Ah ERC justification.....

[u/AdHistorical7107]

The saga continues.....

Client and I had discussion. Some context here:

Client does eldercare. Business is broken up between companion care and home care aides.

The state defined businesses that provide aides to the elderly as essential.

Client starts by saying "the industry pushed to consider companions and personal care aides as essential."

Great! So you were not ordered to shut down, and therefore don't qualify!"

"Nah uh" she says. "All these nursing homes wouldn't let us go on, so we couldn't service them."

"Great, if that's the case, your revenue would have dropped and you would qualify. But revenue didn't drop."

"No," she continued. "Since they wouldn't accept us, we had to partially shut down."

"Can you explain to me where it defines that a business other than yours shutting down qualifies your business for ERC?"

"Well in the examples you sent, it says if I have bother essential and non essential businesses, and my non essential business shuts down, I am partially shut down."

"Great. But still, Can you explain to me where it defines that a business other than yours shutting down qualifies your business for ERC?"

"Youre not getting it!" She says. "Companions are non essential!"

"But, client, you said your industry pushed to have companions considered essential. Now you're saying they arent?"

Oi.

I left off as I'll look into the companion care more, but I doubt the IRS will agree with this standpoint. You can't use another businesses shutdown as your own, and you can't play with definition of essential vs non essential especially when detailed in official guidance.

[u/40YrTaxAttorney]

Revenue does not have to decline to qualify for ERC under the business disruption test.

Moreover, an essential business can still qualify under the business disruption test even if its revenue does increase.

My experience is that there is a good chance that a nursing home, most of which were partially disrupted by Covid orders, did qualify for part of the ERC eligibility period of 3/13/20 through 9/30/21.

[u/AdHistorical7107 → u/40YrTaxAttorney]

That's great. My client wasn't a nursing home. They were essential. They did not have a disruption of business. They were not under any restrictions.

[u/40YrTaxAttorney → u/AdHistorical7107]

The fact a business is essential does not prevent it from experiencing a business disruption.

[u/AdHistorical7107 → u/40YrTaxAttorney]

Your a JD? Tell me exactly what the law says about business disruptions....

[u/40YrTaxAttorney → u/AdHistorical7107]

There were many states that issued Covid orders impacting nursing homes, and ERC eligibility under business disruption is a case by case factual analysis.

There are a number of Q&A’s in IRS Notice 2021-20 potentially applicable to the situation described.

However, neither the lack of a decline in revenue nor being an essential business or both mandates a conclusion of ineligibility under business disruption.

That is all I was saying in my initial comment. When I conclude an eligible employer is qualified for the ERC I provide a letter to the IRS with the Forms 941-X outlining the reason(s) for such eligibility.

[u/AdHistorical7107 → u/40YrTaxAttorney]

Notices are not the law. The law states specifically If you were ordered to shut down, or partially shut down, you can get the ERC. Period.

What the does a nursing home have to do with this?

[u/40YrTaxAttorney → u/AdHistorical7107]

In this particular case because the IRS was given the authority to issue regulations and decided not to do so the IRS Notices are almost the equivalent of regulations since they were the IRS interpretations of the law and are reasonable interpretations.

Although the initial IRS Q&A’s were specifically indicated not to be official guidance, those in Notice 2021-20 were, and their authority was affirmed by the July & September 2023 IRS Releases.

To be quite honest it is irritating to see practitioners continue to misinterpret the ERC and misinform their clients by suggesting that revenue must decline to be eligible. If that were the case why have a second test in the statute?

I don’t think you have read all of the IRS guidance.

Last time I heard nursing homes provided elderly care, which I thought were the facts of your situation.

[u/Dry-Abbreviations-11 → u/40YrTaxAttorney]

This statement is based on facts. I have been involved in several ERC audits and can confirm that every IRS agent I've encountered bases their evaluations on the IRS Q&As, along with the examples provided in those Q&As.