During the pandemic, the Occupational Safety and Health Administration (OSHA) as well as the Centers for Disease Control (CDC) set out guidelines to limit in-person interactions for traveling, commerce, and group outings. Businesses who followed these standards protected the safety and wellbeing of employees as well as clients/customers.
On November 3rd, the IRS recently clarified how OSHA communications impacted a business’ eligibility for ERC through a newly released General Legal Advice Memorandum. This comes as part of the IRS efforts to tackle ERC false claims, a surge of which led to the IRS recent moratorium on ERC applications.
How Many Businesses Closed Due to COVID?
According to the Federal Reserve official data on COVID-19, about 400,000 establishments nationwide temporarily closed in the second quarter of 2020, accounting for 1.8 million lost jobs during that time. Beyond this, there were even more establishments who closed and did not reopen.
Because of government mandates and safety concerns regarding the pandemic, businesses struggled financially to stay afloat. Areas such as cities with higher rental costs led to many businesses being barely able to afford rent and other business expenses, especially for small businesses. With an uncertain economy and business operations being partially or fully suspended, businesses across the country started to close their doors indefinitely.
IRS ERC Requirements for Business Suspensions
One of the requirements for businesses to be eligible for ERC is if they experienced a full or partial suspension of business operations due to COVID-19 government mandates. However, OSHA also published communications regarding the pandemic. Part of their guidance advised businesses using advice from the CDC about reducing COVID-19 related workplace hazards.
According to the IRS, some ERC applicants have argued that their business was fully or partially suspended during the pandemic because of OSHA communications. However, the IRS states that OSHA “orders” are not legal mandates and cannot be used as an eligibility reason to claim ERC, unless the employer can demonstrate how the “orders” impacted their business.
OSHA COVID-19 Mandates
OSHA released communications during the pandemic covering a wide range of workplace safety precautions, such as wearing gloves and a mask, during the pandemic. To mitigate and prevent the spread of COVID-19 in the workplace, OSHA set out “mandatory standards” such as regular testing after being exposed to someone with COVID-19, vaccination requirements, physical distancing, and self-quarantining.
Some business closures were due to following OSHA standards for workplace safety. For example, workers exposed to COVID-19 were advised to stay home. If someone came into work and tested positive for COVID-19, some businesses decided to send all employees home as a safety precaution. Not every business allows works to work from home, such as restaurants. Because of this, a business may have had to cease business operations until they were able to get employees safely back into office.
What the IRS Has Said About OSHA Mandates
With recent concerns regarding ERC false claims, the IRS made it clear how they would respond to applicants using OSHA orders to meet ERC eligibility. OSHA standards led to some ERC applicants using it as a qualifying reason to apply. According to the IRS, OSHA communications are not considered legal mandates. Those communications cannot be used under the eligibility requirement of a business have a full or partial suspension of business operations.
The IRS has also pointed out that some OSHA requirements would not impact an employer’s ability to operate a business. For example, requiring employees to get vaccinated, wear a mask and gloves, or maintain ventilation systems are not reasons why a business would have to halt operations.
To use OSHA standards as an ERC qualification, a business would have to provide evidence of how the order directly impacted business operations. This would have had to lead to a full or partial suspension of business operations.
Other Qualifications for ERC
If your business did not fully or partially suspend business operations, there are still other ways to qualify. Qualified wages must have been paid to employees during the 2020 or 2021 tax year. A business who experienced a decline in gross receipts may also be eligible. If you are concerned about your eligibility, it is best to apply with the help of an experienced ERC consultant.
An ERC consultant can guide you through the claims process to ensure that you are complying with IRS requirements before applying. A false claim to the IRS could put your business at risk of an audit. Working with a certified tax attorney or tax consultant specializing in ERC ensures that you are in good hands.