ERC Update - Was Your Business Suspended Due to Supply Chain Issues?

A supply chain issue by itself does not qualify you for the ERC.

The IRS provided a narrow, limited exception if an employer was not fully or partially suspended but their supplier was. The exception, however, only applied when the employer absolutely could not operate without the supplier's product and the supplier was fully or partially suspended themselves.

In addition to having the supplier's governmental order, you will need to show that:

  • The government order caused the supplier to suspend operations,

  • You couldn't obtain the supplier's goods or materials elsewhere (regardless of cost), and

  • It caused a full or partial suspension of your own business operations.

You should be wary of anyone who says you qualify for ERC based on supply chain issues without asking for specific information about how your business or organization was affected, your supplier's situation and documentation. For more information and examples see legal memo AM-2023-005.

Source:

https://www.irs.gov/coronavirus/frequently-asked-questions-about-the-employee-retention-credit#supply

Robert Martin