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Further Detail Regarding Government Shutdown & Revenue Decreases

By Mallory Taylor, CPA, Tax Partner

Your business may be eligible for the Employee Retention Tax Credit (ERTC) and may be entitled to a refund of the credit on your prior payroll taxes.  Businesses who borrowed forgivable loans under the Paycheck Protection Program (PPP) were not previously eligible for the ERTC but, as a result of recent legislation, may now be allowed the credit.  If you can answer ‘yes’ to either question below, we want to help you in assessing the potential tax benefit to which you may be entitled, and help you gather the data necessary to file your claim.

Partial or Complete Shutdown Due to Government Order

  1. Did your trade or business suffer a complete or partial suspension of business due to an order by an appropriate governmental authority?

Examples of Relevant Orders:

  • 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.

Key Considerations:

  • Were your operations suspended due to supply chain disruptions directly resulting from a vendor or supplier being required to shut down?
  • Were you negatively affected by travel restrictions or limitations of group meetings?
  • Were your operations suspended due to any curfews or restrictions on operating hours by local government?
  • Even if your business was deemed an ‘essential’ business, did you experience any shutdown of non-essential services as a result of a government order?
  • If you were able to continue operations through remote employees, then it is unlikely you would be considered to be partially or completely shut down.

Data Point:  We need to know the dates and circumstances surrounding the period(s) your operations were suspended.

Significant Decline in Gross Revenue

  1. Did your trade or business suffer a decline of quarterly gross revenue in 2020 that was at least 50% or more of gross revenue in the same quarter of 2019?

Key Considerations:

  • Gross revenue includes net returns and allowances but does not include cost of goods sold.
  • Gross revenue includes all investment income earned by the business, e.g. interest, dividends, and capital gains.
  • Also consider whether your gross revenue was unexpectedly higher than normal in 2019 due to an extraordinary event.

Data Point:  We need to know your gross revenue for each quarter of 2019 and 2020.