A business is eligible if they meet one of two tests. Only one test is required and it’s possible to qualify under one test for one period, and another test for a later period.

The first test is a quantitative test that was developed as an objective measure of whether COVID-19 impacted a company’s ability to generate revenues comparable to pre-covid levels. This test is referred to as the “Substantial Decline in Gross Receipts” test or SDGR. This test looks to compare quarterly periods in 2020 and 2021 to the same quarterly period in 2019. The relevant percentage threshold is 50% in 2020 and 20% in 2021. For example, if an employer had $49,000 of gross receipts in Q2 2020 compared to $100,000 of gross receipts in Q2 2019, this 51% decline would qualify the employer under the SDGR. Similarly, an employer with $79,000 of gross receipts in Q1 2021 compared to $100,000 gross receipts in Q1 2019, would also meet the SDGR for Q1 2021. Note that in nearly all cases, if a business qualifies under this test for a quarter, they will qualify automatically for the following quarter, providing at least 6 months of eligibility. The look-forward and look-back tests can be quite complicated and we’ll work with our clients closely to help evaluate eligibility. We regard the SDGR as the test that provided the “juiciest” credit, consider the 6-month eligibility window.

Even if a company doesn’t meet the SDGR, they can qualify if they meet the full or partial suspension of operations test, or FPSO. The full or partial suspension apply for the period(s) of time when the operations of a business are shut down due to government order, or are subject to certain restrictions/modification while they are allowed to keep their doors open. The easiest example of a partial suspension is a restaurant that was forced to move to take-out/deliver only, or was forced to move to a reduced capacity limit with dine-in service due to social distancing requirements. A gym or fitness center that is required to move to appointment-only, reduced capacity, closed day-care facilities, etc. might have a partial suspension. A doctor’s office that does more than a nominal amount of elective procedures will almost always have a partial suspension for some period of time. A lesser known partial suspension can occur when a business is affected due to supplier related issues. For example, a business that cannot obtain materials or supplies from vendors that were shut down by COVID-19, can also translate into the first business being treated as partially suspended. Finally, there are complex rules that look at businesses with multiple locations, segment, or divisions and can cause the entire business to be treated as partially suspended, even if only due to one of the locations, segments, or divisions.

The IRS is very specific to say that government orders that affect customer behavior cannot be used to assert a full or partial suspension. However, if the general facilities where you typically sell goods or provide services to customers are inaccessible, this would not be considered as something affecting customer behavior. For example, if a business of Zamboni drivers are allowed to operate, but the drivers can’t access any Ice Rinks because they have been closed or hockey matches have been suspended, that can qualify as an FPSO.

Keep in mind, an FPSO creates eligibility at the beginning and ending of the FPSO. It is not tied to a particular quarter. So if a retail store shuts its doors on March 18 and reopens on June 1, it will only be under an FPSO for those dates, provided the store isn’t considered to have a partial suspension for other reasons (e.g., social distancing/capacity limits).

Remember that the PPP was designed to cover 8-weeks of payroll. Companies that took two PPP loans therefore might have 16-weeks of payroll. It’s now been over 16 months since the ERC started. Therefore, there is a lot of payroll that businesses might have paid that couldn’t possibly have been covered by the ERC, meaning there are a lot of “fertile” ERC wages out there to claim the 50% or 70% credit on for most businesses.

There are certain windows between operative dates that we focus on for maximizing the ERC. The first is the period from a company’s initial eligibility date, which usually falls between March 18th and April 1st and the date they were funded by the PPP. This period is what we call and “ERC Zone” as it is completely eligible for the ERC if the employer is eligible. The second ERC Zone occurs between the end of your Round 1 PPP Covered Period and the funding date of your Round 2 PPP. This usually starts in September/October 2020 and ends in Jan/February of 2021. Then, finally business should just be hitting another ERC Zone as they reach the end of their Round 2 PPP Covered Period. Note that it is VERY IMPORTANT, that you discuss your Round 2 forgiveness with EZ-Advisors. It is extremely important that you make sure to claim the maximum non-payroll expenses on your Form 3508, even if they are not needed to support full forgiveness. EZ-Advisor's technical experts can discuss this with you upon request.

EZ-Advisors will provide you front to back ERC services, including filing and claiming the ERC from the IRS. We are also the only company that can arrange for an advance payment of your credit of up to 80% of the total credit, in full satisfaction of our fees and lender fees.

Through our process, we will collect qualitative and quantitative data to evaluate your eligibility and then perform the detailed and complex computations to determine your ERC through the evaluation date. Through our sophisticated planning technique, we are able to maximize the ERC for clients with PPP loans by carefully selecting how certain wages are treated for PPP versus ERC purposes at the employee level. The technique is sanctioned by the IRS, but so complex that I’d have to set you up with one of our technical leaders to describe it in more detail.

The deliverable for our services is a 15-page report documenting your eligibility and then a copy of the results from our proprietary EZ-Advisors calculator that can be used as back-up for the numbers we report on the payroll tax returns used to claim the credit. We, of course, prepare any amended payroll tax returns, Form 941-X, to make the retroactive claims. Any claims for future periods are best handled by having us coordinate with your payroll providers to have them make the claims on the Form 941. This would only apply for Q3 and Q4 credits, since any other credits between Q2 2020 and Q2 2021 must be claimed on amended returns.