As we’ve described in other posts, the Employee Retention Credit is available to a wide range of businesses and nonprofits, but you do have to show that your business was affected by the pandemic, either by showing a decrease in revenue or showing how government regulations may have led to a “partial shutdown” of your business.
According to the IRS and media sources, some ERC consultants are over-qualifying their clients based on overly broad readings of these provisions. We strongly advise caution in working with such providers. Here is some information that will help you understand the rules.
First, what is a “partial shutdown”? It is when government orders caused your business operations to impacted by at least 10% in the time period utilized for qualification. Such orders may include capacity limits, social distancing rules, and cleaning requirements. Some additional ways in which this requirement can be met include:
• In some cases, if your business’s suppliers are unable to deliver of critical goods or materials due to a government order that caused the supplier to suspend operations. (Note: SpiderERC researches this on behalf of our clients. We know that supply chain delays may be for a large number of reasons — only those caused to government orders count for ERC qualification).
• Essential businesses that were able to stay open, but were limited in operational capacity or how they interacted with customers. This is especially true for pharmacies, doctor’s offices, and religious institutions.
• Businesses where access restrictions delayed the ability to perform certain procedures or evaluations.
• Note, mask mandates themselves do not count as a “partial shutdown.” But if you were unable to comply with masking rules because you couldn’t get adequate PPE, then you may qualify under this provision.
• Businesses who had to limit or slow down business operations due to employees getting COVID-19 and requiring to quarantine. At SpiderERC, we’ve worked with churches, daycares, and schools who had to shut down when people got sick. Those days can qualify you for the ERC.
• Medical offices that were required to close due to COVID restrictions and then re-opened with restrictions on how many patients could be seen.
• Inability to attend normal industry trade shows and/or conferences. This is a big one that affects a lot of businesses and nonprofits. When you can’t go to conferences, you can’t do business as normal, and so you can recover under this provision.
Many accountants and non-specialists often underestimate ERC claims, while many others overestimate the scope of the rules. At SpiderERC, our goal is to work with our clients with integrity and security, to ensure they obtain the credit to which they are legally entitled.