For the Defense - Vol. 7, Issue 2 - 27

increased from $10,000 per year to $10,000 per quarter;
and 3) the employer size limit for full employee eligibility
(and not just those employees who were not working) was
increased from 100 to 500 employees. Additionally, the
credit was made available to employers who also received
PPP loans, with the only restriction being that employers
could not claim the employee retention credit for wages
paid with forgiven PPP loan proceeds.
Eligibility for the Credit
An employer is eligible for the employee retention
credit if, between March 13, 2020 and September 30,
2021, the employer: (1) suffered a significant decline in
gross receipts; or (2) carried on a trade or business whose
operations were fully or partially suspended due to orders
from an appropriate governmental authority limiting
commerce, travel, or group meetings (for commercial,
social, religious, or other purposes) due to COVID-19.3
The Bright Line Test:
Receipts
The significant decline in gross receipts test is a simple,
arithmetic test. For 2020, a significant decline in gross
receipts occurs when an employer's gross receipts for one
quarter declined by 50% or more, when compared to the
same quarter for 2019.4
For 2021, an employer experiences
a significant decline in gross receipts if it experiences a
20% reduction in revenue, compared against the same
quarter in 2019.5
Employers may also make an election
to measure their decline in their gross receipts using the
immediately preceding calendar quarter, and comparing
that quarter's sale to the same calendar quarter in 2019.6
The Facts-and-Circumstances Test: Government Orders
Impacting Operations
The government orders and impacts test is both
cumbersome and vague, but the broad and general
nature of the IRS guidance leaves the employee retention
credit door open to many different types of businesses,
including law firms. To satisfy this test an employer must
establish that: i) a government order; ii) more than
nominally restricted the operations; iii) of more than a
nominal portion of a business; and iv) the portion of the
business that was closed could not comparably operate in
a remote fashion.7
Government Order
A government order is defined as " any federal, state, or
local order, proclamation, or decree that limits commerce,
travel, or group meetings due to COVID-19 and which
relates to a full or partial suspension of an employer's
business operations. " 8
A government order may be an eligible order even if an
employer is allowed to operate as an essential business,
Significant Decline in Gross
provided the order requires modifications to business
operations.9
Employers that operate a trade or business in multiple
locations and are subject to government orders requiring
full or partial suspension of operations in some, but not all,
jurisdictions are considered to have a partial suspension of
operations.10
Governor Wolf and Secretary Levine issued a litany of
orders which limited commerce in the Commonwealth
between March 19, 2020 and May 31, 2021, resulting
in some of the most restrictive suspension orders in the
country.
Most Pennsylvania businesses will not have
trouble satisfying the first element of the four-part test.
More than Nominal Restrictions on " Business Operations "
Whether a modification required by a government
The
order has more than a nominal effect on the business
operations is based on the facts and circumstances.11
mere fact that an employer must make a modification
to business operations due to a government order does
not result in a partial suspension. The IRS requires that
the modification have more than a nominal effect on
the employer's business operations.12
A government
order that results 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 will
be deemed to have more than a nominal effect on the
employer's business operations.13
All of that said, the " more than nominal restrictions "
test is not a tall hurdle to clear. However, it usually involves
an in-depth analysis of the employer's business operations
before the pandemic and during the pandemic. With the
help of their tax advisors, employers should evaluate how
their business processes changed as a result of the various
government orders to evaluate whether a government
order had more than nominal restrictions on business
operations.
More than Nominal Portion of a Business
Even employers who operate an essential business may
be considered to have a partial suspension of operations
if, under the facts and circumstances, more than a nominal
portion of its business operations are suspended by a
government order.14
A portion of an employer's business
operations will be deemed to constitute more than a
nominal portion of its business operations if either (i) the
gross receipts from that portion of the business operations
is not less than 10 percent of the total gross receipts (using
the gross receipts of the same calendar quarter in 2019),
or (ii) the hours of service performed by employees in
that portion of the business is not less than 10 percent
of the total number of hours of service performed by all
employees in the employer's business (using the number
Vol. 7, Issue 2 l For The Defense 27
For the Defense - Vol. 7, Issue 2

Table of Contents for the Digital Edition of For the Defense - Vol. 7, Issue 2
