When filing an Employee Retention Credit (ERC) claim, some companies are banking on the supply chain disruption as their backbone for qualifying. However, this may be difficult to prove if examined by the IRS.

The IRS recently released Chief Counsel Advice Memorandum AM 2023-005 which provided additional guidance for determining if supply chain disruptions can qualify an employer for the Employee Retention Credit. For the supply chain to meet the full or partial suspension of operations test to claim ERC, the supplier of the goods must have been subject to a government order that suspended their own operations. Determining the reason behind issues in the supply chain will likely be difficult for most businesses to prove as most manufactures and suppliers were declared essential businesses and allowed to continue operating.

The IRS has named fraudulent ERC claims as the number one on their annual Dirty Dozen list and encourages employers to listen to the advice of their trusted tax professional.

If you have questions about the Employee Retention Credit, please contact us.