Key insights
- The IRS answered questions about eligibility for ERC under partial shutdown in a GLAM on November 3, 2023.
- Guidelines under OSHA are likely insufficient support for an ERC claim.
- Even if an employer can pinpoint a government order that cited OSHA as a standard reducing commerce, they must show the impact on their business to be considered an eligible employer.
Consult a qualified tax professional on ERC eligibility and documentation.
Clear answers regarding government orders
The IRS has issued multiple warnings, a generic legal advice memorandum (GLAM), and the “dirty dozen” article warning taxpayers against aggressive schemes for claiming COVID-related relief with the employee retention credit (ERC) program. In September, it announced a moratorium on processing new refund claims through at least the end of the year to better handle fraudulent claims and to slow the process to identify claims that may be less than reputable. In October, it issued instructions on how to return improper ERC claims in full.
Employee Retention Credit Moratorium: What It Means for Your Business
Find out if your business qualifies for the lucrative ERC benefit and when you might get your money with the current moratorium.
Now, the IRS clarified a grey area many promoters used to seduce employers into believing they were eligible for the credit. On November 3, 2023, the IRS issued GLAM 2023-007, which explains why Occupational Safety and Health Administration (OSHA) guidelines alone are not sufficient to support an ERC claim.
While a GLAM does not officially bind the IRS, taxpayers, or the judiciary, it provides a clear perspective on how the IRS agents will treat claims based on OSHA directives.
The IRS generally disagrees with the notion that OSHA guidelines are sufficient to support a partial shutdown
The GLAM sets forth examples to show a taxpayer cannot prove it was under a government order causing a full or partial suspension of their trade or business operations based on OSHA guidance.
- The OSHA guidance did not create additional legal obligations or restrictions on employers.
- OSHA said the information was intended to be advisory to protect employees in the workforce.
- The OSHA guidance did not fulfill the criteria of having been established with the intention to restrict commerce, travel, or group meetings as a response to COVID-19.
- Many OSHA standards were in effect prior to the pandemic, so following existing guidance does not rise to the level of a partial shutdown because of a new order specific to COVID-19.
The IRS reiterates a government order must directly affect business operations to establish eligibility under partial shutdown
If an employer can point to a government order mandating OSHA standards (e.g., an executive order from a Governor), that may establish qualification; however, the employer must also provide concrete evidence of how the order directly affected their business operations. Specifically, they need to demonstrate this led to a full or partial suspension of business activities.
The IRS also appears to view the “at least 10%” tests it created in earlier guidance as requirements rather than as safe harbors for qualification: “If an employer maintains that modifications had more than a nominal effect on the employer’s trade or business operations, the employer needs to substantiate that the modifications resulted in a reduction in an employer’s ability to provide goods or services in the normal course of the employer’s business of not less than 10 percent to fall within the provisions of Notice 2021-20.”
How we can help
Contact your CLA tax professional if you are an employer considering whether you may be eligible for the employee retention credit. We can assist in determining eligibility and collecting appropriate documentation to support the claims.
If you are concerned about having filed an improper claim, CLA is here to educate you and equip you with the information you need to work with your original provider to return the funds.