OSHA communication and ERC eligibility

Tim Daum, Jackie McCumber, Adam Silva
| 11/16/2023
OSHA communication and ERC eligibility
In summary
  • Taxpayers that claimed the employee retention credit (ERC) based on Occupational Safety and Health Administration (OSHA) guidance should pay close attention to recent guidance issued by the IRS.
  • Taxpayers concerned about having their ERC claims challenged have options to mitigate their risk.
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In a recent generic legal advice memorandum (GLAM), the IRS put the public on notice that it generally does not believe that reliance on OSHA COVID-19 guidance is sufficient to support eligibility to claim the ERC. Taxpayers that claimed the ERC based solely on OSHA guidance risk having their claims challenged by the IRS and might want to consider options to mitigate that risk, including potentially withdrawing their ERC claims.

Background of the ERC

The ERC was created as part of the Coronavirus Aid, Relief, and Economic Security Act. It is an elective, refundable payroll tax credit designed for businesses that continued paying employees during the COVID-19 pandemic while their business operations were fully or partially suspended due to a government order or that had a significant decline in gross receipts during certain eligibility periods (generally from March 13, 2020, through the third quarter of 2021). However, due to its concerns about aggressive promoters and that an increasing number of new claims might be ineligible, the IRS announced in September that it was placing a temporary moratorium through Dec. 31 on processing all new ERC claims and would increase scrutiny of the claims. The IRS subsequently announced a program allowing certain taxpayers to withdraw their ERC claims and has said that it will soon be announcing a disclosure program for taxpayers ineligible for withdrawal.

GLAM regarding OSHA communication

The GLAM addresses ERC eligibility when an employer’s operation of a trade or business was fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19. Many taxpayers have claimed the ERC on the basis that their business was fully or partially suspended for purposes of the credit because OSHA communications constituted an “order” that suspended operations of their trade or business.

The GLAM generally concludes that taxpayers relying on the type of OSHA communication described in the memorandum are not eligible for the ERC. Specifically, the GLAM states that “recommendations, guidelines, and suggestions [like OSHA communication] do not constitute orders for purposes of the employee retention credit” because they are not mandates on employers to take specific actions. The GLAM further states that modifications that require “minor alterations” to customer or employee behavior (such as masking or routine sanitation) most likely would not result in full or partial suspension of business operations.

For purposes of the GLAM, OSHA communications include COVID-19 guidance published on the OSHA website (OSHA.gov), such as guidance provided to area offices and compliance safety and health officers for enforcing OSHA standards and the general duty clause. However, the GLAM provides for certain exclusions from OSHA communications, including COVID-19 healthcare emergency temporary standards applicable to settings in which healthcare or healthcare support services are provided, as well as required actions directed at a particular employer (such as after issuance of a citation).

Crowe observation

Depending on the facts and circumstances, an employer subject to one of these excluded communications might be able to demonstrate ERC eligibility.

In addition, if implementation of OSHA recommendations and guidance becomes mandatory due to orders from an appropriate governmental authority (like an executive order from a governor), an employer might be eligible to claim the ERC depending on the employer’s facts and circumstances.

Regardless, being subject to a government order is not enough to establish ERC eligibility. As stated in the GLAM, “the relevant inquiry is whether an employer could continue operating its trade or business (even if the employer ceased operations) despite there being an order from an appropriate governmental authority in place. If an employer can operate its trade or business under the governmental order, then the employer’s operations are not fully or partially suspended.”

Looking ahead

Each taxpayer’s facts and circumstances should be evaluated to determine eligibility for the ERC. The GLAM states the IRS’ position and likely will be tested by the courts. Taxpayers that were advised that they can rely on OSHA communications for eligibility should consider whether to consult another tax adviser to help them evaluate their eligibility for the ERC. Taxpayers having second thoughts about previously filed ERC claims have options, such as withdrawal or the yet-to-be-announced disclosure program. Taxpayers also can amend previously filed claims if appropriate.

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Tim Daum
Principal, Washington National Tax
Jackie McCumber
Washington National Tax
Adam Silva
Adam Silva
Washington National Tax