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Businesses with Covid-Related Full or Partial Shutdowns— When They’re Eligible for Tax Breaks

Posted by Brandon Keim | Oct 20, 2023 | 0 Comments

During the height of the Covid pandemic, many businesses had to temporarily close due to government-ordered shutdowns. Some had supply-chain disruptions preventing them from getting items on their shelves, while others weren't able to ship their products out. At the time, several Covid-related laws were implemented to help businesses, including laws that gave special temporary tax credits to “eligible employers,” those who kept employees on the payroll during a partial or full shutdown of their business.

However, businesses have struggled to determine if they meet the criteria for those tax breaks. Aware of the confusion, the Internal Revenue Service (IRS) recently distributed guidelines that, while not binding, should help business owners understand if they meet the requirements to be “eligible employers.”

Government-Ordered Shutdowns Are a Basis for Eligibility:

If businesses had a full or partial suspension of operations due to a government order and kept employees on the payroll during this time, they are likely to be “eligible employers,” who are entitled to a wage-retention credit of 50 percent of the employees' wages paid during 2020 and 70 percent in the first half of 2021.

Supply-Chain Issues May Be a Reason for Eligibility:

According to the IRS guidance, a company does not automatically become an eligible employer if it had to partially or fully suspend business operations solely due to supply-chain problems.

Instead, a company must demonstrate that its suppliers were shut down due to a government order and did not have enough on-hand stock of the critical goods needed to continue operations. If the company could continue operations, even with a more limited selection of items, it would probably not be considered an eligible employer.  

Furthermore, a company is not considered an eligible employer if the receipt of goods was delayed until after a government closure order was lifted, but the company eventually received the goods.

Price-Hikes Are Not a Basis for Eligibility:

According to the IRS, if businesses could only continue operations by paying higher prices for supplies, that does not, on its own, constitute a partial or full suspension of operations.

While these are some general points, what's also clear from the IRS guidance is that these determinations will be fact-specific and require extensive supporting documentation to back up their claims.

For example, employers will need to provide evidence not just of the impact a government closure order had on their businesses, but the firms should also provide the same information for their suppliers.

Given the specific requirements, businesses should have an experienced tax attorney to help them prepare the documents that will provide them with the strongest case for eligibility. If you're one such company, don't wait. If you need help, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.

About the Author

Brandon Keim

A Certified Tax Law Specialist, CPA, partner at Frazer Ryan Goldberg & Arnold LLP, and former Senior IRS Trial Attorney, Brandon Keim holds an LL.M. in Taxation from Georgetown University Law Center.


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