IRS Quashes OSHA Guidance Tactic for ERC Eligibility

Taxpayers cannot rely on communications from the Occupational Safety and Health Administration (OSHA) during the COVID-19 pandemic to meet the definition of an eligible employer for purposes of filing a claim for the employee retention credit (ERC), the IRS dictated in a memo. (Legal Advice Issued by Associate Chief Counsel 2023-007)

The memo, authored by IRS Associate Chief Counsel Rachel Levy, was released November 3 in the wake of the agency’s pause of new ERC claim processing until at least December 31. With the rise in popularity of ERC promoters, the IRS found itself inundated with ERC claims filed well after the pandemic and decided to pause processing to halt ineligible claims and allow time for the agency to catch up with its backlog.

This latest Generic Legal Advice Memorandum (AM 2023-007) shoots down one tactic claimants have used to argue for ERC eligibility. OSHA guidance issued in 2020 and 2021 on stopping the spread of COVID-19 in the workplace does not qualify as orders to suspend operations. “To be considered an ‘eligible employer’ for the credit, an order used to claim the credit must be both (a) from an appropriate governmental authority and (b) limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to coronavirus disease 2019 (COVID-19),” according to the memo.

The OSHA communications served as recommendations for wearing masks, providing sanitization supplies, and encouraging social distancing, the IRS explained, which is not enough for employers to point to as a government order. Even if that were the case, taxpayers would also need to demonstrate, per Notice 2021-20, under the facts and circumstances, such an order suspended “more than a nominal portion” of their business.

“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,” the memo read.

Taxpayers seeking to withdraw their ERC claim can do so if:

• The claim was made on an adjusted employment tax return
• Adjustments only related to the ERC
• The entire amount is withdrawn
• Either the IRS hasn’t paid out the refund, or it has paid but the refund check has not been cashed or deposited.

For more information on government orders that fully or partially suspended operations of an eligible employer’s trade or business for purposes of the ERC, see Checkpoint’s Federal Tax Coordinator ¶ H-4687.5A1 and IRS Webinar: ERC Withdrawal Process, Common Issues, and Repayment Process Coming Soon (11/06/2023).