The intent of this webinar was to provide updates on the Employee Retention Credit. A Q&A session was led by John J. McInelly, who oversees the ERC initiative for the IRS.
This webinar did a great job of:
Here are the highlights for businesses and nonprofits who either have not yet filed, or are wondering if and when their filing will be processed:
For this sake of value in this article, let’s explore the ERC Eligibility Checklist that was referred to in the IRS webinar:
Question 5 of the ERC Eligibility Checklist asks a critical and common question: Was the operation of your business or organization fully or partially suspended by a government order due to the Covid 19 pandemic? To help answer this question, a link is provided to IRS.gov/ercqualifying. This link connects you to: Frequently Asked Questions about the Employee Retention Credit, Qualifying government orders.
The FAQ / Qualifying section emphasizes that a disruption had to be caused by a government order, not a lack of demand due to the Covid 19 illness or voluntary closing. It also emphasizes that the mere change to telework does not necessarily qualify. Most importantly, Question 5 in this section helps more clearly define partial suspension:
What does ‘more than nominal’ mean when considering whether my business or organization was partially suspended? (added September 14, 2023) ANSWER (bold and italicized added for emphasis): “IRS will consider you to be partially suspended if more than a nominal part of your business was suspended by a governmental order. The IRS considers “more than nominal” to be at least 10% of your business based on EITHER the gross receipts from that part of the business or the total hours your employees spent working in that part of the business. If all parts of your business could operate but you had to modify how it operated, then we will consider you to be partially suspended if you can show that the order had more than a nominal effect on your business. We consider “more than a nominal effect” to be at least a 10% reduction in your ability to provide goods or services in the normal course of your business. …. For more details and examples, see Notice 2021-20, Section III.D, Questions 11, 17 and 18.”
In short, partial suspension is a reduction of an employer’s ability to perform normally, caused by a government order, that affects at least 10% of its gross revenue or 10% of its total employee hours. While there may be more rules that need to be applied from IRS Notice 2021-20, this definition can help create a foundation of understanding for the taxpayer when discussing their eligibility with a qualified tax professional.
Examples of Partial Suspension. In my next article, I will share several common examples of employers who qualify for ERC because they experienced more than a nominal effect on more than a nominal portion of their business or nonprofit. For many, it was the social distancing, capacity restrictions, and extensive cleaning requirements that either reduced their ability to either serve existing customers or acquire new ones.
Summary of IRS Webinar 11.2.23: While the delayed processing times and fraud efforts will continue, ERC is alive and well for those who use qualified tax professionals. Thanks to the new ERC Eligibility Checklist and FAQ’s, it’s now much easier to understand how a business, church, private school, or nonprofit can qualify. For the tax professionals who process ERC, all roads still lead back to IRS Notice 2021-20.
Editorial: The moratorium will prove to be a great catalyst for more clarity and more awareness, enabling potentially another 3.6 million employers to do exactly what the IRS urged them to do January 26, 2021: “Take advantage of the newly extended employee retention credit.” It might mean even longer delays at the IRS, but in time, it will all get done.
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