In the previous article, “How to Determine if your Company is Partially Suspended for the Employee Retention Credit (ERC)”, we discussed how to determine when a company is partially suspended. In this article, we discuss the examples and factors that the IRS specifically notes in Notice 2021-20 that companies should consider in determining a partial suspension of operations. Companies should consider the following factors from Answer 16 in Notice 2021-20 when determining whether they have been partially suspended. (Note: These factors are not exclusive, meaning other factors may be considered as well.)
From Notice 2021-20 – Answer 16:
- Employers telework capabilities: Determine whether an employer has adequate support (IT and otherwise) such that operations can continue via work from another location.
- Portability of employees’ work: Determine the amount of portable work or work otherwise adaptable to be performed from a remote location, within an employer’s trade or business operations.
- Need for presence in employee’s physical workspace: Evaluate the role that the employer’s physical workspace plays in an employer’s trade or business (may be critical and necessary, beneficial but not necessary, or merely convenient). If the employer’s physical workspace is so critical to its trade or business operations that tasks central to the trade or business’s operations are unable to be performed remotely, then this factor alone indicates that the employer is not able to continue comparable operations. Examples of work 34 space that is critical include laboratories or manufacturing involving special equipment or materials that cannot be accessed or operated remotely.
- Transitioning to telework operations: If an employer can conduct comparable operations via telework, but the employer’s operations did not previously allow for telework, or allowed for only minimal telework, then some adjustment period is expected, and, generally, the employer’s operations are not considered partially suspended during that period. However, if an employer incurs a significant delay (for example, beyond 2 weeks) in moving operations to comparable telework (for example, implementing telework policies or providing employees with equipment to telework), then the employer’s trade or business operations may be deemed subject to a partial suspension during that transition period.
Below I have listed two examples that the IRS released showing eligibility and non-eligibility for partial suspension. These can provide a business with an idea of how to consider the rules under its current situation.
- The IRS listed an example of a software company that was forced to do telework due to a government order. Because the software company used telework extensively before the government order, it was determined that this company was not partially suspended because it could continue its operations in a comparable manner.
- Due to a government order, a physical therapy facility was forced to do its work through telework. The IRS determined that this company was partially suspended because the equipment used in physical therapy is central to its operation,
and thus it cannot continue in a comparable manner.
It is clear from the above examples, that the IRS will be carefully considering whether a business could continue in a “comparable manner.” Note that the examples in the previous article “How to Determine if Your Company Is Partially Suspended for the Employee Retention Credit (ERC)” deal more with limits to capacity, whereas this article deals more with the hampering of operations.
The IRS has also issued an example where the company has part of its business continuing to operate in a comparable manner and part of the business that is not able to do so.
- A scientific research company is suspended. It has a laboratory-based research operation which could not be done remotely and a computer modeling research operation which could be done remotely. Per Notice 2021-20, the fact that
the laboratory-based research operation had to be suspended in and of itself causes a partial suspension.
Companies should carefully consider the examples listed in IRS Notice 2021-20 to determine appropriate treatment for partial suspension.
