IRS: OSHA recommendations don’t support ERC

The IRS recently released a legal memorandum (GLAM 2023-007) concluding that COVID-19 recommendations from the Occupational Safety and Health Administration (OSHA) generally do not constitute governmental “orders” for purposes of determining eligibility for the employee retention credit (ERC).

One of the ways employers may be eligible for the ERC is if business operations were fully or partially suspended due to orders from an appropriate governmental authority limiting commerce, travel or group meetings due to COVID-19, and the employer meets several other conditions.

The IRS GLAM considered whether communications from OSHA were considered “orders from an appropriate governmental authority that limit commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to [COVID-19].” Notably, neither section 2301(c)(2)(A)(ii)(I) of the CARES Act nor Section 3134(c)(2)(A)(ii)(I) of the Code explicitly define the term “orders.” In the GLAM, the IRS took the position that the contemporary meaning of the word “order” will generally apply. For the purposes of the ERC, an “order” is generally understood to be a command or mandate delivered by a government official.

The IRS ultimately concluded that because OSHA communications are not considered “orders from an appropriate governmental authority,” even if an employer took steps following guidance or recommendations disseminated through OSHA communications, the employer generally would not be considered an eligible employer for purposes of the ERC.

The GLAM only addresses OSHA communications that expressly provided that they were advisory in nature and created no new legal obligations (and other similar caveats regarding the nature of the communications). The GLAM indicated that it does not address certain other OSHA communications that did not include these types of caveats or limitations and may constitute governmental orders such as the “COVID-19 Healthcare Emergency Temporary Standard” applicable to settings where healthcare or healthcare support services were provided. The GLAM also noted that OSHA recommendations and guidance could become appropriate governmental orders if implementation of the recommendations became mandatory due to orders from an appropriate governmental authority (for example, an executive order from a state’s governor).

It’s important to note that a GLAM is not binding on taxpayers or the IRS, and a GLAM may not be used or cited as precedent. However, a GLAM can provide insight into the IRS’s current position with respect to the matters addressed in the GLAM. The IRS has made the ERC a major compliance focus. It has paused processing new claims, has created a process for withdrawing unpaid claims, and is working on a settlement initiative for taxpayers who want to repay claims.