a potential argument for full or
partial suspension of operations due to government orders, the IRS asserts the
following:

 * OSHA standards that existed prior to the COVID-19 pandemic do not qualify as
   a government order and OSHA’s guidance in response to COVID-19 did not place
   new obligations on employers.
 * OSHA standards put in place to limit occupational exposure to infectious
   diseases do not qualify as government orders for the ERC, as they do not
   limit commerce, travel or group meetings.
 * OSHA standards generally relate to modifications like requiring masks,
   providing sanitization supplies and encouraging social distancing and IRS
   Notice 2021-20 Q&A 18 previously indicated that modifications requiring
   customer behavior changes or requiring mask-wearing were not likely to result
   in a more than nominal impact on business operations and thus may not be
   relied upon as support for an ERC claim.
 * In situations where OSHA recommendations were mandated by another
   governmental entity in a locale, employers may consider them in their ERC
   claim if the orders also had a more than nominal effect on employer’s trade
   or business.

The IRS has been actively examining ERC applications and has been vocal in
warning taxpayers about aggressive tax positions, even adding the ERC to the
“dirty dozen” list for 2023. However, the IRS continues to reiterate that the
ERC is a legitimate program and that taxpayers with valid ERC claims that comply
with the published tax law and guidance are welcome to file while the statute is
open, typically April 15, 2024, for 2020 ERC claims and April 15, 2025, for 2021
ERC claims.

--------------------------------------------------------------------------------

This article was written by Anne Bushman, Karen Field , Marissa Lenius, Kate
Walters and originally appeared on 2023-11-13.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/tax-alerts/2023/irs-clarifies-government-orders-erc-claims.html

The information contained herein is general in nature and based on authorities
that are subject to change. RSM US LLP guarantees neither the accuracy nor
completeness of any information and is not responsible for any errors or
omissions, or for results obtained by others as a result of reliance upon such
information. RSM US LLP assumes no obligation to inform the reader of any
changes in tax laws or other factors that could affect information contained
herein. This publication does not, and is not intended to, provide legal, tax or
accounting advice, and readers should consult their tax advisors concerning the
application of tax laws to their particular situations. This analysis is not tax
advice and is not intended or written to be used, and cannot be used, for
purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM
US Alliance member firms are separate and independent businesses and legal
entities that are responsible for their own acts and omissions, and each are
separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of
RSM International, a global network of independent audit, tax, and consulting
firms. Members of RSM US Alliance have access to RSM International resources
through RSM US LLP but are not member firms of RSM International. Visit
rsmus.com/aboutus for more information regarding RSM US LLP and RSM
International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US
Alliance products and services are proprietary to RSM US LLP.

Geffen Mesher is a proud member of RSM US Alliance, a premier affiliation of
independent accounting and consulting firms in the United States. RSM US
Alliance provides our firm with access to resources of RSM US LLP, the leading
provider of audit, tax and consulting services focused on the middle market. RSM
US LLP is a licensed CPA firm and the U.S. member of RSM International, a global
network of independent audit, tax and consulting firms with more than 43,000
people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the
marketplace, helping to differentiate our firm from the competition while
allowing us to maintain our independence and entrepreneurial culture. We have
access to a valuable peer network of like-sized firms as well as a broad range
of tools, expertise, and technical resources.

Geffen Mesher’s State and Local Tax Team is available to assist you with
questions related to these updated rules.  Please contact professionals for more
information at SALT@GMCO.COM.

Questions? Contact:

Andrea Potter


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