How Does the ERC “Partial Shutdown” Test Work?

How Does the ERC “Partial Shutdown” Test Work?

by Dave Horwedel, EA

If you do not qualify for the ERC by the Gross Receipts Test, there is a second independent test that you take.

The basic alternative test is:

If Covid-19 governmental orders (federal, state, and local) required modifications that impacted your business to cause a greater than 10% reduction in your ability to deliver goods and services then you qualify. This is the Partial Shutdown Test. Or, if Covid-19 governmental orders (federal, state, and local) impacted your business by creating supply change disruptions that caused a greater than 10% reduction in your ability to deliver goods and services, then you qualify.

Let us take an example of a plumbing/HVAC firm and review how Covid-19 Governmental Orders affected it.

  • How much time did you have to spend cleaning and disinfecting at the start and end of day or between jobs?
  • Did governmental orders limit crew size?
  • Were there supply change disruptions because of governmental orders?
  • Did social distancing slow production?
  • Did you arrive at a client’s home or business and get refused entrance?
  • Was your sales process disrupted?
  • How often did you test your staff for Covid-19? How much time was lost?
  • Did your crew have to wait outside in social distancing lines to get needed supplies?
  • Were any other modifications required that reduced your ability to deliver goods and services?

If we can substantiate that governmental Covid-19 orders created a greater than 10% reduction in the company’s ability to deliver goods and services for a quarter, then that quarter qualifies.

Once your qualifications are confirmed for all quarters, then we can calculate how much ERC you are eligible for. There are some other ERC eligibility tests, and we will be glad to check these for you. However, the above covers 98% of all valid ERC claims.

We at Torchlight Tax are happy to get you all the ERC you truly qualify for, or to tell you do not qualify and end off then and there. If you have already applied for the ERC, and are concerned you may not qualify, we are happy to review your ERC and advise you. If you are under IRS Audit, we are happy to defend you.

Remember, we are a full-service tax firm composed of EA, CPAS, including our legal and support staff. In addition to handling all ERC matters, we would be glad to service your personal and business tax needs in the years to come.

Contact Torchlight Tax for a free consultation at 1 (877)-758-7797 or email info@TorchlightTax.com. You can also read our tax blog at Torchlighttax.com or watch our videos on the Torchlight Tax YouTube Channel. Please like, subscribe, and share this blog. If you have any comments or questions, we would be glad to hear from you and respond. Just click below, call, or email us. We hope you found this blog helpful. We look forward to hearing from you!

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