What “Orders From An Appropriate Governmental Authority” May Be Taken Into Account By An Employer For Purposes Of Determining Eligibility For The Employee Retention Credit? – #10 ERC IRS Notice 2021-20

October 16, 2022 Leave a comment

Question #10:
What “orders from an appropriate governmental authority” may be taken into account by an employer for purposes of determining eligibility for the employee retention credit?

Found under the C. Governmental Orders section of the Employee Retention Credit (ERC) IRS Notice 2021-20 with updated guidance to help business owners follow the current ERC rules. 

The answer to question #10, What “orders from an appropriate governmental authority” may be taken into account by an employer for purposes of determining eligibility for the employee retention credit?, can be found below.

ERC IRS Notice 2021-20 Question #10:

C. Governmental Orders

What “orders from an appropriate governmental authority” may be taken into account by an employer for purposes of determining eligibility for the employee retention credit?

Orders, proclamations, or decrees from the Federal government or any State or local government may be taken into account by an employer as “orders from an appropriate governmental authority” only if they limit “commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to the coronavirus disease 2019 (COVID-19)” and relate to the suspension of an employer’s operation of its trade or business. Orders that are not from the Federal government must be from a State or local government that has jurisdiction over the employer’s operations.

These orders are referred to as “governmental orders.” Whether orders, proclamations or decrees are governmental orders is determined without regard to the level of enforcement of the governmental order.

Statements from a governmental official, including comments made during press conferences or in interviews with the media, do not rise to the level of a governmental order for purposes of the employee retention credit. Additionally, the declaration of a state of emergency by a governmental authority is not sufficient to rise to the level of a governmental order if it does not limit commerce, travel, or group meetings in any manner.

Further, such a declaration that limits commerce, travel, or group meetings, but does so in a manner that does not relate to the suspension of an employer’s operation of its trade or business does not rise to the level of a governmental order for purposes of the employer’s determination of its eligibility for the employee retention credit.

Governmental orders include:

• An order from the city’s mayor stating that all non-essential businesses must close for a specified period; 

• A State’s emergency proclamation that residents must shelter in place for a specified period, other than residents who are employed by an essential business and who may travel to and work at the workplace location;

• An order from a local official imposing a curfew on residents that impacts the operating hours of a trade or business for a specified period;

• An order from a local health department mandating a workplace closure for cleaning and disinfecting.

Whether the operations of a trade or business are considered essential or non- essential will often vary from jurisdiction to jurisdiction. An employer should determine whether it is operating an essential or non-essential business by referring to the governmental order affecting the employer’s operation of its trade or business.

Example 10: Governor of State Y issues an order that all non-essential businesses must close from March 20, 2020, until April 30, 2020. The order provides a list of non- essential businesses, including gyms, spas, nightclubs, barber shops, hair salons, tattoo parlors, physical therapy offices, waxing salons, fitness centers, bowling alleys, arcades, racetracks, indoor children’s play areas, theaters, chiropractors, planetariums, museums, and performing arts centers. The governor’s order is a governmental order limiting the operations of non-essential businesses; therefore, employers with non- essential businesses to which the governmental order applies may be considered eligible employers for purposes of the employee retention credit.

Example 2: Mayor of City Y holds a press conference encouraging residents to practice social distancing to prevent the spread of COVID-19. The statement during the press conference is not an order limiting commerce, travel, or group meetings. Accordingly, the mayor’s statement would not be a governmental order for purposes of the employee retention credit.

Example 3: A restaurant is ordered by a local health department to close due to a health code violation. Since the order is unrelated to COVID-19, it would not be considered a governmental order for purposes of the employee retention credit.

For more information about the Employee Retention Credit (ERC) IRS Notice 2021-20, visit the Internal Revenue Service (IRS) Department of the Treasury, official IRS.gov tax website.

Conclusion and Summary on What “orders from an appropriate governmental authority” may be taken into account by an employer for purposes of determining eligibility for the employee retention credit? – #10 ERC IRS Notice 2021-20

The answer to Question #10: “What “orders from an appropriate governmental authority” may be taken into account by an employer for purposes of determining eligibility for the employee retention credit?” was answered in detail above. It was found under section C. Governmental Orders in IRS Notice 2021-20. 

Leave a comment below if you have further questions on the Employee Retention Credit (ERC) or for clarifications on What “orders from an appropriate governmental authority” may be taken into account by an employer for purposes of determining eligibility for the employee retention credit?

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Cover Image Credit: Irs.gov / IRS Notice 2021-20 / Disaster Loan Advisors.

Mark Monroe
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