Court filing
Complaint — Johnson Pools Inc. v. Barrett Business Services Inc. (Dkt. 1, D. Or.)
Summary
Complaint filed October 8, 2026 as Document 1 in Johnson Pools Inc. v. Barrett Business Services Inc., Case 3:26-cv-02208-AN, in the District of Oregon. Johnson Pools, doing business as Johnson Pool & Spa in Windsor, California, sues its professional employer organization, BBSI, for breach of contract, breach of fiduciary duty and negligence, and demands a jury trial. It alleges that a client cannot claim the Employee Retention Credit except through its PEO, and that BBSI was responsible for filing the credit under an agreement executed October 15, 2012. Plaintiff says it met the partial-suspension test from Quarter 2 of 2020 through Quarter 2 of 2021 under a series of Sonoma County orders. Exhibit 10, ending the 211 pages, is Arrow Point Tax Services' letter appealing the ERC rejection; it says the company is reviewed through blanket analysis and asks to remove BBSI from the process.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Filed October 8, 2026 in Johnson Pools Inc. v. Barrett Business Services Inc.; one of 1 filings from this case.
Record facts
| Court | U.S. District Court for the District of Oregon |
|---|---|
| Filed | 2026-10-08 |
Cite this document
“Complaint — Johnson Pools Inc. v. Barrett Business Services Inc. (Dkt. 1, D. Or.).”
U.S. District Court for the District of Oregon, No. 3:26-cv-02208, Doc. 1, filed 2026-10-08. Archived at Pandemic Darlings, https://pandemicdarlings.com/court-filings/full-docket-barrett-business-services-inc-ord-74937671/2026-10-08-gov-uscourts-ord-74937671-1-0-doc-1/
, SHA-256 3a0d696412c5b5f307f972c128ef3fd0a8c64d517949b656b3cd99597cafb822.Full text
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 1 of 211
John C. Rake, OSB #105808
jrake@lvklaw.com
LARKINS VACURA KAYSER LLP
121 SW Morrison St., Suite 700
Portland, OR 97204
Ph. (503) 222-4424
Stephen B. Murray, Jr. (pro hac vice forthcoming)
smurrayjr@murray-lawfirm.com
Arthur M. Murray (pro hac vice forthcoming)
amurray@murray-lawfirm.com
Ruston Pritchard (pro hac vice forthcoming)
rpritchard@murray-lawfirm.com
MURRAY LAW FIRM
701 Poydras Street, Suite 4250
New Orleans, Louisiana 70130
Telephone: (504) 525-8100
Facsimile: (504) 584-5249
Jack Weaver (pro hac vice forthcoming)
jack@weavercurrie.com
WEAVER CURRIE, PC
3554 Round Barn Blvd., Suite 300
Santa Rosa, California 95403
Telephone: (707) 433-4842
Facsimile: (707) 473-9778
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
DISTRICT OF OREGON
PORTLAND DIVISION
JOHNSON POOLS INC., Case No.
Plaintiff, COMPLAINT
v. Breach of Contract
Breach of Fiduciary Duty
BARRETT BUSINESS SERVICES INC., Negligence
Defendant. DEMAND FOR JURY TRIAL
COMPLAINT Page 1
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 2 of 211
Plaintiff, Johnson Pools Inc., doing business as Johnson Pool & Spa, by and through the
undersigned counsel, brings this civil action against Defendant and alleges as follows:
PARTIES, JURISDICTION AND VENUE
1.
Plaintiff Johnson Pools Inc., doing business as Johnson Pool & Spa, is a corporation formed
in California, with its principal place of business in Windsor, California.
2.
Defendant Barrett Business Services Inc. (hereinafter “Defendant BBSI”) is incorporated
under the laws of Maryland and has its principal place of business in Vancouver, Washington.
3.
This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332 as the amount in
controversy exceeds $75,000 and the parties are citizens of different states.
4.
Venue is proper in the District of Oregon as Defendant BBSI has offices and conducts
business itself or through its agent(s) in the State of Oregon, County of Multnomah. Additionally,
the written agreement between the Plaintiff and Defendant BBSI provides that the parties accept
the jurisdiction of the state and federal court sitting in Portland, Oregon. A copy of the agreement
is attached as “Exhibit 1”.
FACTS
5.
Plaintiff Johnson Pool & Spa is a pool and spa service company located in Windsor,
California.
6.
At all relevant times, Plaintiff was a client of Defendant BBSI, as alleged herein below.
7.
Defendant BBSI is a Professional Employer Organization (“PEO”).
COMPLAINT Page 2
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 3 of 211
8.
A PEO is a type of full-service human resource outsourcing known as co-employment. In
this arrangement, the PEO performs various employee administration tasks, such as payroll and
benefits administration, on behalf of a business.
9.
Through a model called co-employment, the business retains control over day-to-day
operations and employee management, while the PEO becomes employee of record for tax and
benefits purposes. See Exhibit 2 at 5.
10.
When an employer uses a PEO to pay its employment taxes and satisfy its employment tax
return filing obligations, the PEO is the taxpayer before the IRS. The PEO reports the wages,
employment taxes, and credits on behalf of all its employer clients.
11.
Defendant BBSI served as PEO for Plaintiff. See Exhibit 1.
12.
At all relevant times herein complained of, Defendant BBSI was “responsible for the
administration of payroll matters with respect to the Employees, the timely payment of wages, and
the withholding and timely payment of all applicable federal, state, and local taxes required as a
result of [Defendant BBSI’s] payment of Employee wages.” Exhibit 1 at 2.
13.
At all relevant times herein complained of, Defendant BBSI paid wages or compensation
to individuals who performed services for Plaintiff.
14.
As the administrative employer or PEO for Plaintiff, Plaintiff’s federal wages are reported
and paid under the Federal ID Number for Defendant BBSI. See Exhibit 2.
COMPLAINT Page 3
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 4 of 211
15.
As such, Defendant BBSI used its own taxpayer identification number to process all payroll
and payroll tax returns on behalf of Plaintiff.
Employee Retention Credit (ERC)
16.
The employee retention tax credit, also referred to as the Employee Retention Credit
(ERC), was created by the Coronavirus Aid, Relief and Economic Security (CARES) Act, signed
into law in March 2020, to encourage businesses to keep employees on their payroll.
17.
On or about March 15, 2020, States and local government entities began to issue Orders or
other types of proclamations to implement shutdowns to prevent the spread of COVID-19,
including the closure of schools and non-essential businesses. Exhibit 2 at 11.
18.
The ERC was specifically designed to encourage employers experiencing a decline in gross
receipts and/or whose trade or business was fully or partially suspended as a result of a government
order related to COVID-19 to keep employees on their payroll through a refundable employment
tax credit. Id.
19.
In general, to qualify for the ERC, an employer must have operated a trade business in
2020 or a calendar quarter in 2021 and meet one of the following tests:
a. The business operations must have been fully or partially suspended by government
order due to COVID-19 in 2020 or the first three calendar quarters of 2021
according to Section 2301(c)(2)(A) of the CARES ACT; or
i. Additionally, that governmental order must have had a more than nominal
effect on business operations.
ii. Solely for purposes of this employee retention credit, a portion of an
employer’s business operations will be deemed to constitute more than a
COMPLAINT Page 4
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 5 of 211
nominal portion of its business operations if either (i) the gross receipts from
that portion of the business operations is not less than 10 percent of the total
gross receipts (both determined using the gross receipts of the same calendar
quarter in 2019), or (ii) the hours of service performed by employees in that
portion of the business is not less than 10 percent of the total number of
hours of service performed by all employees in the employer’s business
(both determined using the number of hours of service performed by
employees in the same calendar quarter in 2019). IRS Notice 2021-20, at p.
28, attached as Exhibit 9.
b. Met the Gross Receipts Test per section 2301(c)(2) (B) of the CARES Act.
20.
In July of 2020, the Internal Revenue Service (“IRS”) provided guidance by which
qualifying ERC wages can be reported on Forms 940 and Forms 941. A copy of the IRS guidance
is attached as Exhibit 3 and hereby incorporated by reference.
21.
According to IRS guidance, third party filers that file aggregate Forms 941, such as a PEO,
must complete and file Schedule R if they have clients that are claiming ERCs. Exhibit 3 at 2.
22.
PEOs normally use FORM 941, Employer’s Quarterly Federal Tax Return, and attach
Schedule R detailing credit amounts claimed on behalf of each client. See Exhibit 3.
23.
Although a PEO provides client-by-client specified information concerning the ERC on
the Schedule R it attaches to its employment tax return, a client cannot claim the credit except
through the PEO because the client does not deposit, pay or report the employment taxes through
its own EIN. See Exhibit 3.
COMPLAINT Page 5
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 6 of 211
24.
The IRS guidance also provides that the ERC may be obtained by filing an amended return
or claim for refund for the quarters ending in June, September, and December 2020, using Form
941-X. Exhibit 3 at 3.
Defendant BBSI’s ERC Obligations
25.
On October 15, 2012, Plaintiff executed an Agreement for Employer and Staffing Services
with Defendant BBSI. See Exhibit 1.
26.
The Agreement for Employer and Staffing Services sets forth the obligations and
responsibilities of Defendant BBSI with respect to payroll administration, tax filings, and payroll
tax credit processing on behalf of Plaintiff. See Exhibit 1.
27.
Defendant BBSI was “responsible for the administration of payroll matters with respect to
the Employees, the timely payment of wages, and the withholding and timely payment of all
applicable federal, state, and local taxes required as a result of Barrett’s payment of Employee
wages.” Exhibit 1 at 2.
28.
Defendant BBSI was responsible for filing the Employee Retention Credit on behalf of
Plaintiff.
29.
Before filing, Defendant BBSI was obligated to collect from its client any information
regarding the client’s eligibility for the ERC. A copy of a letter from IRS Associate Chief Counsel
to Senator John Cornyn, dated September 29, 2022, is attached as “Exhibit 4”.
COMPLAINT Page 6
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 7 of 211
30.
If the IRS requests information regarding the ERC, Defendant BBSI is obligated to either
provide this information or collect it from the client and provide the tax records that support the
client’s eligibility for the ERC. See Exhibit 4.
31.
BBSI uses this information to claim the credit on its client’s behalf on its employment tax
return. See Exhibit 4.
Plaintiff-Specific Facts
32.
Prior to filing, Plaintiff correctly identified that it qualified for the ERC under the “partial
suspension” of operations for the ERC for the following quarters:
a. Quarter 2 of 2020 (Including parts of March 2020)
b. Quarter 3 of 2020
c. Quarter 4 of 2020
d. Quarter 1 of 2021
e. Quarter 2 of 2021 (See Exhibit 5)
33.
Plaintiff was subject to numerous Sonoma Orders during these quarters, which either fully
or partially suspended operations.
Sonoma Order C19-01
34.
Plaintiff was subject to Sonoma Order C19-01, which shut down all non-essential business
as of March 13, 2020 with no defined end date. Exhibit 5 at 1.
35.
Plaintiff’s retail sites had to completely close, which made up a greater than non-nominal
or more than 10% of its business. Id.
COMPLAINT Page 7
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 8 of 211
36.
Due to Sonoma Order C19-01, Plaintiff had “[i]mmediate cancellation of in-store events,
vendor demos, and municipal/HOA-related gatherings tied to pool service/retail promotions.” See
Exhibit 6.
37.
Due to Sonoma Order C19-01, Plaintiff had a more than nominal impact on its business
because “[e]vent-driven retail traffic and related staffing eliminated, beginning the reduction that
compounded under subsequent SIP [Shelter in Place] orders.” See Exhibit 6.
38.
Plaintiff met the definition of a partial suspension under Sonoma Order C19-01, according
to IRS Notice 2021-20, which provides IRS guidance on the CARES Act. Exhibit 5 at 1.
Sonoma Order C19-03
39.
Plaintiff was subject to Sonoma Order C19-03, effective March 18, 2020 through April 7,
2020, which extended the shelter in place and continued the mandate that ordered non-essential
businesses remain closed. Exhibit 5 at 3.
40.
“Minimum Basic Operations” were put into effect, which “include[s] the following,
provided that employees comply with Social Distancing Requirements as defined in this Section,
to the extent possible, while carrying out such operations:
a. The minimum necessary activities to maintain the value of the business’s inventory,
ensure security, process payroll and employee benefits, or for related functions.
b. The minimum necessary activities to facilitate employees of the business being able
to continue to work remotely from their residences. Id.
41.
Sonoma Order C19-03 mandated Plaintiff to distance and only operate in a limited
capacity. Id.
COMPLAINT Page 8
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 9 of 211
42.
Due to Sonoma Order C19-03, Plaintiff “[c]losed pool & spa showrooms to the public;
limited retail to MBO only; service/contracting restricted to safety/essential work with 6‑ft
distancing.” See Exhibit 6.
43.
Due to Sonoma Order C19-03 “[r]etail division shuttered; service crews reduced and
reorganized → well over 10% of employees unable to perform normal duties.” See Exhibit 6.
44.
Plaintiff met the definition of a partial suspension according to Notice 2021-20 under
Sonoma Order C19-03. Exhibit 5 at 3.
Sonoma Order C19-05
45.
Plaintiff was also subject to Sonoma Order C19-05, which extended the mandatory shut
down of non-essential businesses to May 3rd, 2020. “Minimum Basic Operations” remained in
effect. Exhibit 5 at 3.
46.
“The Company began implementing policy that conformed with these orders. Most notable
the Company was forced to adjust shift and team logistics, having all individuals travel to and from
job sites in individual vehicles. This brought additional logistical burden and impact that further
exacerbated the material impact to the Company’s business.” Id.
47.
Due to Sonoma Order C19-05, Plaintiff had “[o]perational redesign of field/service &
warehouse: staggered shifts, per‑vehicle headcount limits, on‑site spacing, sanitation; retail
remained closed to walk‑ins.” See Exhibit 6.
48.
Due to Sonoma Order C19-05, Plaintiff had “Crew‑density limits and MBO continued—
sustained impact >10% of workforce even among “essential” functions.’ See Exhibit 6.
COMPLAINT Page 9
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 10 of 211
49.
The partial suspension test was met under Sonoma Order C19-05. Exhibit 5 at 3.
Sonoma Order C19-09
50.
Sonoma Order C19-09, dated May 1, 2020, expanded essential businesses to allow for
more education focused businesses to meet the definition. However, this did not apply to Plaintiff,
as Plaintiff was not an essential business. Exhibit 5 at 4.
51.
Minimum Basic Operations remained in effect. Id.
52.
Due to Sonoma Order C19-09, “Showrooms still closed to the public; pivot to curbside
only, reconfiguring staffing, inventory staging, and customer flow.” See Exhibit 6.
53.
Due to Sonoma Order C19-09, “Retail staff redeployed/limited; continued restrictions left
>10% employees unable to perform normal duties.” See Exhibit 6.
54.
The partial suspension test was met under Sonoma Order C19-09. Exhibit 5 at 4.
Sonoma Order Amendment 3 C19-02
55.
Sonoma Order Amendment 3 C19-02, dated May 23, 2020, allowed Plaintiff to begin
operations, but in a severely limited capacity. Exhibit 5 at 4.
56.
Under Sonoma Order Amendment 3 C19-02, “Selective expansion did not restore full
indoor retail or normal crew logistical distancing controls remained.” See Exhibit 6.
57.
Under Sonoma Order Amendment 3 C19-02, “Even with limited reopenings, >10% of
employees remained constrained by capacity/distancing rules.” See Exhibit 6.
COMPLAINT Page 10
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 11 of 211
58.
Through the Minimum Basic Operations requirements and the restrictions to retail
operations, Plaintiff was still materially impacted, thus meeting the definition of the partial
suspension test according to Notice 2021-20. Exhibit 5 at 4.
Sonoma Order C19-14
59.
Sonoma Order C19-14, dated June 5, 2020, allowed businesses to begin operating in a
partially suspended capacity. Exhibit 5, at pg. 5.
60.
Due to Sonoma Order C19-14, “Retail reopens with capacity/distancing controls and
posted protocols; field operations continue under construction/field safety rules.” See Exhibit 6.
61.
Due to Sonoma Order C19-14, “Capacity limits + distancing continued to cap staffing and
throughput >10% below normal.” See Exhibit 6.
62.
Additionally, “at this time, the [Plaintiff] began receiving word from their suppliers in
California, that their businesses were being subjected to significant impact. Though [Plaintiff]
continued to qualify under their own suspension of operations, at this time [Plaintiff] also begins
to qualify through the supply chain impact” Exhibit 5 at 5.
63.
Plaintiff meets the definition of a partial suspension according to Notice 2021-20 under
Sonoma Order C19-14.
Sonoma Order C19-15
64.
Sonoma Order C19-15, dated June 18, 2020, allowed businesses in the county to operate
but distancing and capacity restrictions remained in effect. Exhibit 5 at 6.
COMPLAINT Page 11
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 12 of 211
65.
Plaintiff’s showroom was impacted through June 2021. The social distancing mandate
remained through this order, which restricted how Plaintiff could interact with customers in its
retail locations.1 Id.
66.
Due to Sonoma Order C19-15, “Sustained capacity/spacing limits for showrooms;
continued vehicle/headcount limits and staggered starts for crews.” See Exhibit 6.
67.
Due to Sonoma Order C19-15, “Constraints on indoor retail/customer interaction and crew
logistics kept workforce >10% below normal utilization.” See Exhibit 6.
68.
Plaintiff meets the definition of a partial suspension according to Notice 2021-20 under
Sonoma Order C19-15.
California Blueprint for Safer Economy Mandate
69.
California Blueprint for Safer Economy Mandate, dated August 28, 2020, created a tier
system for reopening. Exhibit 5, at pg. 6. Under this structure, Plaintiff remained partially
impacted. Id.
1
The specific distancing orders the Company become subject to at this point are found below:
County Orders and Guidance are located here:
• https://socoemergency.org/emergency/novel-coronavirus/health-orders/
• http://sonomaedb.org/Business-Assistance/Coronavirus/Business-Management-Plans/
State Orders and Guidance are located here:
• https://www.cdph.ca.gov/Programs/CID/DCDC/CDPH%20Document%20Library/COVID-
19/SHO%20Order%205-7-2020.pdf
• https://covid19.ca.gov/industry-guidance/
COMPLAINT Page 12
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 13 of 211
70.
Under this system, Plaintiff had “[s]howroom capacity caps,
shopping‑by‑appointment/spacing controls; swim‑school/close‑contact services restricted; field
crews continued under distancing protocols.” See Exhibit 6.
71.
Under this system, “Tier‑based capacity restrictions and distancing persistently
constrained staffing and sales throughout (>10% employees affected) until June 15, 2021.” See
Exhibit 6.
72.
Plaintiff continued to have a partial suspension of a non-nominal portion of business
while Sonoma Country remained in the tier system, through June 15, 2021. Exhibit 5 at 6.
73.
The Company also continued to receive word from their suppliers that they too were
impacted due to restrictions and to expect delays. Id. at 7.
74.
Plaintiff met “the definition of a partial suspension according to Notice 2021-20 under
this order throughout the tier system. At the time this order expired, the orders moved from
mandates to guidance for the Company. At this time, June 15th, the Company ceased to qualify
under the partial suspension guidelines.” Id. at 8.
ERC Amounts
75.
The amount of the ERC that Plaintiff qualified for each quarter is listed below:
a. Quarter 2 of 2020 is $267,776.
b. Quarter 3 of 2020 is $30,273.
c. Quarter 4 of 2020 is $21,508.
d. Quarter 1 of 2021 is $367,469.
e. Quarter 2 of 2021 is $388,326. See Exhibit 7.
COMPLAINT Page 13
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 14 of 211
ERC Filing
76.
At time of filing, Defendant BBSI did not request any evidence of the Governmental Orders
outlined in Exhibit 5 to provide in support of the ERC.
77.
On information and belief, some time in 2023 Defendant BBSI filed a return with the IRS,
in which it erroneously submitted Plaintiff’s ERC claim.
78.
Because Defendant BBSI acts as PEO for numerous other businesses, employment tax
returns for all clients of BBSI are included on BBSI’s tax return.
79.
As such, Plaintiff’s ERC Claim was grouped with other businesses on Defendant BBSI’s
employment tax return, so Plaintiff did not have access to the ERC filing.
80.
Instead, Plaintiff had to rely on Defendant BBSI’s representations that the ERC claim was
correctly filed.
81.
On information and belief, Defendant BBSI elected to present Plaintiff’s claim under the
Gross Receipts test because it allowed easier aggregate filing for BBSI.
82.
Plaintiff did not hear back about the ERC filing until, on July 1, 2025, Plaintiff was notified
by Defendant BBSI that the Internal Revenue Service (IRS) had selected its ERC claim for audit.
Exhibit 8. The IRS requested that the documentation for the ERC claim should be submitted by
July 16, 2025. Exhibit 8.
83.
The July 1, 2025 letter was the first time documentation was requested for the ERC claim,
despite the fact that the original ERC claim was filed in 2023.
COMPLAINT Page 14
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 15 of 211
84.
On July 16, 2025, Plaintiff provided documentation in support of its ERC claim to
Defendant BBSI, which Plaintiff assumed BBSI submitted to the IRS.
85.
Plaintiff was then notified by Defendant BBSI that the IRS determined that it was not
eligible for the ERC for any of the quarters under examination.
86.
The reason supplied by the IRS was that “Disallowed Evidence does not show a shut down
or Decrease in Gross Receipts (c,d).” Exhibit 2.
87.
On October 14, 2025, Duncan Kelm of Arrow Point Tax Services, sent a letter to the IRS
on behalf of Plaintiff regarding its ERC rejection. Exhibit 10.
88.
Plaintiff pointed out that it never claimed to qualify through the gross receipts test, rather
Plaintiff claimed to qualify for partial suspension of a “material” portion of business operations
for the period of March 13, 2020 through June 15, 2021. Exhibit 10.
89.
Per the redacted copy of Form 886-A, it is clear that Defendant BBSI did not properly
submit Plaintiff’s ERC Claim under the Partial Suspension test. Instead, the nominal impact
claimed qualification is the Gross Receipts test. Exhibit 2.
90.
Additionally, Mr. Kelm pointed out that “the taxpayer reason section is incorrect. The
Company never claimed eligibility past June 15th, 2021 which clearly is before 2021 Q3. The fact
that the below two sentences is the only response received, and that the “Taxpayer Reason” section
is clearly incorrect, shows that this case deserves a more detailed review.” Exhibit 10.
COMPLAINT Page 15
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 16 of 211
91.
Upon information and belief, BBSI did not present that Plaintiff had a non-nominal impact
on business operations due to a greater than 10% impact on work force.
92.
By failing to request and supply proper documentation regarding Plaintiff’s ERC claim,
Defendant BBSI’s failed to comply with its contractual obligations and duties and acted
negligently.
93.
By failing to properly complete Form 941 and/or amended Form 941-X, Defendant BBSI,
as Plaintiff’s PEO, failed to comply with its contractual obligations and duties and acted
negligently.
94.
By failing to correct Plaintiff’s claim after being notified by the IRS that the claim was
being audited, Defendant BBSI failed to comply with its contractual obligations and duties and
acted negligently.
95.
But for BBSI's failure to properly submit Plaintiff’s ERC Claim, the IRS would have
properly considered the claim and granted it.
FIRST CAUSE OF ACTION
BREACH OF CONTRACT
AGAINST DEFENDANT BBSI
96.
Plaintiff hereby incorporates and realleges the allegations in the preceding paragraphs as
though fully alleged herein.
97.
Plaintiff and Defendant BBSI entered into a Service Agreement for Employer and Staffing
Services. Exhibit 1.
COMPLAINT Page 16
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98.
Under this Agreement, BBSI undertook the obligation to process requested payroll tax
credits on behalf of Plaintiff.
99.
Plaintiff did all, or substantially all, of what the agreements required it to do, including but
not limited to paying Defendant BBSI all administrative fees and providing notice to BBSI that it
qualified for the ERC under the partial suspension of operations test.
100.
Defendant BBSI materially breached the Agreement by:
a. Failing to collect any information regarding Plaintiff’s eligibility for the ERC;
b. Failing to request, collect, or submit the necessary Sonoma County Health Orders
and supporting documentation provided by Plaintiff at the time of the initial filing;
c. Failing to properly complete Schedule R and Form 941 in a manner that accurately
reflected Plaintiff’s eligibility;
d. Misrepresenting Plaintiff’s qualification criteria to the IRS despite Plaintiff’s
specific qualification under the Partial Suspension test; and
e. Failing to correct Plaintiff’s ERC claim upon being notified by the IRS that the
claim was being audited.
101.
As a direct and proximate result of BBSI’s breaches, the IRS denied Plaintiff’s ERC claim
in the amount of:
a. Quarter 2 of 2020: $267,776
b. Quarter 3 of 2020: $30,273
c. Quarter 4 of 2020: $21,508
d. Quarter 1 of 2021: $367,469
e. Quarter 2 of 2021: $388,326
f. $1,075, 352 Total. Exhibit 7.
COMPLAINT Page 17
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 18 of 211
102.
But for BBSI’s failure to accurately file the ERC claim under the correct Partial Suspension
criteria, Plaintiff would have received the full credit amount.
103.
By reason of Defendant BBSI’s breaches of the Agreements, Plaintiff was damaged in an
amount not less than $1,075,352.00, plus interest, costs, and reasonable attorney fees as provided
for in the Agreements.
SECOND CAUSE OF ACTION
BREACH OF FIDUCIARY DUTY
AGAINST DEFENDANT BBSI
104.
Plaintiff hereby incorporates and realleges the allegations in the preceding paragraphs as
though fully alleged herein.
105.
Defendant BBSI is a Professional Employer Organization (“PEO”).
106.
Defendant BBSI served as the PEO and administrative employer for Plaintiff.
107.
BBSI placed itself in a position of trust and confidence by accepting and agreeing to
perform the subject tax reporting and other services on Plaintiff’s behalf under the PEO
Agreement. This included the obligation to seek and remit to Plaintiff the ERC. By accepting its
role as the payer/reporter before the IRS of Plaintiff’s employment tax obligations, BBSI was
aware that Plaintiff placed great trust and confidence in BBSI in connection with such matters.
108.
In connection with this position of trust and confidence, BBSI owed Plaintiff fiduciary
duties to act with the utmost good faith, to act in a manner consistent with Plaintiff’s best interests,
and to exercise due care.
COMPLAINT Page 18
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109.
BBSI breached its fiduciary duties by:
a. Failing to collect any information regarding Plaintiff’s eligibility for the ERC;
b. Failing to properly present Plaintiff’s ERC claim;
c. Filing under the Gross Receipts test for the purpose of making aggregate filing
easier;
d. Filing under the Gross Receipts test despite the fact that it knew, or should have
known, that test was inapplicable to Plaintiff;
e. Failing to request Plaintiff's partial suspension evidence until after the IRS audit
had commenced; and
f. Prioritizing its own administrative convenience over the Plaintiff’s right to a
$1,075,352.00 tax credit.
110.
By reason of Defendant BBSI’s breach of fiduciary duty, Plaintiff was damaged in an
amount not less than $1,075,352.00, plus interest and costs and Defendant BBSI’s failures were a
significant factor in causing that harm.
THIRD CAUSE OF ACTION
NEGLIGENCE
AGAINST DEFENDANT BBSI
111.
Plaintiff hereby incorporates and realleges the allegations in the preceding paragraphs as
though fully alleged herein.
112.
As a Professional Employer Organization (PEO) and administrative employer for Plaintiff,
BBSI owed Plaintiff a duty to exercise the level of care, skill, and diligence typically exercised
by reasonably prudent PEO professionals in similar circumstances.
COMPLAINT Page 19
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113.
BBSI failed to meet that standard of care by:
a. Failing to conduct a reasonable inquiry into Plaintiff’s eligibility before filing tax
documents;
b. Failing to properly complete Schedule R and Form 941 in a manner that accurately
reflected Plaintiff’s eligibility;
c. Negligently preparing and filing Form 941 with incorrect data that did not reflect
the reality of the Sonoma County shutdown orders;
d. Failing to maintain and provide the IRS with the supporting documentation Plaintiff
had already attempted to provide; and
e. Failing to correct Plaintiff’s ERC claim upon being notified by the IRS that the
claim was being audited.
114.
BBSI’s negligence was the sole and substantial factor in the IRS's denial of Plaintiff’s ERC
claim. But for BBSI’s negligence, Plaintiff’s claim would have been granted under the partial
suspension test. Plaintiff has been damaged in an amount no less than $1,075,352.00, plus interest
and costs.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays as follows:
1. On all causes of action, for actual and compensatory damages of no less than
$1,075,352, which shall be proven at time of trial;
2. Pre-judgment and post-judgment interest;
3. For reasonable attorney fees and costs as provided under the agreements and under law,
according to proof at time of trial; and
4. For any further relief, the Court deems just and proper.
COMPLAINT Page 20
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 21 of 211
DEMAND FOR JURY TRIAL
Plaintiff requests a jury trial on all issues entitled to jury trial as raised in the Complaint.
DATED: October 8, 2026
LARKINS VACURA KAYSER LLP
s/ John C. Rake
John C. Rake, OSB #105808
jrake@lvklaw.com
MURRAY LAW FIRM
Stephen B. Murray, Jr.(pro hac vice
forthcoming)
smurrayjr@murray-lawfirm.com
Arthur M. Murray(pro hac vice forthcoming)
amurray@murray-lawfirm.com
Ruston Pritchard (pro hac vice forthcoming)
rpritchard@murray-lawfirm.com
WEAVER CURRIE, PC
Jack Weaver (pro hac vice forthcoming)
jack@weavercurrie.com
COMPLAINT Page 21
0
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(
AGREEMENT FOR EMPLOYER AND STAFFING SERVICES
PARTIES: BARRETT BUSINESS SERVICES, INC., ("Barrett")
a Maryland Corporation,
1190 Airport Road, Suite 120
Napa CA 94558
Johnson Pools rnc. ("Client")
dba Johnson Pool & Spa
9650 Old Redwood Hwy
Windsor CA 95472
IT IS HEREBY AGREED:
1. RELATIONSHIP OF BARRETT AND CLIENT.
Barrett hereby agrees to employ those persons whose job classifications are set
forth on Fee Schedule "1," and those persons identified on Schedule "13," Part A
("Employees") and who are designated by Client and Barrett as being subject to the terms
-
of this ,t.greement for Employer and Staffing Services ("Agreement").
2. BARRETT'S RESPONSIBILITIES AND DUTIES.
Barrett shall have the right to hire, discipline, and terminate Employees and Barrett
shall be in compliance with rules and regulations governing the reporting and payment of
federal and state payroll taxes on wages paid under this Agreement. Subject to the terms,
conditions, and exceptions, as hereinafter set forth in this Agreement, Barrett shall be in
compliance with the following laws and regulations in connection with the Employees:
(i) federal income tax withholding provisions of the Internal Revenue Code (IRC); (ii) state
and/or local income tax withholding provisions, if applicable; (iii) Federal Insurance
Contributions Act (FICA); (iv) Federal Unemployment Tax Act (FUTA); (v) applicable state
and federal unemployment provisions; (vi) Consolidated Omnibus Budget Reconciliation
Act (COBRA), as it relates to group health plans sponsored solely by Barrett; (vii)
Consumer Credit Protection Act, Title 111, and all antigarnishment discrimination laws; (viii)
Barrett's health insurance coverage sponsored solely by Barrett, IRC • 125 cafeteria plan
and IRC 1 401 (k) retirement plan; and (ix) state workers' compensation laws, including pro
viding workers' compensation insurance or self-insurance, completing and filing all required
reports, administering and payment of workers' claims. Barrett hereby agrees to indemnify
and hold Client harmless from state workers' compensation premium costs and state
workers' compensation claims for Employees, for the workers' compensation coverage
provided by Barrett, as required by this Section 2. Federal workers' compensation laws,
including, without limitation, the Longshore and Harbor Workers' Compensation Act and the
Page 1--AGREEMENT FOR EMPLOYER AND STAFFING SERVICES
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Jones Act compliance shall be the responsibility of Client, unless set forth in a separate
written agreement.
Barrett shall be responsible for the administration of payroll matters with respect to
the Employees, the timely payment of wages, and the withholding and timely payment of all
applicable federal, state, and local taxes required as a result of Barrett's payment of
Employee wages.
3. CLIENT'S RESPONSIBILITIES AND DUTIES.
Client shall be the employer of the Employees for all purposes other than those
specified in Section 2 above, including, but without limiting the generality of the foregoing,
compliance with the following: (i) the Occupational Health and Safety Act (OSHA); (ii) Fair
Labor Standards Act; (iii) federal and state wage and hour laws; (iv) state workers' compen
sation law as an employer; (v) the Worker Adjustment and Retraining Notification Act
(WARN Act); (vi) the Employee Retirement Income Security Act of 1974 (ERISA), and
compliance with all IRC Sections with respect to any employee benefit plan or plans
sponsored by Client; (vii) COBRA as it relates to group health plans that are sponsored or
co-sponsored by Client; (viii) the National Labor Relations Act and labor agreements; (ix)
the Migrant and Seasonal Agricultural Worker Protection Act; (x) Immigration Reform and
Control Act (IRCA); (xi) Title VII of the 1964 Civil Rights Act, the Age Discrimination in
Employment Act and all other antidiscrimination and fair employment laws; (xii) the
Americans With Disabilities Act (ADA); (xiii) the Family and Medical Leave Act of 1993, as
amended (FMLA); (xiv) all job site posting and notification requirements for all of the
foregoing; (xv) government contracting, or any other aspect of employment relationship
which is regulated (for qualification purposes only); and (xvi) any other tax, fee, assessment
or charge of any nature, including occupation, business, use, sales, retailer's, value added
or excise tax, duty, custom, inspection, or testing fee, imposed now or in the future by any
government authority on or measured by (1) any transaction between Barrett and Client,
(2) any services provided by Barrett to Client, (3) the conduct of Client's business, or (4)
the occupancy, domicile or location of Client, notwithstanding the basis of calculation of
such charge or how collected, shall be paid by Client in addition to other amounts due
under this Agreement. If Barrett is required to pay any such tax or fee, Client will reimburse
Barrett.
Client acknowledges and understands that Barrett relies on Client to provide
accurate, timely, and verifiable hours worked and other such information for the purposes
of calculating accurate payroll and benefits. It is Client's responsibility to inform Barrett of
any individual's job status as "exempt" or "nonexempt" under federal or state wage and
hour laws and to be in compliance with all federal and state wage and hour laws.
For purposes of this Agreement, Client shall be the employer of Employees for all
purposes, except as specifically set forth in Section 2 and shall bear all responsibility
relating thereto. In addition to the foregoingt Client shall be the employer of the Employees
for any law, rule, regulation, or order that may come into existence during the term of this
Agreement that may impose duties, obligations, or restrictions on employers.
Page 2-AGREEMENT FOR EMPLOYER AND STAFFING SERVICES
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4. CLIENT SUPERVISION; PLACEMENT.
Client will be responsible for that portion of the day-to-day supervision and control of
Employees to conduct Client's business, without which control Client would be unable to
conduct its business and shall determine the general procedures to be followed by the
Employees regarding the performance of their duties. Client shall also be responsible for
the verification of employment eligibility of the Employees, subject to Barrett's right to
confirm or reject the same. Specifically, Client is required to make every reasonable effort
to ensure that Employees subject to this Agreement are (i} a citizen or national of the
United States; (ii) a lawful permanent resident of the United States; or (iii) an alien
authorized to work in the United States. Furthermore, Client shall fully comply with all state
and federal laws related to the hiring and retention of Employees. Client has the right to
request the removal of Employees upon reasonable notice.
Client will advise the Employees that the only vehicles authorized for use by
Employees in connection with services performed for or on behalf of the Client under the
terms of this Agreement are: automobiles, trucks, vans, and other authorized four wheel
motor vehicles and that the use by Employees of motorcycles, scooters, mopeds, and other
motor driven cycles are strictly prohibited. Client acknowledges and agrees that Barrett
shall have no liability or obligation to Client, Employee, or any person for any injury or
damage to an Employee or by an Employee or to others that may have occurred while an
Employee used or was riding (driver or passenger) a motorcycle, scooter, moped, or other
motor driven cycle in connection with services performed for or on behalf of the Client.
Client shall defend, indemnify, and hold Barrett harmless from any damage, loss, or claim
resulting from or arising out of an Employee's use (driver or passenger) of a motorcycle,
scooter, moped, or other motor driven cycle in violation of this Section 4.
Except as allowed by compliance with Section 6 regarding insurance coverage, no
Employees shall be permitted in or on the private aircraft of the Client in any capacity as an
Employee, including as a pilot, passenger, or any other capacity or designation as an
employee.
5. WORKERS' COMPENSATION INSURANCE; WORKPLACE HEALTH AND
SAFETY.
Client agrees that, as defined under applicable state workers' compensation law, it
shall do all acts necessary to permit Barrett to comply with all workers' compensation laws
and related laws and to provide workers' compensation insurance benefits for the
Employees through a qualified insurance writer or writers, or through self-insurance. Client
shall (i) establish workers' compensation reporting procedures satisfactory to Barrett, which
shall require Client to forward notice of injuries or claims for such injuries immediately to
Barrett and the insurance carrier; (ii} cooperate in the workers' compensation insurance
application process by providing to Barrett or to the selected insurance company all forms
and applications, properly completed and executed and any and all other information
required or requested by such insurance company during the application process and
thereafter; (iii) cooperate in the administration and processing of workers' compensation
Page 3--AGREEMENT FOR EMPLOYER AND STAFFING SERVICES
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claims, and (iv) complete and file all required reports with regard to all Employees covered
under this Agreement. Client shall comply with all health and safety laws, regulations,
ordinances, directives, and rules imposed by Barrett, controlling federal, state and local
governments, and will immediately report all Employee accidents and injuries to Barrett that
result in a job or duty modification or absence by any Employee. Client shall provide the
Employees with adequate training, supervision, and instruction to meet the requirements of
federal, state, and local laws. Client agrees to comply at its expense with any specific
directives from Barrett or any government agency having jurisdiction over the workplace,
health, and safety. Client shall provide a safe workplace for the Employees and Client shall
provide and ensure use of all required personal protective equipment. Barrett and Barrett's
insurance carriers shall have the right to inspect Client's premises to review Client's safety
practices at the workplace. In no event shall the right to inspect the workplace or the
exercise or nonexercise thereof diminish or affect the Client's obligations, including any of
Client's indemnifications of Barrett contained herein, to provide a safe workplace for the
Employees and its obligations to Barrett.
6. LIABILITY INSURANCE.
Client shall furnish and keep in full force and effect at all times during the term of this
Agreement a comprehensive general liability insurance in a responsible company with
coverage for bodily injury, personal injury, property damage liability, and medical payment
with a per occurrence and general aggregate limit of not less than $1,000,000, which
insurance coverage shall be on a primary and noncontributory basis. In the event an
Employee is assigned to fill a job function requiring said Employee to operate a vehicle for
Client, whether the vehicle is owned by the Client or the Employee, Client shall furnish, for
vehicles owned or controlled by Client, and the Client shall cause the Employee to furnish,
for vehicles owned or controlled by Employee, vehicle liability insurance insuring against
public liability for bodily injury and property damage with a minimum combined single limit
of $1,000,000, which insurance coverage shall be on a primary and noncontributory basis.
The vehicle liability insurance shall include uninsured motorist coverage and in states
where "no-fault" laws apply, Personal Injury Protection (PIP) or equivalent coverage shall
be required. Client and/or Employee, as the case may be, shall provide Barrett with proof
of insurance in advance of an Employee•s use of a vehicle pursuant to this Agreement.
Barrett shall be named as an additional insured on all of the above policies and the
insurance carrier shall issue a Certificate of Insurance providing for not less than 30 days'
advance notice of cancellation or material changes.
If the Client or an affiliate of Client uses or operates a private aircraft in connection
with the business activities or operations of the Client, no Employee shall be permitted to
be a pilot, passenger, or be engaged in any capacity as an employee in or on such private
aircraft, unless and until Client has provided to Barrett proof of appropriate and adequate
liability insurance coverage that insures any such Employee for bodily injury, plus property
damage and names Barrett as an additional insured. The insurance carrier shall issue a
certificate of insurance providing for not less than 30 days' advance notice of cancellation
or material changes.
Page 4--AGREEMENT FOR EMPLOYER AND STAFFING SERVICES
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7. ADVANCEMENT OR REIMBURSEMENT OF EMPLOYEE EXPENSES.
At the express written request of Client, Barrett, on behalf of Client, will make
allowances, advance funds, or reimburse Employees for expenditures made by Employees
in connection with services performed for or on behalf of the Client.
Barrett and Client agree that Client shall maintain and administer an accountable
plan for all advances, allowances, or reimbursements made to Employees. The Client's
accountable plan shall be in compliance with all applicable laws, including, but not limited
to, !RC Sections 62 and 274, as amended, and the Regulations thereunder. The
accountable plan shall require that the advances, allowances, or reimbursements (i) have
the necessary business connection; (ii) be substantiated by adequate records of sufficient
evidence, and (iii) paid under the arrangement in excess of the expenses substantiated be
returned by the Employee to the Client within a reasonable time. Any advances,
allowances, or reimbursed expenses paid to the Employees are considered as made by
Client and pursuant to Client's accountable plan. Barrett is Client's paying agent in
connection with Client's accountable plan.
Barrett does not and shall not maintain an accountable plan for the Employees that
are the subject of this Agreement.
If it is determined that all or a portion of an advance, allowance, or reimbursement
does not satisfy the required standards of the Client's accountable plan, then the applicable
portion not meeting such standards will be treated as a payment by the Client pursuant to a
nonaccountable plan. Amounts treated as paid under a nonaccountable plan are included
in the Employee's income and must be reported as wages or other compensation on the
Employee's W-2 and are subject to withholding and payment of employment taxes. It shall
be the responsibility, obligation, and liability of Client to properly report, withhold, and pay
all amounts that are treated as payments under a nonaccountable plan. Barrett shall not
have any responsibility, obligation, or liability in connection with reporting or withholding any
amounts that are determined to be made pursuant to a nonaccountable plan.
The allocation of responsibility set forth in this Section 7 represents a variance from
the compliance, withholding, reporting, and payment responsibilities as outlined in
Section 2 above. Client acknowledges the assumption of such responsibilities and
liabilities and agrees to take all action necessary to satisfy such responsibilities and
liabilities.
In the event there should be any claim, demand, audit, deficiency, notice of
proposed adjustment, levy, allegation, suit, including claims for taxes, interest, and
penalties, or any action whatsoever relating to advances, allowances, or reimbursements
paid to Employees ("Tax Claims") against Barrett or Client by the Internal Revenue Service
("IRS"), any state or local government, or any other party, it shall be the sole and exclusive
responsibility and liability of Client to satisfy, comply, and pay an amounts due as asserted
in such Tax Claim. Client agrees to defend and indemnify Barrett and hold Barrett
Page 5--AGREEMENT FOR EMPLOYER AND STAFFING SERVICES
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harmless from any and all Tax Claims relating to advances, allowances, and
reimbursements paid to Employees.
8. CLIENT DISCLOSURES.
Client has made complete disclosure and will continue to disclose to Barrett
throughout the term of this Agreement all facets of (i) any sort of government investigation,
inquiry, lawsuit, or other adversary proceeding and the current status thereof; (ii) its
previous and current employment relationships with the Employees, including, specifically,
all benefits provided Employees, all employment agreements, all restrictive agreements, all
noncompetition agreements, a complete and current description of all qualified and
nonqualified employee benefit plans or agreements, a complete and accurate description of
any collective bargaining agreements, labor contracts, negotiations with unions, any
relationship defined under IRC 1 414(n), job positions, Employee classifications,
employment, and personnel information, and (iii) the place of work, including plant name,
address and all states to which each Employee travels or is assigned, prior to such travel or
assignment. Barrett, in its sole discretion, and in writing, may accept the employment of a
person as an Employee and the state to which such Employee is to be assigned prior to
such travel or assignment being covered by this Agreement. Barrett shall deliver a
separate Schedule "31" for each state covered by this Agreement. In the event Client fails
to timely notify Barrett of the Client's employment and assignment of any person to a place
or state, Barrett may, in its sole discretion, in writing, and without limiting its ability to seek
any other remedy, elect to retroactively process payroll and perform any other necessary
administrative functions normally provided for employees of Client pursuant to this
Agreement and may retroactively charge Client for all appropriate charges (including
governmental penalties) as if previously agreed to by Barrett. Such election by Barrett shall
not retroactively create an employment relationship with Barrett, but Barrett may elect to
hire such a person on the date of notification of employment and assignment by Client.
Client warrants that all statements and disclosures made in connection with this Agreement
are complete and without exception and includes the period covering the last six (6) years.
There is no fact peculiar to the Client which the Client has not disclosed to Barrett in writing
which adversely affects nor will adversely affect the Client's business, assets, profits, or the
Employees covered by this Agreement. Client warrants that it has made such complete
disclosure, and shall indemnify, defend, and hold Barrett harmless from any and all
damage, costs, claims, expenses, or legal consequences arising from or caused by any
inaccurate, incomplete, or incorrect disclosures.
9. PAYMENT OF BARRETT FEES.
Client hereby agrees to pay Barrett a fee as determined by Barrett for services per
formed by Barrett and for all legally required employee costs attributable to an Employee,
wages, payroll taxes, insurance and self-insurance costs, external and internal charges and
assessments, and benefit costs incurred for or payable to all Employees. Said fee and the
payment terms thereof are specified in the Fee Schedule "1" attached hereto, which is
hereby made a part of this Agreement. Client's fee obligation to Barrett shall continue
during normal periods of Employee absence for vacation, sick leave, legal holidays, and
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C
emergency situations. The fee shall be payable during the entire term of this Agreement,
and any unpaid fees shall be immediately due upon termination of this Agreement. Barrett
shall be entitled to any savings it is able to create or which may occur during the term of
this Agreement without adjustment to Barrett's fees as provided for in Fee Schedule "1."
Client recognizes that the failure to make payments when due will result in additional
expense to Barrett. Client therefore agrees to pay a late charge in the amount of five
percent (5%) of any delinquent payment to compensate Barrett for such additional
expenses. In the event that any payment made by Client in the form of a check, draft, or
order for the payment of money has been dishonored for lack of funds or credit to pay the
same or because payment has been stopped, Client shall pay to Barrett, in addition to the
amount of the dishonored payment and the aforementioned late charges, if applicable, a
charge equal to the greater of (i) five percent (5%) of the amount of said dishonored
payment, or (ii) $500. The charges shall be assessed for each such default, shall be due
and payable with such payment without notice or demand being required therefore. The
imposition or collection of said charges from time to time shall not be in lieu of any other
remedy of Barrett, and the failure to collect the same shall not constitute a waiver of
Barrett's right to require such payment for past or future defaults nor Barrett's rights to
declare a default of the entire Agreement. An unpaid balance will also be subject to a
periodic charge of the lesser of one and one-half percent (1 1/2%) per calendar month or
the maximum amount permissible by law, until paid. Time is of the essence of this
Agreement. Barrett reserves the right to suspend or terminate all of its obligations and
services due to Client under this Agreement until full payment has been made of any
amount past due.
10. CLIENT DEPOSIT.
When required by Barrett and simultaneously with the execution of this Agreement,
Client has deposited with and hereby grants to Barrett a security interest in the deposit
described in Fee Schedule "1" for the performance by Client of all of the obligations and
conditions required to be performed by Client under this Agreement. The deposit may be
commingled with other funds of Barrett and shall bear no interest. In the event that Client
does not make a payment which is due in accordance with the terms of this Agreement,
Barrett shall have the option, without prejudice to any other remedy which Barrett may have
by law or under this Agreement, to draw upon the deposit or so much thereof, as may be
necessary to pay Barrett the sum then due from Client to Barrett. Within 24 hours from the
time that Barrett draws against the deposit, Client shall restore the deposit to the original
amount. In the event that the deposit is not restored to the original amount within said 24-
hour period, Barrett may consider the failure to restore said deposit as a breach of this
Agreement. In the event any bankruptcy, insolvency, reorganization, or other creditor
debtor proceeding shall be instituted by or against Client, its successors or assigns, the
aforesaid deposit shall be first applied to the payment of any obligations or accounts due to
Barrett from Client for the time prior to the institution of such proceedings. The deposit
shall next be applied to those Client obligations owing to Barrett for obligations subsequent
to the institution of such proceedings and the balance of the deposit may be applied to
Barrett's direct cost and actual damages and reasonable attorneys fees arising from the
said bankruptcy, or other creditor-debtor proceeding. In the event that Client shall fully and
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0
faithfully comply with all of the covenants and agreements contained in this Agreement and
pay all of the obligations as they fall due and all other sums payable by Client to Barrett, the
deposit shall be returned to Client within 60 days from the date of termination of this
Agreement.
11. INDEMNIFICATION.
Client agrees to appear, defend, and indemnify Barrett and hold Barrett harmless
from any claims of whatever kind or nature made by Employees, third parties, or anyone
whomsoever resulting from any act, failure to act, conduct, or default of Employees or
Client, including, specifically and without limiting the generality of the foregoing, any and all
claims, wages, benefits, penalties, attorneys fees, or other charges or expenses that may
result or arise from a Client default of any duties, obligations, or responsibilities of Client
under this Agreement or any breach of any representation or warranty by Client. Client
agrees that if any claims are made against Barrett by a person or such person's
beneficiaries or anyone otherwise alleging to be entitled to recover damages or benefits
from injuries, diseases, symptom complexes, or similar conditions arising out of and in the
course of employment: (i) for any Employee who initiates a claim pursuant to workers'
compensation laws or any other basis that was denied or was not a claim covered by
workers' compensation insurance or workers' compensation self-insurance; (ii) for any
employee of Client who was not an Employee at the time of the injury, or (iii) for an injury to
an Employee while Client is in default of this Agreement, that Client will indemnify, defend,
and hold Barrett harmless from such claim or claims. For the limited purpose of the
indemnity and duty to defend Barrett contained in the foregoing sentence, Client expressly
waives the exclusive remedy provision of the applicable state workers' compensation law,
and any other provision of law restricting, limiting, or prohibiting indemnity or contribution.
The Client's duty to defend includes the duty to pay reasonable attorney's fees incurred by
Barrett in defending such claims, and the Client's duty to indemnify includes the duty to pay
any award imposed by an administrative agency or judgment or settlement reached in any
dispute or court action. Client shall defend, indemnify, and save Barrett harmless of all
liability, loss, damage, claims, or other responsibility incurred by Barrett resulting from
Client's failure to provide or maintain the insurance required by this Agreement. Client
acknowledges that its business operations and activities, the legitimate performance of
which and for which it has engaged the services of Employees, could expose third persons,
who are not parties to this Agreement, to potential risk, which risk might entail liability to
either Client or Barrett. Client specifically, without reservation, and without limitation on any
previous or subsequent provision of this Agreement, agrees to indemnify, hold harmless,
and defend Barrett for any such liability to third parties. Each party agrees to notify
immediately the other of the assertion or possible assertion of any and all such claims as
described above, and to cooperate with each other in the investigation and defense of said
claims. With specific regard to this Section, time is of the essence. The obligations of this
Section shall survive termination of this Agreement.
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12. TERM OF AGREEMENT.
The term of the Agreement shall be for one (1) year and shall automatically renew
for additional one (1) year periods. The Fee Schedule may be adjusted during the term of
the Agreement, subject to either party's right to terminate on 30 days notice if a party does
not agree to the adjusted Fee Schedule. Either party may terminate this Agreement at any
time and for any reason upon 30 days' written notice.
This Agreement shall terminate effective immediately upon any default of Client,
regardless of when notice is given. However, if Client is in default due to failure to timely
pay fees, at Barrett's election, the termination date shall be retroactive to the date for which
services were last fully paid. As of the appropriate termination date, Barrett will be relieved
of all employment related, tax withholding, tax reporting, tax depositing, and any other
Barrett obligations under this Agreement with respect to the Employees. If a default is
cured and Barrett elects to reaffirm the Agreement, Client shall pay a reinstatement fee of
five percent (5%) of the most recent gross billing under this Agreement.
13. DEFAULT.
Default by Client is defined as: (i) failure of Client to pay the fees required by this
Agreement, when due; (ii) Client's failure to comply within 30 days with any directive of
Barrett, when such directive is issued or made necessary by (1) a federal, state, or local
government body, department, or agency, (2) an insurance carrier providing coverage to
Barrett and/or its employees, and/or (3) specific circumstances which currently or
potentially affect Barrett, Client, or the Employees; (iii) direct payment of taxable wages by
Client to the Employees for services contemplated by this Agreement, except for those
persons that are not subject to the terms and conditions of this Agreement as described at
Schedule "13," provided that such persons are not listed as an Employee on Schedule "13,"
Part A, and those persons who provide independent contractor services to Client;
(iv) commission or omission of any act that usurps any right or obligation of Barrett as an
employer of the Employees covered by this Agreement; (v) violation by Client of any
provision of this Agreement; (vi) any representation, warranty, or covenant made by the
Client herein is determined to be inaccurate or untrue; (vii) if petition in Bankruptcy is filed
by or against Client, or if Client shall have made an assignment for the benefit of creditors,
shall have been voluntarily or involuntarily adjudicated bankrupt by any court of competent
jurisdiction, or if a petition is filed for reorganization of Client, if a receiver shall have been
appointed for all or a substantial part of Client's business, or if Client shall have permitted or
suffered any attachment, levy, or execution to be made or levied against all or a substantial
part of the property of Client, or if Client is dissolved, or in the event that Barrett shall deem
itself insecure, or upon the nonpayment of taxes on property, or premiums on any
insurance required hereunder, or upon any other default of warranty, or information of the
Client pertaining to this Agreement is misleading; (viii) Client's decision to go out of
business; (ix) Client's decision or actual action in ordering a "plant closing" or a "mass
layoff' at any "facility" (with 50 or more full-time employees) at which Employees covered
under this Agreement are working, as these terms are defined in the WARN Act (Client
hereby undertakes to inform Barrett immediately of any such action or decision constituting
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a "mass layoff' or "plant closure," whether or not yet implemented. Client hereby agrees to
indemnify, defend and hold Barrett harmless from any and all liability for violation of the
WARN Act. It is understood that Client shall be solely and exclusively responsible for all
steps necessary to avoid or minimize, or to satisfy, liability under the WARN Act); (x)
Client's decision to close a facility at which any Employees covered by this Agreement are
engaged in work, whether or not such closing constitutes a violation of the WARN Act; or
(xi) Client's decision to lay off more than 25 percent of the work force at any facility at
which Employees covered by this Agreement are engaged, unless Client has notified
Barrett at least one (1) payroll period in advance of such decision.
Default by Barrett is defined as: (i) failure of Barrett to make payroll and appropriate
withholdings in connection with the Employees; (ii) failure of Barrett to maintain workers'
compensation insurance or workers' compensation self-insurance for the Employee; or (iii)
Barrett's failure to cure any breach or obligation required of this Agreement within 30 days
of written notice from Client.
14. COBRA.
If Client does not sponsor a group health plan, Barrett will make COBRA continuing
coverage available to eligible Employees and qualified beneficiaries as part of its
sponsored group health plan(s) subject to COBRA or state continuing coverage obligations
as required by such state statutes and regulations. In the event there is a qualifying event
under ERISA 1 603 and IRC • 4980B or state continuing coverage statutes, Client shall be
responsible for notifying Barrett as provided in ERISA • 606(a)(2) and IRC 1 4980B(f)(6)(B)
or state continuing coverage statutes, and Barrett shall be responsible for providing any
qualified beneficiary with notice of their COBRA continuing coverage rights as required by
ERISA 1 606(a)(4) and !RC , 4980B(f)(6)(D) or state continuing coverage statutes.
Notwithstanding the foregoing, even if Barrett is administering the group health plan,
or assisting with administration, for group health plans subject to COBRA that are
sponsored by Client where Barrett is not a co-sponsor for such group health plan subject to
COBRA or state continuing coverage statutes, Client shall be solely and exclusively
responsible and liable in connection with all notice requirements, providing COBRA
continuing coverage, and all administration compliance and liability associated with such
group health plan subject to COBRA or state continuing coverage statutes. Client shall
also be solely responsible for providing such COBRA continuing coverage for Employees or
qualified beneficiaries so as to avoid the excise tax under IRC § 49808. [The definition of
employee shall be determined without regard to the service requirement in IRC § 414(n) (2)
and (4)]. If Client does not provide COBRA continuing coverage so as to avoid the excise
tax under IRC § 4980B or any other claims, Client shall be liable for such tax and such
other claims, in full.
In addition, Client agrees that upon termination or expiration of this Agreement,
Client will immediately replace all group benefit plans offered by Barrett. Should Client at
any time obtain any form of group employee benefit coverage from an insurance carrier,
another employee leasing company/professional employer or otherwise, which will provide
Page 10--AGREEMENT FOR EMPLOYER AND STAFFING SERVICES
BBSI PEO Agreement Generic 08/01/2008 PDF
Exhibit 1
Page 10 of 21
0 0
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 32 of 211
group health or life insurance coverage to any of the Employees, Client will assume full
responsibility for the continuation of coverage under COBRA for the current COBRA
participants in addition to any Employees who may elect COBRA coverage under Barrett's
plans during the term of this Agreement, for the remainder of their COBRA eligibility period.
Nothing in this provision shall be construed or interpreted as precluding or limiting Barrett's
right to pursue damages in a court of law or equity, which arose as a result of Client's
failure to obtain and provide insurance as set forth herein.
Client agrees to indemnify and hold Barrett harmless from any liability, expense, or
tax which may result from Client's failure to notify Barrett of a qualifying event or failure to
provide notice of COBRA continuing coverage or to provide the COBRA continuing
coverage as provided in this Section 14.
15. EMPLOYEE INFORMATION.
Barrett and Client agree that they have a joint and mutual interest in the integrity of
the personnel and other employment information generated by or pursuant to this
Agreement for the Employees. Client agrees to undertake at its own expense all
reasonable data integrity, verification, maintenance, and preservation procedures
requested or directed by Barrett. At all times, Client and Barrett shall own jointly, indivisibly,
and nonseverally said information regarding the Employees.
16. CHANGE OF LAW.
Notwithstanding any other provision in this Agreement to the contrary, in the event
there should be a change in any law, rule, regulation, ordinance, or tax that increases the
financial obligations or potential financial obligations of Barrett in carrying out the provisions
of this Agreement, then Barrett shall be permitted to amend this Agreement to provide for a
pass through of the cost of such financial obligation to Client. Barrett shall provide written
notice of the amendment and unless Client shall object thereto, in writing, within 30 days of
said notice, the amendment shall become part of this Agreement. If Client objects, Barrett
or Client may terminate this Agreement, effective on the 30th day after notice of the
amendment.
17. CLIENT RETIREMENT BENEFIT PLANS.
If necessary, Client shall modify, amend, terminate, or freeze its retirement benefit
plan in order to be compliance with the IRC and any applicable federal, state, and local
regulations thereunder. Client shall bear its own expenses attendant to the compliance,
administration, modification, amendment, termination, or freezing of its retirement benefit
plan. Client shall defend, indemnify, and hold harmless Barrett and its officers, directors,
and employees from and against any and all claims, suits, actions, damages, liabilities,
fines, taxes, penalties, losses, or interest, including reasonable legal fees, that may arise or
result from Client's failure to comply with Section 17 of this Agreement.
Page 11--AGREEMENT FOR EMPLOYER AND STAFFING SERVICES
8851 PEO Agreement Generic 08/01/2008 PDF
Exhibit 1
Page 11 of 21
0 C
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 33 of 211
Upon completion of the execution of this Agreement between Client and Barrett,
Client may apply to adopt into the Barrett sponsored multiple employer 401 (k) plan. Client
should seek advice from independent legal counsel prior to the adoption of the Barrett
sponsored multiple employer 401 (k) plan, with respect to any effects of such adoption.
If Client adopts the Barrett plan, Client acknowledges that it has reviewed the
adoption agreement and plan for the Barrett plan and agrees to comply with all of the
obligations and responsibilities set forth in the terms of said adoption agreement and
plan.
If Client chooses to retain its retirement benefit plan, Client shall be solely and
exclusively responsible and liable in connection with all requirements, compliance with
all laws, including, but not limited to, ERISA, and all administration compliance and
liability associated with such retirement plan even if Barrett is administering the
retirement plan, or assisting with administration, or providing employer match
contributions information. Client shall defend, indemnify, and hold harmless Barrett and
its officers, directors, and employees from and against any and all claims, suits, actions,
damages, liabilities, fines, taxes, penalties, losses, or interest, including reasonable
legal fees, that may arise or result from Client's failure to comply with this provision of
Section 17 of this Agreement.
18. CLIENT COLLECTIVE BARGAINING AGREEMENTS.
Pursuant to this Agreement, Client has made a complete disclosure of all of its
collective bargaining agreements, labor contracts, and negotiations with unions and their
bargaining agents. Client warrants to Barrett and agrees to indemnify and hold Barrett
harmless for any liability Barrett may incur due to Client's collective bargaining agreement
with the union, if any. Specifically, however, Client and Barrett agree that both intend to
avoid the incursion of any withdrawal liability for Barrett, as that term is defined under the
M ultiemployer Pension Plan Act. Accordingly, Client agrees to indemnify, defend, and hold
Barrett harmless from any such potential liability, as well as any other liability which might
arise purely because of Barrett's role as an employer of the Employees covered by a
collective bargaining agreement.
19. WAIVER OF CONDITIONS.
Any of the conditions set forth in this Agreement may be waived, in whole or in part,
by the party whom the condition benefits, at such party's sole option. Any such waiver shall
be in writing, and no such waiver or failure to insist on strict compliance with any covenant,
condition, or agreement herein shall operate as a waiver of, or estoppel with respect to any
subsequent or other failure.
Page 12--AGREEMENT FOR EMPLOYER AND STAFFING SERVICES
BBSI PEO Agreement Generic 08/01/2008 PDF
Exhibit 1
Page 12 of 21
0 G
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 34 of 211
20. NOTICE.
Any notice, request, instruction, or other document or instrument required or
permitted by this Agreement shall be in writing and shall be given to either Barrett or Client
and shall be deemed to have been given on the date when such notice, request,
instruction, or other document or instrument is personally delivered or 48 hours after
deposited in the United States Mail, registered or certified, postage prepaid and addressed
to the appropriate party at the address set forth on page 1 of this Agreement or to such
other address as may be given by notice as provided herein.
21. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of Barrett and Client
and their respective successors, heirs, devisees, transferees, and assigns.
22. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws of
the state in which Client and Barrett agree, prior to the time of commencement of work, that
each Employee is to be employed. Notwithstanding the foregoing, Barrett and Client agree
that the state or federal law of any interested (or otherwise constitutionally permissible)
jurisdiction shall apply to any questioned provision of this Agreement, if such law would give
effect to the provision.
23. CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES.
Client and Barrett hereby irrevocably submit to the exclusive jurisdiction of any state
or federal court sitting in Portland, Oregon, in any action or proceeding brought to enforce
or otherwise arising out of or relating to this Agreement and irrevocably waive to the fullesf
extent permitted by law any objection to which they may now have to the laying of venue in
any such action or proceeding in any such forum, and hereby further irrevocably waive any
claim that any such forum is an inconvenient forum. The parties agree that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in any other
jurisdiction by suit on the judgment or in any other manner provided by law.
24. ENTIRE AGREEMENT; AMENDMENT.
This Agreement and the collateral documents and instruments called for herein to
consummate this transaction, comprise the entire agreement of the parties and may not be
amended or modified, except by written agreement of the parties. No provision of the
aforementioned agreement may be waived, except in writing, and only in the specific
instance and for the specific purposes for which given.
Page 13--AGREEMENT FOR EMPLOYER AND STAFFING SERVICES
BBSI PEO Agreement Generic 08/01/2008 PDF
Exhibit 1
Page 13 of 21
0
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25. SCHEDULES AND EXHIBITS.
The schedules and exhibits attached hereto and referred to herein are part of this
Agreement for all purposes. The terms which are defined in this Agreement shall have the
same meaning when used in the schedules hereto.
26. REMEDIES AND DAMAGES.
If any party defaults in the performance of any term, covenant, condition, or
obligation under this Agreement, the nondefaulting party may pursue any and all remedies
available to such party. The rights and remedies provided herein are cumulative and not
exclusive of any right or remedy provided at law. Client expressly acknowledges that
Barrett shall not be liable for Client's loss of business goodwill, profits or other
consequential, special or incidental damages.
27. SEVERABILITY.
Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall as to such jurisdiction be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or affecting the validity
or enforcement of any such provision in any other jurisdiction. To the extent permitted by
applicable law, the parties waive any provision of law which renders any provision hereof
prohibited or unenforceable in any respect.
28. ATTORNEYS FEES.
In the event it is necessary for any party hereto to institute a proceeding in
connection with this Agreement or breach thereof, the prevailing party in such a proceeding
shall be entitled to reimbursement for its reasonable attorneys costs, expenses, attorneys
fees incurred, or any other money charges, including fees incurred on any appeal or review.
If the services of an attorney are required by any party to enforce a judgment rendered in
connection with this Agreement, the judgment creditor shall be entitled to reasonable
attorneys fees, costs and other expenses, and such fees, costs, and expenses shall be
recoverable as a separate item. This provision shall be severable from all other provisions
of this Agreement, shall survive any judgment, and shall not be deemed merged into the
judgment.
29. GENDER.
In construing this instrument and whenever the context hereof so requires, the
masculine gender includes the feminine and neuter and the singular includes the plural.
Page 14--AGREEMENT FOR EMPLOYER AND STAFFING SERVICES
BBSI PEO Agreement Generic 08/0112008 PDF
Exhibit 1
Page 14 of 21
0
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 36 of 211
30. SAFETY INCENTIVE PLAN.
The Safety Incentive Plan is marked as Schedule "30." Upon execution of this
Agreement, Barrett, by checking the appropriate box below, will indicate whether or not the
Safety Incentive Plan will be available to the Client. If the Safety Incentive Plan is available,
it shall be incorporated in and be made a part of this Agreement. If the Safety Incentive
Plan is not available, it shall not be part of this Agreement and have no force or effect.
Iii Safety Incentive Plan Available
D Safety Incentive Plan Not Available
- SCHEDULE31AMENDMEN
This Agreement shall be superseded and controlled by the terms of one or more
Schedule "31," including any terms of Schedule "31" that are inconsistent with this
Agreement. Schedule "31" sets forth terms specific to each state to which this Agreement
applies, and each Schedule "31," if more than one, shall apply to Employees employed in
the state set forth on the individual Schedule "31."
32. PERSONAL GUARANTEE.
The party identified as Guarantor on the signature page of this Agreement, knows
that Barrett would not perform employer and staffing services for Client unless Guarantor
guarantees Client's performance. Guarantor has requested Barrett to enter into the
Agreement with the Client. Guarantor has substantial interest in making sure that Barrett
serves said Client. Guarantor guarantees the full performance, including payment of all
sums due hereunder and the indemnities of this Agreement by the Client. This guarantee
is absolute and without any condition. This guarantee includes, but is not limited to,
performance of all obligations under this Agreement, and payment of all fees, attorneys
fees and other money charges.
33. HEADINGS.
The paragraph and subparagraph headings used in this Agreement are for
convenient reference only and are not intended to affect the meaning or construction of any
provision of this Agreement.
34. AUDIT.
Client specifically grants Barrett the right to audit and/or review any and all of its
records relating to the Employees and any other requirement of Client under this
Agreement. Reasonable access to these records will be granted during normal business
hours upon three (3) days' notice to Client by Barrett.
Page 15--AGREEMENT FOR EMPLOYER AND STAFFING SERVICES
BBSI PEO Agreement Generic 08/01/2008 PDF
Exhibit 1
Page 15 of 21
0
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 37 of 211
35. AUTHORIZATION.
Barrett and Client each represent and warrant to the other that this Agreement has
been duly authorized, executed, and delivered on behalf of each such party and constitutes
a valid and binding agreement of said parties.
36. BINDING EFFECT.
This Agreement shall not be binding until signed by Barrett's President or by
Barrett's President's duly authorized representative.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and yearbelow each of their signatures.
Barrett: Client:
Barrett Business Services, inc.
By_-=--.----------
s;gna1ur•
N Matthew
Name: --:--:--:-:-:--.,.,....---,:::--:----,----,-- ame:
Print Name ol Person Signing Agreement ..,Prt"""nt"""Na,.,.....me
- ,-rao----:
""Pe
ar n S.,.. ..,......,..___ ..,. --
IO nlno ArJtee me n t
Tille: ......,,.,..,.,.,,,.....,.,....___,,,,,.....,......,...___,...__
Pm! Tilhl al Pe1WCn 6jgfting Agreement
Title: P£gs /l)g·&.J::C
Print TIiie of Persor, Signing Agreamenl
Date: __,,,..,...,,,--....,..,---,---
Dale PeBon Signed Agreement
Date: Oc..T. 1£, 2()/2._
DIie Pel'IOII Signed /fl\lreemenl
Guarantor:
,. /t, 2..012,,,
01118 Gua1antc/il;Cnec1 Agn,emec,t
To e, Completed by BBSI Htadquarters;
Effective date of co-employment First contract period end dale
Page 16--AGREEMENT FOR EMPLOYER AND STAFFING SERVICES
BBSI PEO Agreement Generic D8/01/2008 PDF
Exhibit 1
Page 16 of 21
Case 3:26-cv-02208-AN
D Document 1 Filed 10/08/26
0
Page 38 of 211
35. AUTHORIZATION.
Barrett and Client each represent and warrant to the other that this Agreement has
been duly authorized, executed, and delivered on behalf of each such party and constitutes
a valid and binding agreement of said parties.
36. BINDING EFFECT.
This Agreement shall not be binding until signed by Barrett's President or by
Barrett's President's duly authorized representative.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and yearbelow each of their signatures.
Barrett: Client:
Johnson Pools Inc.
Barrett Business Services, Inc.
a--
Prim ason PB11e 1
By_.....,,.,......,
Signature
__________ By Signature
Tina Feeney
Name: -....,..,,..- - N ame: - - --------
..,,....,...,..,..,. -=-........-,-- ...,......- ..,,..,...,..,.,. ........ .......................
P11nt Name 01 Person Sigrir111 AI Print Name of Person Sigring Agreement
Tille: -..,,.,....-,--.,.----
---,...-..............
Title: -Cvo....;:;..___,,,_.......,..----
Print TIiie 01 Pel3on Signing Agreement Prtm TIiie ol Pel'IOn Sigring Agreement
Date: _____,,...._......,,.-.,...,....------ Date:
oa1e Person Signed Agreement oLL{ ?nl,?=n,
s
Guarantor:
Tina Feeney
Signature 01 Guarantor
{9./Ls;JJ ... a=menl
To Be Completed by BBSI Headquarters:
Etredlve date of co-employment First contrad period end date
Page 16--AGREEMENT FOR EMPLOYER AND STAFFING SERVICES
BBSI PED Agreement Generic 08/0112008 PDF
Exhibit 1
Page 17 of 21
0
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 39 of 211
0
FEE SCHEDULE "1"
PAYMENT RATES AND PAYMENT TERMS
Applicable Pay Types Fee
State Workers' Compensation Code (e.g. All, All except X or
specific pay types) (as a % of payroll)
.
CA 5027 - Masonry less than $24/hr ALL 29.10
CA 5028 - Masonry $24/hr or more ALL 22.91
CA 5183 - Plumbing less than $24/hr ALL 24.21
CA 5187 - Plumbing $24/hr or more ALL 20.60
CA 5190 - Electrical less than $28/hr ALL 26.08
CA 5348 - Tile, Stone, Mosaic, Terrazzo ALL 21.92
CA 6218 - Excavation NOC less than $24 ALL 27.93
CA 6220 - Excavation NOC $26/hr or more ALL 20.33
CA 8017 - Stores Retail NOC ALL 20.68
CA 9097 - Pool Cleaning/Servicing ALL 20.49
CA 1000 - OWners/Officers ALL 10.80 .
Payment Terms
Security deposit: $____n_/_a__
Barrett's fee schedule is conditioned upon the promise of Client to pay all invoices billed at the time which
the invoice is received. Unless otherwise approved by Barrett, payment is due via Electronic Funds
Transfer (EFT) prior to the distribution of payroll. Any form of payment that is returned for insufficient
funds will result in immediate cancellation of this Agreement.
FEE SCHEDULE "1"
Exhibit 1
Page 18 of 21
0 0
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 40 of 211
SCHEDULE "13"
Unless otherwise identified on this Schedule "13," Part A, all persons that can be excluded from being subject
to the terms and conditions of this Agreement, as allowed by specific exemption(s) of applicable state workers'
compensation laws are, by default, excluded from the application of this Agreement. A typical state workers'
compensation law exempts owners, officers, and other identified persons from mandatory workers'
compensation coverage. Specific exclusions are defined by the workers' compensation laws goveming each
State.
PART A: NAMES OF EMPLOYEES WHO, BY DEFAULT COULD HAVE BEEN LEGALLY EXCLUDABLE
PERSONS, ARE TO BE INCLUDED UNDER THE TERMS AND CONDITIONS OF THIS
AGREEMENT
Section A 1 - Included for all terms and provisions of this Agreement:
Section A2 - Included for all terms and provisions of this Agreement with the exception of workers'
compensation coverage:
Matthew Perezchica
Tina Feeney
Randy Mund
SCHEDULE 11 1311
Exhibit 1
Page 19 of 21
0 0
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 41 of 211
SCHEDULE "30"
Safety Incentive Plan
Barrett has implemented a Safety Incentive Plan that rewards safety, as evidenced through lower workers'
compensation claims experience. To promote safety in the workplace, Barrett will provide an annual cash safety
incentive of actual eligible payroll as outlined below:
Workers' Compensation Code Eligible Safety
State Incentive Rate
CA 5027 - Masonry less than $24/hr 4.00'1;
CA 5028 - Masonry $24/hr or more 2,7411;
CA 5183 - Plumbing less than $24/hr 2.91\
CA 5187 - Plumbing $24/hr or more 2.11'1;
CA 5190 - Electrical less than $28/hr 2.31'1;
CA 5348 - Tile, Stone, Mosaic, Terrazzo 2. 28'1;
CA 6218 - Excavation NOC less than $24 2.82\
CA 6220 - Excavation NOC $26/hr or more 2.1111;
CA 8017 - Stores Retail NOC 1.67!1;
CA 9097 - Pool Cleaning/Servicing 2. 0811;
CA 1000 - OWners/Officers n/a
This incentive will bear a direct relationship to the successful reduction/maintenance of compensable workers'
compensation injuries. The maximum incentive will be reduced on a dollar-for-dollar basis by annual claims costs
incurred* to a minimum incentive of $0.
*Actual cash paid (over the life of each claim) for time loss, medical treatment, legal and administrative fees,
claims investigations and other direct or indirect costs.
After each completed one-year period, earned safety incentives will be paid within 60 days under the following
terms and conditions:
(1) Final payment for actual earned safety incentive is determined if no losses are incurred or
. following the closure of all claims incurred for the contract period.
Waiver of Right to Safety Incentive. Client hereby waives any and all rights to safety incentives as described
above:
(1) For any contract year in which either Client or Barrett terminate this Agreement prior to the end of
such year.
(2) If Client is in default of this Agreement
In the event that additional claim expense is incurred for injuries occurring during a contract period for which a
safety incentive payment has already been made, that additional claim expense shall be charged against the then
current contract period's earned safety incentive. The amount charged to the current contract period's safety
incentive will be limited to the safety incentive amount previously paid associated with the contract period in which
the injury occurred.
SCHEDULE "30"
Exhibit 1
Page 20 of 21
C
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 42 of 211
SCHEDULE "31"
CALIFORNIA
1. This Agreement shall be governed by and construed In accordance with the laws of the state of California.
2. Addendum to Section 2. Barrett Is a Leasing Employer, as the term Is defined by California Unemployment
Insurance Code § 606.5.
3. All reference to workers' compensation shall be to California Labor Code §3200 et seq., the California
workers' compensation and Insurance law for all Employees whose employment Is governed by the laws of
California. This Agreement shall be effective for Employees assigned and authorized to work In the state of
California.
4. To the extent Client or any Employees that are covered by this Agreement are subject to the City and
County of San Francisco's Paid Sick Leave Ordinance ("SFPSLO"), It shall be the sole and exclusive duty and
obligation of the Client to make such determination, as to Its applicability and further to determine whether
the Client Is a "small business" under SFPSLO. If SFPSLO Is applicable, Client shall be In compliance with
SFPSLO and perform all functions of administration, recordkeeplng, reporting, and payments.
5. To the extent Client or any Employees that are covered by this Agreement are subject to the City and
County of San Francisco's Health Care Security Ordinance ("SFHCSO"), It shall be the sole and exclusive
duty and obligation of the Client to make such determination, as to SFHCSO's applicability and further to
determine whether the Client Is a "small business" or "large business" for the purpose of the SFHCSO and
compliance with the applicable health care expenditure rate schedule.
It shall be the Client's obligation to determine what means Client will adopt to satisfy the minimum
expenditure requirement of SFHCSO which may Include: health Insurance, public health programs, health
savings accounts, or direct reimbursement to Employees for qualified health expenses.
If SFHCSO Is applicable, Client shall be In compliance with SFHCSO and perform all functions of
administration, recordkeeplng, reporting, and documenting hours worked and health care expenditures.
6. If the Client requests that Barrett make any payments to or for the benefit of Client or any Employee or
perform any other act required under either the SFPSLO (paragraph (4) above) or SFHCSO (paragraph (5)
above), such request shall be In writing and such payments made by Barrett and other act or service
performed by Barrett for a fee shall be timely paid by Client In accordance with an applicable Barrett Invoice.
7. The following provisions are applicable to Clients that are licensed by the California Contractors' State
License Board:
(a) Notwithstanding any other provision of this Agreement, Barrett agrees to provide workers' compensation
coverage through a certificate of self-Insurance or through a qualified Insurance carrier for all persons
working for Client who may be deemed employees of Barrett or Client as defined by California Workers'
Compensation laws.
(b) Barrett will notify the California Contractor's State License Board In writing and by e-mail within seven (7)
days of the termination of the Agreement with Client.
SCHEDULE "31"
Exhibit 1
Page 21 of 21
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 43 of 211
'i\\ Department of the Treasury
ft!JJI Internal Revenue Service Date:
RS SBSE/Employment Tax 07/01/2025
I 300 North Los Angeles St Taxpayer ID number (last 4 digits):
2977
Los Angeles, CA 90012-3308 Taxpayer name:
BARRETT BUSINESS SERVICES
INC
Form number:
941
Holland & Knight LLP Years:
Daniel Strickland 202006 - 202109
800 17th Street, NW, Suite t 100 Person to contact:
Washington, DC 20006 Jerry Tung
Employye ID number:
1000235414
Contact telephone number:
213-372-4615
Contact fax number:
877-210-1487
Dear Daniel Strickland:
We are sending the enclosed material under the provisions of your power of attorney or other authorization we
have on file. For your convenience, we have listed the name of the taxpayer to whom this material relates in the
heading above.
'I
If you have any questions, please call the contact person at the telephone number shown in the heading of this
letter.
Thank you for your cooperation.
Sincerely,
Dlgit.1lly signed by Jerry Tung
J erry Tung ·02s06.10,s19,s
Revenue Agent
Enclosures:
r:gj Letters 5376
D Reports
D Copy of Determination Letter
D Other
Letter 937 (Rev. 3-2017)
Catalog Number 30760X
Exhibit 2
Page 1 of 27
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 44 of 211
fit
Department of the Treasury Date:
Internal Revenue Service 07/01/2025
[SB/SE]
IRS
Person to contact:
300 North Los Angeles Name: Jerry Tung
Mail Stop 4504 Employee ID number: 1000235414
Los Angeles, CA 90012 Telephone: 213-372-4615
Fax: 877-210-1487
Hours: 9:00am - 4:30pm
Taxpayer ID number:
BARRETT BUSINESS SERVICES INC 52-0812977
8100 NE PARKWAY DRIVE, SUITE 200 Form:
VANCOUVER, WA 98662 941
Tax period(s) ended and Claim amount(s):
202006,202009,202012
202103,202106,202109
Response due date:
8/4/2025
Dear: Taxpayer
We examined your adjusted or claim for refund return and propose:
Partial disallowance, as shown in the enclosed examination report(s), Form 4666, Summary of Employment Tax
Examination, Form 4668, Employment Tax Examination Change Report or Form 4667, Examination Changes -
Federal Unemployment Tax, if applicable. You can find an explanation of why we didn't allow your claim in
full below or on the attached Form 886-A, Explanation of Items. If you accept our findings, sign and return the
enclosed Form 2297, Waiver of Statutory Notification of Claim Disallowance, and Form 3363, Acceptance of
Proposed Disallowance of Claim for Refund or Credit, in the enclosed envelope.
Reason for disaJlowance
See attached Form 886-A for reason.
If you disagree with our decision, you can request a meeting or telephone conference with the supervisor of the
person identified in the heading of this letter. If you still disagree with our decision, you can request an Appeals
conference by filing a small case request or a formal written protest (depending on the amount you owe). The
enclosed Publication 5, Your Appeal Rights and How To Prepare a Protest If You Don't Agree, explains how to
request an Appeals conference.
If you don't respond by the date listed in the heading of this letter, we'll process your case based on the
adjustments shown in the enclosed examination report(s) and Form 886-A or the explanations given above.
Letter 5376 (4-2014)
Catalog Number 66176X
Exhibit 2
Page 2 of 27
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 45 of 211
If you have questions, you can contact the person whose name and telephone number are listed at the top of this
letter.
Thank you for your cooperation.
Sincerely,
Dlgltilly ilgn<d by OeRk
Derek Lee -07'00'
::..,ms.o,011s.ss:2•
Derek Lee
Acting Manager on Behalf of Kathleen J. Orange
Acting Area Director, Examination-Employment Tax &
Southwest Area, SBSE
Enclosure( s):
Form 2504 and attachments
Form886-A
Form4666
Form4667
Form4668
Form 2297
Form3363
Publication 594
Publication 5
Envelope
cc:
Letter 5376 (4-2014)
Catalog Number 66176X
Exhibit 2
Page 3 of 27
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 46 of 211
Schedule number or
Form 886-A
Department of the Treasury- Internal Revenue Service
exhibit
(May 2017) Explanation of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
BARRETT BUSINESS SERVICES INC 2977 2020,2021
1 I,, m hll Rdi111d 1 , Jll ),1:l. Rctt:11l.on LH:dllJ
Tax Period ERC Per Return ERC Amount £RC Amount
Under Unpaid As Adjusted
Examination
202006
202009
202012
202103
202106
202109
ISSUE:
Whether Barrett Business Services is entitled to the Employee Retention Credit (ERC) for the amounts claimed on
amended ta>< return Form 941x for the calendar quarter 202006 thru 202109.
FACTS:
BBSI (NASDAQ: BBSI) is a leading provider of business management solutions, combining human resource
outsourcing and professional management consulting to create a unique operational platform that differentiates
it from competitors. The Company's integrated platform is built upon expertise in payroll processing, employee
benefits, workers' compensation coverage, risk management and workplace safety programs, and human
resource administration. BBSl's partnerships help businesses of all sizes improve the efficiency of their
Catalog Number 20810W Page 1 of 17 www.irs.gov Form 886-A (Rev. 5-2017)
Exhibit 2
Page 4 of 27
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 47 of 211
Department of the Treasury - Internal Revenue Service Schedule number or
Form886-A exhibit
(May 2017) Explanation of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
BARRETT BUSINESS SERVICES INC 2977 2020,2021
Per B851 Web Site
What is a PEO?
And Why It Might Be the Smartest Move for Your Business Running a business comes with challenges
from payroll and compliance to hiring, employee disputes, and benefits administration. That's where a
PEO, or Profess onal Employer O ganization, can make all the difference.
A PEO can help you reduce risk, save m oney, retain talent, and scale with confidence-so you can focus
on what you do best: growing your business.
What Does a PEO Do?
A PEO is a partner that helps small and mid-sized businesses manage essential HR and administrative
functions. Th rough a model called co-employment, you retain full control over day-to-day operations and
employee management, the PEO becomes the employer of record for tax and benefits purposes.
I
I
I
Catalog Number 20810W Page 2 of 1 7 www.irs.gov Form 886A (Rev. 5-2017)
Exhibit 2
Page 5 of 27
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 48 of 211
Department of the Treasury - Internal Revenue Serv[ce Schedule number or
Form886-A exhibit
(May 2017) Explanation of Items
Name of taxpayer Tax. Identification Number (last 4 digits) Year/Period ended
BARRETT BUSINESS SERVICES INC 2977 2020 2021
LAW
Summary of Applicable Laws
Catalog Number 20810W Page 3 of 17 www.trs.gov Form 886-A (Rev. 5-2017)
Exhibit 2
Page 6 of 27
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 49 of 211
Department of the Treasury- lnlernal Revenue Service Schedule number or
Form886-A exhibit
(May 2017) Explanation of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
BARRETT BUSINESS SERVICES INC 2977 2020.2021
-
■
-
Catalog Nurnber 2081 OW Page 4 of 17 www.irs.gov Form 886-A (Rev. 5-2017)
Exhibit 2
Page 7 of 27
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 50 of 211
Schedule number or
Form 886-A
Department of the Treasury - Internal Revenue Service
exhibit
(May 2017) Explanation of Items
Name of taxpayer Tax Identification Number (la:;t 4 digits) Year/Period ended
BARRETT BUSINESS SERVICES INC 2977 2020 2021
Catalog Number 20810W Page 5 of 17 www.1rs.gov Form 886-A (Rev. 5-2017)
Exhibit 2
Page 8 of 27
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 51 of 211
Department of the Treasury - Internal Revenue Service Schedule number or
Form 886-A e><hibit
(May 2017) Explanation of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
BARRETT BUSINESS SERVICES INC 2977 2020,2021
Catalog Number 20810W Pag? 6 al 1 7 www.irsgov Form 886-A (Rev. 5-2017)
Exhibit 2
Page 9 of 27
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 52 of 211
Department of the Treasury - Internal Revenue Servlce Schedule number or
Form886-A exhibit
(May 2017) Explanation of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
BARRETT BUSINESS SERVICES INC 2977 2020 2021
Catalog Number 20810W Page 7 of 17 www.lrs.gov Form 886-A (Rev. 5-2017)
Exhibit 2
Page 10 of 27
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 53 of 211
Department of the Treasury - Internal Revenue Service Schedule number or
Form886-A exhibit
(May 2017) Explanation of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
BARRETT BUSINESS SERVICES INC 2977 2020,2021
-
On March 13, 2020, the President of the United States issued a Proclamation on Declaring a National
Emergency Concerning the Novel Coronavirus Disease (COVIO-19) Outbreak. On or about March 15,
2020, States and local government entities began to issue Order's or other types of proclamations to
implement shutdowns to prevent the spread of COVID-19, including the closure of schools and non
essential businesses. Recognizing the significant economic impact that the closure of schools and
businesses would have on the economy, Congress and Trump Administration (including the
Department of Treasury and the Internal Revenue Service) worked rapidly to develop a variety of
packages to reduce the negative economic impact COVID-19 would have oh the country.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), P.L. 116-136, 134 Stat. 281,
enacted on March 27, 2020, was one of the initial pieces of legislation enacted in response to
COVID-19. Section 2301 of the CARES Act, as originally enacted, provides for an employee retention
credit for eligible employers that pay qualified wages, including certain health plan expenses, to
some or all employees after March 12, 2.020, and before January 1, 2021. The ERC was specifically
designed to encourage employers experiencing a decline in gross receipts and/or whose trade or
business was fully or partially suspended as a result of a governmental order related to COVID-19 to
keep employees on their payroll through a refundable employment tax credit.
Catalog Number 20810W Page 8 of 1 7 www.irs.gov Form 886-A (Rev. 5-2017)
Exhibit 2
Page 11 of 27
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 54 of 211
Department of the Treasury-Internal Revenue Service Schedule number or
Form886-A exhibit
(May 2017) Explanation of Items
Name of taxpayer Tax Identification Number {last 4 digits) Year/Period ended
BARRETT BUSINESS SERVICES INC 2977 2020,2021
The CARES Act was subsequently amended and modified by the Certainty and Disaster Tax Relief Act
of 2020 (Relief Act), enacted as Division EE of the Consolidated Appropriations Act, 2021, P.L.116-
260, 134 Stat. 1182, on December 27, 2020. Section 206 of the Relief Act adopted amendments and
technical changes to section 2301 for qualified wages paid after March 12, 2020, and before January
1, 2021, primarily expanding eligibility for certain employers to claim the credit. Section 206 is
effective retroactive to the effective date of section 2301. Section 207 of the Relief Act, which is
effective for calendar quarters beginning after December 31, 2020, further amends section 2301 to
extend the application of the employee retention credit to qualified wages paid after December 31,
2020, and before July 1, 2021, and to modify the calculation of the credit amount for qualified wages
paid during that time.
The ERC was further extended pursuant to section 3134 of the Internal Revenue Code (Code),
enacted by section 9651 of the American Rescue Plan Act of 2021 (the ARP), Pub. L. No.117-2, 135
Stat. 4 (March 11, 2021). Section 3134 of the Code provides for the ERC, effective for calendar
quarters beginning after June 30, 2021, for wages paid after June 30, 2021, and before January 1,
2022.
Finally, the ERC was subsequently amended by the Infrastructure Investment and Jobs Act, Pub. L.
No. 117-58, {IIJA) to terminate the ERC retroactively for all businesses other than recovery startup
businesses.
In general, to qualify for the ERC, an employer must have operated a trade or business In 2020 or a
calendar quarter in 2021 and meet one of following three scenarios:
1. Their business operations must have been fully or partially suspended by government order
due to COVID-19 in 2020 or the first three calendar quarters of 2021.
2. Met the Gross Receipts Test:
a. For 2020, had a significant decline in gross receipts (defined as period beginning with
calendar quarter in which gross receipts are less than 50 percent of gross receipts in the
same calendar quarter in 2019 and ending in the calendar quarter after the first calendar
quarter in which gross receipts are greater than 80 percent of gross receipts in the same
calendar quarter in 2019).
b. For the first three calendar quarters of 2021, had a decline in gross receipts (defined as
quarter in which gross receipts are less than 80 percent of the same calendar quarter in
2019 or through an alternative quarter election rule as set forth in Notice 2021-23).
3. Was a Recovery Startup Business for the 3rd and 4th quarter 2021 only.
Catalog Number 20810W Page 9 of 17 www.irsgov Form 886-A {Rev. 5-2017)
Exhibit 2
Page 12 of 27
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 55 of 211
Schedule number or
Form 886-A
Department of the Treasury- Internal Revenue Service
exhibit
(May 2017) Explanation of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
BARRETT BUSINESS SERVICES INC 2977 2020,2021
For wages paid in 2020, the percent of qualified wages eligible for credit equals 50% of qualified
wages ($10,000 per employee for the year including certain health care expenses). For employers
who averaged 100 or fewer average full-time employees in 2019, qualified wages include only those
qualified wages and health care expenses paid to employees providing services and not providing
services. For employers who averaged greater than 100 average full-time employees in 2019,
qualified wages include those wages (i eluding health care expenses) paid to employees not
providing services.
For wages paid in 2021, legislation increased the maximum percentage of qualified wages to 70%
($10,000 per employee per calendar q arter including certain health care expenses) for qualified
wages paid between January 1 and June 30, 2021. For 2021, employers who averaged 500 or fewer
average full-time employees in 2019, qualified wages include those amounts paid to employees
providing services and not providing services. For 2021, employers with greater than 500 average
full-time employees in 2019, only wages paid to employees who were not providing services are
considered qualified wages.
Summary of Issued Guidance:
With each enactment, Congress authorized the Secretary (or the Secretary's delegate) to provide
uch regulations or other guidance as may be necessary to carry out the purposes of the credit,
including regulations or other guidance: (1) to prevent the avoidance of the purposes of the
limitations; (2) to minimize compliance and record-keeping burdens with respect to the credit; ( ) to
provide for waiver of penalties for failure to deposit amounts in anticipation of the allowance of the
credit; (4) to recapture the benefit of the credit in cases where there is a subsequent adjustment to
the credit; and (5) to ensure that the wages taken into account for the ERC conform with other
credits eligible to be claimed by employers.
This broad grant of authority was provided to Treasury and the Internal Revenue Service to issue
guidance (through regulation or other means) in a prompt and expedient manner to provide tax
credits to employers that were negatively financially impacted by the pandemic while also ensuring
compliance with the limitations and requirements of the Act, as well as legislative intent.
Treasury did not issue regulations addressing entitlement to, or calculation of, the ERC. Rather,
consistent with statutory authority allowing the Secretary to i sue 'other guidance as may b
1
necessary to carry out the purpose of the credit" and consistent with the need to encourage Eligible
Catalog Number 20810W Page 1 0 of 1 7 www.irs.gov Form 886-A (Rev. 5-2017)
Exhibit 2
Page 13 of 27
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 56 of 211
Schedule number or
Form 886-A
Department of the Treasury - Internal Revenue Se!Vfce
exhibit
(May 2017) Explanation of Items
Name of taxpayer Tax Ide tification Number (last 4 dtglls) Year/Period ended
BARRETT BUSINESS SERVICES INC 2977 2020 2021
Employers to keep their employees on their payroll during the COVID-19 pandemic and allow Eligible
Employers to claim the credit for qualified wages paid beginning on March 13, 2020, the Service
issued guidance in coordination with Treasury in the form of Frequently Asked Questions beginning
on April 29, 2020. With each legislative act, the Service continued seeking the highest level of
Treasury review and continued updating the postings as the need for answers to frequently asked
questions arose.
On March 1, 2021, Notice 2021-20 was issued incorporating the FAQs into more formal guidance.
Notice 2021-20 provides guidance on the ERC as it applies to qualified wages paid after March 12,
2020, and before January 1, 2021. As further legislation was enacted, irs.gov was updated to
address additional frequently asked questions and additional guidance was provided in subsequent
Notices.
The following is a list of guidance issued addressing the ERC:
For Wages Paid After March 12, 2020, and before Jan. 1, 2021
• Notice 2021-20
• Notice 202149
• Revenue Procedure 2021-33
For Wages Paid After Dec. 31 1 2020, and before July 1, 2021
• Notice 2021-23
• Notice 2021-49
Revenue Procedure 2021-33
For Wages Paid After June 30, 2021, and before Oct. 1, 2021
Notice 2021-49
• Revenue Procedure 2021-33
For Wages Paid After Sept. 30, 2021, and before Jan. 1, 2022
Notice 2021-49
• Notice 2021-65
To the extent that legislation did not modify the original provisions of the ERC, Notice 2021-20
governs the ERC for all periods.
Reliance on IRS Public Guidance
As stated above, Treasury did not issue regulations addressing the ERC. Rather, due to the timing of
each enactment and the almost immediate (and often retroactive) modification to the ERC, FAQS
and Notices were the chosen form of guidance issued to carry out the purpose of the credit. Each
Catalog Number 20810W Page 11 of 1 7 www.1rs.gov Form 886-A (Rev 5-2017)
Exhibit 2
Page 14 of 27
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 57 of 211
Schedule number or
Form 886-A
Department of the Treasury- Internal Revenue Service
exhfbit
(May 2017) Explanation of Items
Name of taxpayer Tax Identification Number (last 4 dig/ls) Year/Period ended
BARRETT BUSINESS SERVICES INC 2977 2020,2021
piece of public guidance issued, including FAQs, Notices, Press Releases, Tax Forms and Instructions
were coordinated with the highest levels of the Treasury Department. In Skidmore v. Swift & Co., (5
Ct 1944) 323 U.S. 134, the Supreme Court set forth the standard for deference to sub-regulatory
guidance, which requires consideration of the thoroughness evident in its consideration, the validity
of Its reasoning, and its consistency with earlier and later pronouncements. The Court held that
agency rulings, interpretations, and opinions "constitute a body of experience and informed
judgment to which courts and litigants may properly resort for guidance." Skidmore v. Swift & Co.,
323 U.S. 134, 140 (1944}.
As stated previously, the Federal government's response to the COVID-19 pandemic was swift and
continuously evolving. The CARES Act was enacted on March 27, 2020 (only 14 days after the Trump
Administration declared a nationwide emergency due to COVID-19 causing the Federal government
and state and local entities to implement shutdown orders). Since under the CARES Act, Eligible
Employers became entitled to claim the ERC for wages paid after March 12, 2020, the Service
worked closely with Congress and the highest levels of the Department of Treasury to develop, and
issue published guidance. Subsequent to enactment of the CARES Act, three additional pieces of
legislation were enacted to extend, modify and/or retroactively eliminate the ERC for certain
taxpayers. With each legislative enactment, the Service was required to issue prompt guidance to
taxpayers so as to implement the legislation enabling taxpayers to claim the ERC when available for
each calendar quarter.
Pertinent Statute and Notice Provisions·
Section 2301 of the CARES Act allows a credit (employee retention credit or credit) against
applicable employment taxes for eligible employers, including tax-exempt organizations, that pay
qualified wages, including certain healt plan expenses, to some or all employees after March 12,
2020, and before January 1, 2021. Section 206 of the Relief Act adopts amendments and technical
changes to section 2301 of the CARES Act for qualified wages paid after March 12, 2020, and before
January 1, 2021, primarily relating to who may claim the credit.1
Section 207 of the Relief Act amends section 2301 of the CARES Act to extend the application of the
employee retention credit to qualified wages paid after December 31, 2020, and before July 1, 2021,
and to modify the calculation of the credit amount for qualified wages paid during that time.
1 The amendments made by section 206 of the Relief Act take effect as if included in the provisions of the CARES Act to
which they relate.
catalog Number 2081 OW Page 12 of 17 wwwlrs.gov Form 886-A (Rev. 5-2017)
Exhibit 2
Page 15 of 27
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 58 of 211
Schedule number or
Form 886-A
Department of the Treasury - Internal Revenue Service
exhibit
(May 2017) Explanation of Items-
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
BARRETT BUSINESS SERVICES INC 2977 2020. 2021
Section 9651 of the ARP Act enacted section 3134 of the Code which provides an employee
retention credit for wages paid after June 30, 2021, and before January 1, 2022.
The employee retention credit is available only to employers that are eligible employers. Section
2301(c)(2)(A) of the CARES Act defines the term ''eligible employer" as any employer carrying on a
trade or business during calendar year 2020, and, with respect to any calendar quarter, for which:
(1) the operation of the trade or business carried on during calendar year 2020 is fully or
partially suspended due to orders from an appropriate governmental authority limiting
commerce, travel, or group meetings (for commercial, social, religious, or other
purposes) due to COVID-19, or
(2) such calendar quarter is within the period in which the employer had a significant decline
in gross receipts, as described in section 2301(c)(2)(B) of the CARES Act.
oj
Notice 2021-20 provides guidance on what "orders from an appropriate governmental authority"
may be taken into account by an employer for purposes of determining eligibility for the employee
retention credit. Notice 2021-20, 0/A- 10 provides that orders, proclamations, or decrees from the
Federal government or any State or local government may be taken into account by an employer as
"orders from an appropriate governmental authority" only if they limit "commerce, travel, or group
meetings (for commercial, social, religious, or other purposes) due to the coronavirus disease 2019
(COVI0-19)'' and relate to the suspension of an employer's operation of its trade or business. Orders
that are not from the Federal government must be from a State or local government that has
jurisdiction over the employer's operations. These orders are referred to as "governmental orders."
Whether orders, proclamations or decrees are governmental orders is determined without regard to
the level of enforcement of the governmental order.
Statements from a governmental official, including comments made during press conferences or in
interviews with the media, do not rise to the level of a governmental order for purposes of the
employee retention credit. Additionally, the declaration of a state of emergency by a governmental
authority is not sufficient to rise to the level of a governmental order if it does not limit commerce,
travel, or group meetings in any manner. Further, such a declaration that limits commerce, travel,
or group meetings, but does so in a manner that does not relate to the suspension of an employer's
Catalog Number 20810W Page 13 of 1 7 www.1rs.gov Form 886-A (Rev. 5-2017)
Exhibit 2
Page 16 of 27
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 59 of 211
Schedule number or
Form 886-A
Department of the Treasury - Internal Revenue SeNice
exhibit
(May 2017) Explanation of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
BARRETT BUSINESS SERVICES INC 2977 2020,2021
operation of its trade or business does not rise to the level of a governmental order for purposes of
the employer's determination of its eligibility for the employee retention credit.
Governmental orders include:
• An order from the city's mayor stating that all non-essential businesses must close for a
specified period;
• A State's emergency proclamation that residents must shelter in place for a specified period,
other than residents who are employed by an essential business and who may travel to and
work at the workplace location;
• An order from a local official imposing a curfew on residents that impacts the operating
hours of a trade or business for a specified period;
• An order from a local health department mandating a workplace closure for cleaning and
disinfecting.
Recommendations from government officials do not constitute governmental orders.
Full or Partial Suspension of Trade or Business Operations
For purposes of the employee retention credit, "trade or business" has the same meaning as when
used in section 162 of the Code other than the trade or business of performing services as an
employee. Under section 162(a), an activity does not qualify as a trade or business unless its
primary purpose is to make a profit and it is carried on with regularity and continuity.
Notice 2021-20, O}A- 11 provides that if a governmental order requires non-essential businesses to
suspend operations but allows essential businesses to continue operations, an employer that
operates an essential business is not considered to have a full or partial suspension of operations if
the governmental order allows all of the employer's operations to remain open. However, an
employer that operates an essential business may be considered to have a partial suspension of
operations if, under the facts and circumstances, more than a nominal portion of its business
operations are suspended by a governmental order. For example, an employer that maintains both
essential and non-essential business operations, each of which are more than nominal portions of
tne business operations, may be considered to have a partial suspension of its operations if a
governmental order restricts the operations of the non-essential portion of the business, even if the
essential portion of the business is unaffected. In addition, an essential business that is permitted to
continue its operations may, nonetheless, be considered to have a partial suspension of its
Catalog Number 20810W Page 14 of 1 7 www.irs.gov Form 886-A (Rev. 5-2017)
Exhibit 2
Page 17 of 27
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 60 of 211
Department of the Treasury - Internal Revenue Service Schedule number or
Form886-A elChibit
{May 2017) Explanation of Items
Name of taxpayer Tax Identification Number (last 4 d1g1ts) Year/Period ended
BARRETT BUSINESS SERVICES INC 2977 2020,2021
operations if a governmental order requires the business to close for a period of time during normal
working hours.
Solely for purposes of this employee retention credit, a portion of an employer's business operations
will be deemed to constitute more than a nominal portion of its business operations if either (i) the
gross receipts from that portion of the business operations is not less than 10 percent of the total
gross receipts (both determined using the gross receipts of the same calendar quarter in 2019), or
(ii) the hours of service performed by employees in that portion of the business is not less than 10
percent of the total number of hours of service performed by all employees in the employer's
business (both determined using the number of hours of service performed by employees in the
same calendar quarter in 2019).
Notice 2021-20, Q/A-13 provides guidance regarding whether a governmental order that causes the
customers of a business to stay at home, or otherwise causes a reduction in demand for its products
or services, and the business responds to the lack of demand by suspending some or all of its
operations, is considered to rise to the level of a suspension of operations due to a governmental
order. Q/A- 13 provides that an employer that suspends some or all of its operations because its
customers are swbject to a government order requiring them to stay at home or otherwise causing a
reduction in demand for its products or services is not considered to have a full or partial suspension
of its operations due to a governmental order.
Notice 2021-20, O/A-15 provides that if an employer's workplace is closed by a governmental order,
but the employer is able to continue operations comparable to its operations prior to the closure,
including by requiring its employees to telework, the employer's operations are not considered to
have been fully or partially suspended as a consequence of a governmental order. However, if the
closure of the workplace causes the employer to suspend business operations for certain purposes,
but not others, it may be considered to have a partial suspension of operations due to the
governmental order.
Notice 2021-20, O/A-17 and 18 provide guidance regarding circumstances where an employer's workplace is
closed due to a governmental order for certain purposes, but the employer's workplace may remain open for
other limited purposes. Q/A-17 provides that the employer's operations would be considered to be partially
suspended if, under the facts and circumstances, the operations that are closed are more than a nominal portion
of its business operations and cannot be performed remotely in a comparable manner. If all, or all but a nominal
portion, of an employer's business operations may continue, but the operations are subject to modification due
to a governmental order (for example, to satisfy distancing requirements), such a modification of operations is
Catalog Number 20810W Page 1 5 of 1 7 www_1rs.gov Form 886-A (Rev. 5-2017)
Exhibit 2
Page 18 of 27
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 61 of 211
Schedule number or
Form 886-A
Department of the Treasury - Internal Revenue Service
exhibit
(May 2017) Explanation of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
BARRETT BUSINESS SERVICES INC 29n 2020,2021
considered to be a partial suspension of business operations due to a governmental order if the modification
required by the governmental order has
GOVERNMENT POSITION:
Taxpayer is a PEO (Professional Employer Organization), this is evident, and taxpayer agrees they are a PEO.
The government will disallow the Claim basis on the chart attached
I
Note 88S1 the PEO solely relied on the clients when ERC claims were being filed.
Catalog Number 20810W Page 16 of 1 7 www.irs.gov Form 886-A (Rev. 5-2017)
Exhibit 2
Page 19 of 27
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 62 of 211
Department of the Treasury - Internal Revenue Service Schedule number or
Form886-A exhibit
(May 2017) Explanation of Items
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
BARRETT BUSINESS SERVICES INC 2977 2020,2021
I
I
I
I
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TAXPAYERS POSITION:
BBSI relied on the client employers' information in making the claims,
and BBSI allowed its client employers to maintain their own respective records for substantiating those
respective claims for employee retention credits.
CONCLUSION:
The requirements under the CARES Act and subsequent laws allows for "partial suspension" due to
governmental order - governmental order test. Under the governmental order test, a taxpayer is an eligible
employer when its operation w as fully or partially suspended due to governmental order related to COVID-19.
Disruptions to business operations and caused it to become less efficient where there were no orders mandating
TP to close or suspend its operations. Modifications to operations that caused the business to become less
efficient don't amount to a suspension.
Catalog Number 20810W Page 1 7 of 17 www.1rs.gov Form 886-A (Rev_ 5-2017)
Exhibit 2
Page 20 of 27
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 63 of 211
Explanation of why clients' claims were disallowed, including FAQ and updated law.
a) Taxpayer is a business that applied for the ERC based on a partial suspension with more than
nominal impact. Taxpayer provided various government order, mainly referencing OSHA,
indicating the business was impacted by social distancing and sanitization requirements
resulted lowering its efficiency or productivity. However, the records provided do not
quantify or substantiate that there was more than a 10% impact from these government
orders.
b) Taxpayer is a business that applied for the ERC based on a partial suspension with more than
nominal impact. Taxpayer provided various government order, mainly referencing
Cal/OSHA, indicating the business was impacted by social distancing and sanitization
requirements resulted lowering its efficiency or productivity. However, the records provided
do not quantify or substantiate that there was more than a 10% impact from these
government orders.
c) Taxpayer is a business that applied for the ERC based on a partial suspension with more than
nominal impact. Taxpayer provided various government order, indicating the business was
impacted by social distancing and sanitization requirements resulted lowering its efficiency
or productivity. However, the records provided do not quantify or substantiate that there was
more than a 10% impact from these government orders.
d) Taxpayer is a business that applied for the ERC based on a partial suspension due to supply
chain issues. However, the records provided does not show the employer absolutely could
not operate without the supplier's product and the supplier was fully or partially suspended
themselves do to a government order.
e) This business is an essential business it may be eligible based on the gross receipts test or
experienced a partial suspension of operations due to an order from an appropriate
governmental authority. IRS will consider you to be partially suspended if more than a
Exhibit 2
Page 21 of 27
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 64 of 211
nominal part of your business was suspended by a governmental order. The IRS considers
"more than nominal" to be at least 10% reduction in your ability to provide goods or services.
f) Taxpayer has not substantiated its ERC eligibility under any of the applicable requirements,
including full or partial suspension with more than nominal impact, Significant Decline in
Gross Receipts, or recovery startup business.
g) Taxpayer claims ERC cased on Si gnificant Decline in Gross Receipts and provided a table comparing
quarterly sales. Please provide supporting records, such as a General Ledger and business income tax
returns reconciled to the figures that were provided to substantiate the actual sales decline.
https://www.irs.gov/coronavirus/freguently-asked-questions-aboat-the
emplovee-retention-credit
03. ls being subject to a government order enough to make me eligible
for ERC? (added July 28, 2023)
A3. No. You need to demonstrate that the government order was related to COVID-19 and that it
resulted in your trade or business being folly or partially suspended.
04. What does it mean to be fully or partially suspended? (updated Sept.
14,2023)
A4. Whether your business or organization was fully or partially suspended depends on your
specific situation. For examples, see Notice 2021-20, Section III.D.
Some examples of who doesn't qualify under this eligibility factor:
• If all your employees were ab Le to telework during the pandemic and your business
continued to operate, your business wasn't suspended.
• If your customers were affected by a stay-at-home order, but no orders applied to your
business operations, you weren't suspended.
• lf you voluntarily closed your business or reduced hours of operation, you weren't
ordered to suspend.
You could stilJ qualify for ERC based on a decline in gross receipts even if you don't qualify
under suspension of operations due to government order.
Exhibit 2
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Remember: You need to be able to prove your claim with a specific government order and show
how it suspended all or part of your operations.
05. What does "more than nominal" mean when considering whether
my bu.siness or organization was partially snspended? (added Sept. 14,
2023)
AS. IRS will consider you to be partially suspended if more than a nominal part of your business
was suspended by a governmental order.
The IRS considers "more than nominal" to be at least 10% of your business based on either the
gross receipts from that part of the business or the total hours your employees spent working in
that part of the business.
If all parts of your business could operate but you had to modify how it operated, then we will
consider you to be partially suspended if you can show that the order had more than a nominal
effect on your business. We consider "more than a nominal effect" to be at least a 10%
reduction in vour ability to provide goods or se1·vices in the normal cot1rse of voru· business.
If you changed business practices to alter behavior, such as making store aisles one-way or
requiring customers or employees to wear masks, we won't consider that change to have had a
more than a nominal effect on your business operations.
For more details and examples, see Notice 2021-20, Section 111.D, Questions 11, 17 and 18.
06. If my business was suspended by a government order for only part
of a quarter, am I an eligible employer for the entire quarter? (added
Sept. 14, 2023)
A6: You are considered an eligible employer for the entire calendar quarter if your business
operations were fully or partially suspended due to a governmental order during a portion of a
calendar quarter.
However, you can claim the ERC only for wages paid during the suspension period. not the
whole quarter.
For examples, see Notice 2021-20, Section III.D, Question 22.
07. Are communications from the Occupational Safety and Health
Administration (OSHA) considered a government order for purposes of
qualifying for the ERC due to a full or partial suspension of operations?
(added Nov. 7, 2023)
Exhibit 2
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A7. Generally, no. An employer won't be considered eligible for the ERC just because they
followed general guidance or recommendations contained in OSHA communications.
For details on what the IRS considers OSHA communications, see the IRS legal memo AM
0-3-007 lroFj.
However if an appropriate government authority - such as a state governor - issued an order
that made OSHA recommendations mandatory the employer may then be able to claim the ERC.
The IRS will consider an employer to be eligible for ERC if they:
• Provide an order from an appropriate government authority mandating compliance with
OSHA recommendations, and
• Demonstrate that implementing the mandatory recommendations either:
o Suspended more than a nominal part of the employer's trade or business
operations, or
o Required modifications that had more than a nominal effect on the employer's
..: trade or business operations.
Modifications that required minor adiustments - such as masking or making store aisles
one way to enforce social distancing - most likely did not result in more than a nominal
effect on business operations because those adjustments didn't restrict the employer's ability to
provide goods and services in their normal course of business.
For more information and examples, see W11at does "more than nominal" mean when
onsidering whether mv busine - or organization was partially suspended? earlier in this section
and the IRS legal memo AM-20"3-007 -
Ql. Was my business or organization fully or partially suspended if I
had a supply chain issue? (updated March 22, 2024)
A 1. 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, onJy applied when the employer
absolutelv could not operate without the supplier's product and the supplier was fullvor
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,
Exhibit 2
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Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 67 of 211
your supplier's situation and documentation. For more information and examples see legal
memo AM-2023-005 -
LAW:
JSmith Civil, LLC v. United States (Bank. E.D.N.C.) 2025 WL 2264774
"The ERC contains more traditional and onerous eligibility criteria. It is a "presumption-out"
statute, where everyone starts outside of eligibility for the stated relief, and claimants must show
why they fit within an satisfy applicable statutory definitions to get "in" and qualify for the
relief.
The plain meaning of "full" is complete or total, so a "full suspension" denotes a temporary but
complete and entire stoppage of operations. A "partial suspension" then, is a temporary stoppage
of a portion of operations.
The key distinction is that "an order" must be compulsory. To qualify as an order, a directive
must impose "binding requirements or repercussions for noncompliance"
Court outlines the requirements to be an eligible employer as follows:
Must establish it was subject to a compulsory governmental mandate limiting commerce,
travel or group meetings that was issued because of the pandemic;
It stopped a meaningful portion of its operations during the relevant quarter; and
The reason it stopped operating was that the governmental mandate directly required it.
North Carolina Exec Order 121 was an order, but did not require the debtor to suspend
any operations because it was an essential business excluded from the requirements.
Was there a suspension?
- Nothing from guidance and plans issued by or from OSHA, the CDC, and the NCDOL
qualify as a government order under the ERC and the debtor is not entitled to rely on
them.
The need to quarantine members of a crew and to conduct enhanced cleaning and other
COVID protocols does not rise to the level of a partial suspension.
General disruptions not due to government orders are insufficient to demonstrate
entitlement.
Exhibit 2
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Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 68 of 211
Client Name C.FEIN Q22020 Q3 2020 Q42020 Ql 2021 Q22021
464 JOHNSON POOLS INC 68-0173856 267,776.00 30,273.00 21,508.00 367,469.20 388,326.00 Disallowed
Exhibit 2
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Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 69 of 211
Client Name C.FEIN Taxpayer Reasons Allow/Disallow
464 JOHNSON POOLS INC 68-0173856 The Company qualifies for the Employee Retention Disallowed Evidence does not
Credit for the following quarters: • Q2 2020 - Q3 2021 show a shut down or Decrease in
through partial suspension Gross Receipts (c,d).
Exhibit 2
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Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 70 of 211
Instructions for Form 941
Department of the Treasury
Internal Revenue Service
(Rev. July 2020)
Employer's QUARTERLY Federal Tax Return
Section references are to the Internal Revenue Code unless employer share of social security tax. Qualified sick and
otherwise noted. family leave wages not included on lines 5a(i) and 5a(ii)
because the wages reported on that line are limited by the
Future Developments social security wage base are included on line 5c. Qualified
For the latest information about developments related to health plan expenses allocable to qualified sick and family
Form 941 and its instructions, such as legislation enacted leave wages are reported on lines 19 and 20. See the
after they were published, go to IRS.gov/Form941. instructions for line 11b for information about the credit for
qualified sick and family leave wages.
At the time these instructions went to print, Congress was • The employee retention credit is reported on line 11c and,
considering changes to some of the recent legislation if applicable, line 13d. Qualified wages (excluding qualified
discussed in these instructions. If new legislation impacts health plan expenses) for the employee retention credit are
these instructions, updates will be posted to IRS.gov/ reported on line 21 (these amounts should also be included
Form941. as wages on lines 5a and 5c, and, if applicable, line 5d).
Qualified health plan expenses allocable to the qualified
What's New wages for the employee retention credit are reported on
Changes to Form 941 (Rev. July 2020) for coronavirus line 22. See the instructions for line 11c for information about
(COVID-19) related tax relief. The July 2020 revision of the employee retention credit.
Form 941 will be used to report employment taxes beginning • Employers, including government employers, can defer
with the third quarter of 2020. Form 941 has been revised to the deposit and payment of the employer share of social
allow employers that defer the withholding and payment of security tax otherwise due during the calendar quarter. The
the employee share of social security tax on wages paid on amount of deferral is combined with the deferred amount of
or after September 1, 2020, to include the deferral on the employee share of social security tax on line 13b. See the
line 13b. Employers will now report on line 13b the total instructions for line 13b for more information.
deferred amount of the employer and employee share of • Employers that requested an advance of the sick and
social security tax. Employers will also separately report on family leave credit and/or the employee retention credit
line 24 the deferred amount of the employee share of social would have filed a Form 7200, Advance Payment of
security tax that is included on line 13b. See the instructions Employer Credits Due to COVID-19, for the quarter. The
for line 13b for more information about the deferral of the amount of all advances received from Forms 7200 filed for
employer and employee share of social security tax. the quarter is reported on line 13f. See the instructions for
line 13f for more information.
Adjusting tax liability for the deferred amount of social • The credit for qualified sick and family leave wages
security tax that you pay or deposit in the same quarter (reported on lines 11b and 13c) and the employee retention
it was deferred. See Adjusting tax liability for the deferred credit (reported on lines 11c and 13d) are figured on
amount of social security tax that you pay or deposit in the Worksheet 1.
same quarter it was deferred, later, for instructions on how to
report your tax liabilities on Form 941, line 16, or on 2020 withholding tables. The federal income tax
Schedule B (Form 941), Report of Tax Liability for withholding tables are included in Pub. 15-T, Federal Income
Semiweekly Schedule Depositors, if you defer social security Tax Withholding Methods.
tax and subsequently pay or deposit that deferred amount in Social security and Medicare tax for 2020. The rate of
the same quarter it was deferred. social security tax on taxable wages, except for qualified sick
Don't use the July 2020 revision of Form 941 to leave wages and qualified family leave wages, is 6.2%
report employment taxes for the first or second (0.062) each for the employer and employee or 12.4%
!
CAUTION quarter of 2020. Use the April 2020 revision of Form
(0.124) for both. Qualified sick leave wages and qualified
941 to report employment taxes for the second quarter of family leave wages aren't subject to the employer share of
2020, and use the January 2020 revision of Form 941 to social security tax; therefore, the tax rate on these wages is
report employment taxes for the first quarter of 2020. 6.2% (0.062). The social security wage base limit is
$137,700.
Reminders The Medicare tax rate is 1.45% (0.0145) each for the
employee and employer, unchanged from 2019. There is no
Previous changes to Form 941 for COVID-19 related em- wage base limit for Medicare tax.
ployment tax credits and other tax relief. The following Social security and Medicare taxes apply to the wages of
significant changes were made to Form 941 to allow for the household workers you pay $2,200 or more in cash wages in
reporting of new employment tax credits and other tax relief 2020. Social security and Medicare taxes apply to election
related to COVID-19. workers who are paid $1,900 or more in cash or an
• The credit for qualified sick and family leave wages is equivalent form of compensation in 2020.
reported on line 11b and, if applicable, line 13c. The
employee share of social security tax on qualified sick and Qualified small business payroll tax credit for increas-
family leave wages is reported on lines 5a(i) and 5a(ii). ing research activities. For tax years beginning after 2015,
Qualified sick and family leave wages aren’t subject to the a qualified small business may elect to claim up to $250,000
Sep 25, 2020 Cat. No. 14625L
Exhibit 3
Page 1 of 20
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 71 of 211
of its credit for increasing research activities as a payroll tax go to IRS.gov/OutsourcingPayrollDuties for helpful
credit against the employer share of social security tax. The information on this topic. If a CPEO pays wages and other
payroll tax credit election must be made on or before the due compensation to an individual performing services for you,
date of the originally filed income tax return (including and the services are covered by a contract described in
extensions). The portion of the credit used against the section 7705(e)(2) between you and the CPEO (CPEO
employer share of social security tax is allowed in the first contract), then the CPEO is generally treated for employment
calendar quarter beginning after the date that the qualified tax purposes as the employer, but only for wages and other
small business filed its income tax return. The election and compensation paid to the individual by the CPEO. However,
determination of the credit amount that will be used against with respect to certain employees covered by a CPEO
the employer share of social security tax are made on Form contract, you may also be treated as an employer of the
6765, Credit for Increasing Research Activities. The amount employees and, consequently, may also be liable for federal
from Form 6765, line 44, must then be reported on Form employment taxes imposed on wages and other
8974, Qualified Small Business Payroll Tax Credit for compensation paid by the CPEO to such employees. For
Increasing Research Activities. Form 8974 is used to more information on the different types of third-party payer
determine the amount of the credit that can be used in the arrangements, see section 16 of Pub. 15.
current quarter. The amount from Form 8974, line 12, is
Aggregate Form 941 filers. Approved section 3504 agents
reported on Form 941, line 11a. If you’re claiming the
and CPEOs must complete and file Schedule R (Form 941)
research payroll tax credit on your Form 941, you must attach
when filing an aggregate Form 941. Aggregate Forms 941
Form 8974 to that Form 941. For more information about the
are filed by agents approved by the IRS under section 3504.
payroll tax credit, see Notice 2017-23, 2017-16 I.R.B. 1100,
To request approval to act as an agent for an employer, the
available at IRS.gov/irb/2017-16_IRB#NOT-2017-23, and
agent files Form 2678 with the IRS unless you're a state or
IRS.gov/ResearchPayrollTC. Also see Adjusting tax liability
local government agency acting as an agent under the
for nonrefundable credits claimed on lines 11a, 11b, and 11c,
special procedures provided in Rev. Proc. 2013-39, 2013-52
later.
I.R.B. 830, available at IRS.gov/irb/
Certification program for professional employer organi- 2013-52_IRB#RP-2013-39. Aggregate Forms 941 are also
zations (PEOs). The Stephen Beck, Jr., ABLE Act of 2014 filed by CPEOs approved by the IRS under section 7705. To
required the IRS to establish a voluntary certification program become a CPEO, the organization must apply through the
for PEOs. PEOs handle various payroll administration and IRS Online Registration System at IRS.gov/CPEO. CPEOs
tax reporting responsibilities for their business clients and are file Form 8973, Certified Professional Employer
typically paid a fee based on payroll costs. To become and Organization/Customer Reporting Agreement, to notify the
remain certified under the certification program, certified IRS that they started or ended a service contract with a
professional employer organizations (CPEOs) must meet customer. CPEOs must generally file Form 941 and
various requirements described in sections 3511 and 7705 Schedule R (Form 941) electronically. However, CPEOs are
and related published guidance. Certification as a CPEO permitted to file a paper Form 941 and its accompanying
may affect the employment tax liabilities of both the CPEO schedules in lieu of electronic submissions for the second,
and its customers. A CPEO is generally treated for third, and fourth quarters of calendar year 2020. For more
employment tax purposes as the employer of any individual information about a CPEO’s requirement to file electronically,
who performs services for a customer of the CPEO and is and the waiver for 2020, see Rev. Proc. 2017-14, 2017-3
covered by a contract described in section 7705(e)(2) I.R.B. 426, available at IRS.gov/irb/
between the CPEO and the customer (CPEO contract), but 2017-03_IRB#RP-2017-14, and Notice 2020-35, 2020-25
only for wages and other compensation paid to the individual I.R.B. 948, available at IRS.gov/irb/
by the CPEO. To become a CPEO, the organization must 2020-25_IRB#NOT-2020-35. Schedule R (Form 941) has
apply through the IRS Online Registration System. For more been revised for 2020 to allow for the reporting of the new
information or to apply to become a CPEO, go to IRS.gov/ lines added to Form 941.
CPEO. Other third-party payers that file aggregate Forms 941,
CPEOs must generally file Form 941 and Schedule R such as non-certified PEOs, must complete and file
(Form 941), Allocation Schedule for Aggregate Form 941 Schedule R (Form 941) if they have clients that are claiming
Filers, electronically. However, CPEOs are permitted to file a the qualified small business payroll tax credit for increasing
paper Form 941 and its accompanying schedules in lieu of research activities, the credit for qualified sick and family
electronic submissions for the second, third, and fourth leave wages, or the employee retention credit, or clients
quarters of calendar year 2020. For more information about a deferring the employer or employee share of social security
CPEO’s requirement to file electronically, and the waiver for tax.
2020, see Rev. Proc. 2017-14, 2017-3 I.R.B. 426, available
If both an employer and a section 3504 authorized
at IRS.gov/irb/2017-03_IRB#RP-2017-14, and Notice
2020-35, 2020-25 I.R.B. 948, available at IRS.gov/irb/
TIP agent (or CPEO or other third-party payer) paid
wages to an employee during a quarter, both the
2020-25_IRB#NOT-2020-35.
employer and the section 3504 authorized agent (or CPEO or
Outsourcing payroll duties. Generally, as an employer, other third-party payer, if applicable) should file Form 941
you're responsible to ensure that tax returns are filed and reporting the wages each entity paid to the employee during
deposits and payments are made, even if you contract with a the applicable quarter and issue Forms W-2 reporting the
third party to perform these acts. You remain responsible if wages each entity paid to the employee during the year.
the third party fails to perform any required action. Before you
If a third-party payer of sick pay is also paying qualified
choose to outsource any of your payroll and related tax
sick leave wages on behalf of an employer, the third party
duties (that is, withholding, reporting, and paying over social
would be making the payments as an agent of the employer.
security, Medicare, FUTA, and income taxes) to a third-party
The employer is required to do the reporting and payment of
payer, such as a payroll service provider or reporting agent,
employment taxes with respect to the qualified sick leave
-2- Instructions for Form 941 (Rev. 7-2020)
Exhibit 3
Page 2 of 20
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 72 of 211
wages and claim the credit for the qualified sick leave wages, District of Columbia. Legal holidays in the District of
unless the employer has an agency agreement with the Columbia are provided in section 11 of Pub. 15.
third-party payer that requires the third-party payer to do the
Electronic filing and payment. Businesses can enjoy the
collecting, reporting, and/or paying or depositing employment
benefits of filing tax returns and paying their federal taxes
taxes on the qualified sick leave wages. If the employer has
electronically. Whether you rely on a tax professional or
an agency agreement with the third-party payer, the
handle your own taxes, the IRS offers you convenient
third-party payer includes the qualified sick leave wages on
programs to make filing and paying easier. Spend less time
the third party's aggregate Form 941, claims the sick leave
worrying about taxes and more time running your business.
credit on behalf of the employer on the aggregate Form 941,
Use e-file and EFTPS to your benefit.
and separately reports the credit allocable to the employers
on Schedule R (Form 941). See section 6 of Pub. 15-A,
• For e-file, go to IRS.gov/EmploymentEfile for additional
information. A fee may be charged to file electronically.
Employer's Supplemental Tax Guide, for more information
about sick pay reporting.
• For EFTPS, go to EFTPS.gov, or call EFTPS Customer
Service at 800-555-4477 or 800-733-4829 (TDD) for
Work opportunity tax credit for qualified tax-exempt or- additional information.
ganizations hiring qualified veterans. Qualified • For electronic filing of Forms W-2, Wage and Tax
tax-exempt organizations that hire eligible unemployed Statement, go to SSA.gov/employer. You may be required to
veterans may be able to claim the work opportunity tax credit file Forms W-2 electronically. For details, see the General
against their payroll tax liability using Form 5884-C. For more Instructions for Forms W-2 and W-3.
information, go to IRS.gov/WOTC.
If you’re filing your tax return or paying your federal
Correcting a previously filed Form 941. If you discover ! taxes electronically, a valid employer identification
an error on a previously filed Form 941, make the correction CAUTION number (EIN) is required at the time the return is filed
using Form 941-X. Form 941-X is filed separately from Form or the payment is made. If a valid EIN isn't provided, the
941. For more information, see the Instructions for Form return or payment won't be processed. This may result in
941-X, section 13 of Pub. 15, or go to IRS.gov/ penalties. See Employer identification number (EIN), later, for
CorrectingEmploymentTaxes. information about applying for an EIN.
Federal tax deposits must be made by electronic funds Electronic funds withdrawal (EFW). If you file Form 941
transfer (EFT). You must use EFT to make all federal tax electronically, you can e-file and use EFW to pay the balance
deposits. Generally, an EFT is made using the Electronic due in a single step using tax preparation software or through
Federal Tax Payment System (EFTPS). If you don't want to a tax professional. However, don't use EFW to make federal
use EFTPS, you can arrange for your tax professional, tax deposits. For more information on paying your taxes
financial institution, payroll service, or other trusted third party using EFW, go to IRS.gov/EFW.
to make electronic deposits on your behalf. Also, you may
Credit or debit card payments. You can pay the balance
arrange for your financial institution to initiate a same-day
due shown on Form 941 by credit or debit card. Your
wire payment on your behalf. EFTPS is a free service
payment will be processed by a payment processor who will
provided by the Department of the Treasury. Services
charge a processing fee. Don't use a credit or debit card to
provided by your tax professional, financial institution, payroll
make federal tax deposits. For more information on paying
service, or other third party may have a fee.
your taxes with a credit or debit card, go to IRS.gov/
For more information on making federal tax deposits, see PayByCard.
section 11 of Pub. 15. To get more information about EFTPS
or to enroll in EFTPS, go to EFTPS.gov, or call 800-555-4477 Online payment agreement. You may be eligible to apply
or 800-733-4829 (TDD). Additional information about EFTPS for an installment agreement online if you can't pay the full
is also available in Pub. 966. amount of tax you owe when you file your return. For more
information, see What if you can't pay in full, later.
For an EFTPS deposit to be on time, you must
submit the deposit by 8 p.m. Eastern time the day Paid preparers. If you use a paid preparer to complete
!
CAUTION before the date the deposit is due. Form 941, the paid preparer must complete and sign the paid
preparer's section of the form.
Same-day wire payment option. If you fail to submit a
deposit transaction on EFTPS by 8 p.m. Eastern time the day Where can you get telephone help? For answers to your
before the date a deposit is due, you can still make your questions about completing Form 941 or tax deposit rules,
deposit on time by using the Federal Tax Collection Service you can call the IRS at 800-829-4933 or 800-829-4059
(FTCS) to make a same-day wire payment. To use the (TDD/TTY for persons who are deaf, hard of hearing, or have
same-day wire payment method, you will need to make a speech disability), Monday–Friday from 7:00 a.m. to 7:00
arrangements with your financial institution ahead of time. p.m. local time (Alaska and Hawaii follow Pacific time).
Please check with your financial institution regarding Photographs of missing children. The IRS is a proud
availability, deadlines, and costs. Your financial institution partner with the National Center for Missing & Exploited
may charge you a fee for payments made this way. To learn Children® (NCMEC). Photographs of missing children
more about the information you will need to give your selected by the Center may appear in instructions on pages
financial institution to make a same-day wire payment, go to that would otherwise be blank. You can help bring these
IRS.gov/SameDayWire. children home by looking at the photographs and calling
Timeliness of federal tax deposits. If a deposit is 1-800-THE-LOST (1-800-843-5678) if you recognize a child.
required to be made on a day that isn't a business day, the
deposit is considered timely if it is made by the close of the
next business day. A business day is any day other than a
Saturday, Sunday, or legal holiday. The term “legal holiday”
for deposit purposes includes only those legal holidays in the
Instructions for Form 941 (Rev. 7-2020) -3-
Exhibit 3
Page 3 of 20
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 73 of 211
paid no wages. To tell the IRS that you won't file a return for
General Instructions: one or more quarters during the year, check the box on
line 18 every quarter you file Form 941. See section 12 of
Purpose of Form 941 Pub. 15 for more information.
• Employers of household employees don't usually file
These instructions give you some background information Form 941. See Pub. 926 and Schedule H (Form 1040 or
about Form 941. They tell you who must file Form 941, how 1040-SR) for more information.
to complete it line by line, and when and where to file it. • Employers of farm employees don't file Form 941 for
If you want more in-depth information about payroll tax wages paid for agricultural labor. See Form 943 and Pub. 51
topics relating to Form 941, see Pub. 15 or go to IRS.gov/ for more information.
EmploymentTaxes. If none of the these exceptions apply and you haven't
Federal law requires you, as an employer, to withhold TIP filed a final return, you must file Form 941 each
certain taxes from your employees' pay. Each time you pay quarter even if you didn't pay wages during the
wages, you must withhold—or take out of your employees' quarter. Use IRS e-file, if possible.
pay—certain amounts for federal income tax, social security
tax, and Medicare tax. You must also withhold Additional Requesting To File Forms 941 Instead of Form
Medicare Tax from wages you pay to an employee in excess 944, or Requesting To File Form 944 Instead of
of $200,000 in a calendar year. Under the withholding
system, taxes withheld from your employees are credited to
Forms 941
your employees in payment of their tax liabilities. Requesting to file Forms 941 instead of Form 944.
Federal law also requires you to pay any liability for the Employers that would otherwise be required to file Form 944,
employer share of social security and Medicare taxes. This Employer's ANNUAL Federal Tax Return, may contact the
share of social security and Medicare taxes isn't withheld IRS to request to file quarterly Forms 941 instead of annual
from employees. Form 944. To request to file quarterly Forms 941 to report
your social security and Medicare taxes for the 2020
Who Must File Form 941? calendar year, you must either call the IRS at 800-829-4933
between January 1, 2020, and April 1, 2020, or send a
If you pay wages subject to federal income tax withholding or written request postmarked between January 1, 2020, and
social security and Medicare taxes, you must file Form 941 March 16, 2020. After you contact the IRS, the IRS will send
quarterly to report the following amounts. you a written notice that your filing requirement has been
• Wages you’ve paid. changed to Forms 941. You must receive written notice from
• Tips your employees reported to you. the IRS to file Forms 941 instead of Form 944 before you
• Federal income tax you withheld. may file these forms. If you don't receive this notice, you must
• Both the employer and the employee share of social file Form 944 for calendar year 2020.
security and Medicare taxes.
Requesting to file Form 944 instead of Forms 941. If
• Additional Medicare Tax withheld from employees. you’re required to file Forms 941 but believe your
• Current quarter's adjustments to social security and employment taxes for calendar year 2020 will be $1,000 or
Medicare taxes for fractions of cents, sick pay, tips, and
less, you may request to file Form 944 instead of Forms 941
group-term life insurance.
by calling the IRS at 800-829-4933 between January 1, 2020,
• Deferred amount of the employer share of social security and April 1, 2020, or sending a written request postmarked
tax.
between January 1, 2020, and March 16, 2020. After you
• Deferred amount of the employee share of social security contact the IRS, the IRS will send you a written notice that
tax.
your filing requirement has been changed to Form 944. You
• Qualified small business payroll tax credit for increasing must receive written notice from the IRS to file Form 944
research activities.
instead of Forms 941 before you may file this form. If you
• Credit for qualified sick and family leave wages. don't receive this notice, you must file Forms 941 for calendar
• Employee retention credit. year 2020.
Don't use Form 941 to report backup withholding or
Where to send written requests. Written requests should
income tax withholding on nonpayroll payments such as
be sent to:
pensions, annuities, and gambling winnings. Report these
types of withholding on Form 945, Annual Return of Withheld
Federal Income Tax. Also, don't use Form 941 to report Department of the Treasury Department of the Treasury
unemployment taxes. Report unemployment taxes on Form Internal Revenue Service or Internal Revenue Service
940, Employer's Annual Federal Unemployment (FUTA) Tax Ogden, UT 84201-0038 Cincinnati, OH 45999-0038
Return.
After you file your first Form 941, you must file a return for If you would mail your return filed without a payment to
each quarter, even if you have no taxes to report, unless you Ogden, as shown under Where Should You File, later, send
filed a final return or one of the exceptions listed next applies. your request to the Ogden address shown above. If you
would mail your return filed without a payment to Kansas
Exceptions City, send your request to the address for Cincinnati shown
Special rules apply to some employers. above. For more information about these procedures, see
• If you received notification to file Form 944, you must file Rev. Proc. 2009-51, 2009-45 I.R.B. 625, available at
Form 944 annually; don't file Form 941 quarterly. IRS.gov/irb/2009-45_IRB#RP-2009-51.
• Seasonal employers don't have to file a Form 941 for
quarters in which they have no tax liability because they have
-4- Instructions for Form 941 (Rev. 7-2020)
Exhibit 3
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What if You Reorganize or Close Your When To File Form 941
Business?
Your Form 941 is due by the last day of the month that follows the end of the
If You Sell or Transfer Your Business . . . quarter.
If you sell or transfer your business during the quarter, you Form 941
and the new owner must each file a Form 941 for the quarter The Quarter Includes . . . Quarter Ends Is Due
in which the transfer occurred. Report only the wages you 1. January, February, March March 31 April 30
paid. 2. April, May, June June 30 July 31
3. July, August, September September 30 October 31
When two businesses merge, the continuing firm must file
4. October, November, December December 31 January 31
a return for the quarter in which the change took place and
the other firm should file a final return. For example, you must generally report wages you pay
during the first quarter—which is January through March—by
Changing from one form of business to another—such as April 30. If you made timely deposits in full payment of your
from a sole proprietorship to a partnership or corporation—is taxes for the quarter, you may file by the 10th day of the 2nd
considered a transfer. If a transfer occurs, you may need a month that follows the end of the quarter. For example, you
new EIN. See Pub. 1635 and section 1 of Pub. 15 for more may file Form 941 by May 10 if you made timely deposits in
information. full payment of your taxes for the 1st quarter.
Attach a statement to your return with: If we receive Form 941 after the due date, we will treat
• The new owner's name (or the new name of the business); Form 941 as filed on time if the envelope containing Form
• Whether the business is now a sole proprietorship, 941 is properly addressed, contains sufficient postage, and is
partnership, or corporation; postmarked by the U.S. Postal Service on or before the due
• The kind of change that occurred (a sale or transfer); date, or sent by an IRS-designated private delivery service
• The date of the change; and (PDS) on or before the due date. If you don't follow these
• The name of the person keeping the payroll records and guidelines, we will generally consider Form 941 filed when it
the address where those records will be kept. is actually received. For more information about PDSs, see
Where Should You File, later.
If Your Business Has Closed . . . If any due date for filing falls on a Saturday, Sunday, or
If you permanently go out of business or stop paying wages legal holiday, you may file your return on the next business
to your employees, you must file a final return. To tell the IRS day.
that Form 941 for a particular quarter is your final return,
check the box on line 17 and enter the final date you paid How Should You Complete Form 941?
wages. Also attach a statement to your return showing the Type or print your EIN, name, and address in the spaces
name of the person keeping the payroll records and the provided. Also enter your name and EIN on the top of pages
address where those records will be kept. 2 and 3. Don't use your social security number (SSN) or
individual taxpayer identification number (ITIN). Generally,
See Terminating a business in the General Instructions for enter the business (legal) name you used when you applied
Forms W-2 and W-3 for information about earlier dates for for your EIN. For example, if you’re a sole proprietor, enter
the expedited furnishing and filing of Forms W-2 when a final “Haleigh Smith” on the “Name” line and “Haleigh's Cycles” on
Form 941 is filed. the “Trade name” line. Leave the “Trade name” line blank if it
is the same as your “Name.”
If you participated in a statutory merger or consolidation,
or qualify for predecessor-successor status due to an If you use a tax preparer to fill out Form 941, make sure
acquisition, you should generally file Schedule D (Form 941), the preparer shows your business name exactly as it
Report of Discrepancies Caused by Acquisitions, Statutory appeared when you applied for your EIN.
Mergers, or Consolidations. See the Instructions for Employer identification number (EIN). To make sure
Schedule D (Form 941) to determine whether you should file businesses comply with federal tax laws, the IRS monitors
Schedule D (Form 941) and when you should file it. tax filings and payments by using a numerical system to
When Must You File? identify taxpayers. A unique nine-digit EIN is assigned to all
corporations, partnerships, and some sole proprietors.
File your initial Form 941 for the quarter in which you first paid Businesses needing an EIN must apply for a number and use
wages that are subject to social security and Medicare taxes it throughout the life of the business on all tax returns,
or subject to federal income tax withholding. See the table payments, and reports.
titled When To File Form 941, later. Your business should have only one EIN. If you have more
than one and aren't sure which one to use, write to the IRS
Then you must file for every quarter after that—every 3 office where you file your returns (using the Without a
months—even if you have no taxes to report, unless you’re a payment address under Where Should You File, later) or call
seasonal employer or are filing your final return. See the IRS at 800-829-4933.
Seasonal employers and If Your Business Has Closed,
earlier. If you don't have an EIN, you may apply for one online by
visiting IRS.gov/EIN. You may also apply for an EIN by faxing
File Form 941 only once for each quarter. If you filed or mailing Form SS-4 to the IRS. If the principal business was
electronically, don't file a paper Form 941. For more created or organized outside of the United States or U.S.
information about filing Form 941 electronically, see territories, you may also apply for an EIN by calling
Electronic filing and payment, earlier. 267-941-1099 (toll call). If you haven't received your EIN by
Instructions for Form 941 (Rev. 7-2020) -5-
Exhibit 3
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the due date of Form 941, file a paper return and write • Enter your name and EIN on all pages.
“Applied For” and the date you applied in this entry space. • Enter your name, EIN, “Form 941,” and the tax year and
quarter on all attachments.
If you’re filing your tax return electronically, a valid
EIN is required at the time the return is filed. If a valid • Staple multiple sheets in the upper left corner when filing.
!
CAUTION EIN isn't provided, the return won't be accepted. This Complete all three pages. You must complete all three
may result in penalties. pages of Form 941 and sign on page 3. Failure to do so may
delay processing of your return.
Always be sure the EIN on the form you file exactly
TIP matches the EIN the IRS assigned to your business. Required Notice to Employees About the
Don't use your SSN or ITIN on forms that ask for an Earned Income Credit (EIC)
EIN. Filing a Form 941 with an incorrect EIN or using another
To notify employees about the EIC, you must give the
business's EIN may result in penalties and delays in
employees one of the following items.
processing your return.
• Form W-2 which has the required information about the
EIC on the back of Copy B.
If you change your business name, business address,
or responsible party... Notify the IRS immediately if you • A substitute Form W-2 with the same EIC information on
the back of the employee's copy that is on Copy B of the IRS
change your business name, business address, or
Form W-2.
responsible party.
• Write to the IRS office where you file your returns (using • Notice 797, Possible Federal Tax Refund Due to the
Earned Income Credit (EIC).
the Without a payment address under Where Should You
File, later) to notify the IRS of any business name change. • Your written statement with the same wording as
Notice 797.
See Pub.1635 to see if you need to apply for a new EIN.
• Complete and mail Form 8822-B to notify the IRS of a For more information, see section 10 of Pub. 15, Pub. 596,
business address or responsible party change. Don't mail and IRS.gov/EIC.
Form 8822-B with your Form 941. For a definition of
“responsible party,” see the Instructions for Form SS-4. Reconciling Forms 941 and Form W-3
Check the Box for the Quarter The IRS matches amounts reported on your four quarterly
Forms 941 with Form W-2 amounts totaled on your yearly
Under “Report for this Quarter of 2020” at the top of Form Form W-3, Transmittal of Wage and Tax Statements. If the
941, check the appropriate box of the quarter for which amounts don't agree, you may be contacted by the IRS or the
you’re filing. Make sure the quarter checked is the same as Social Security Administration (SSA). The following amounts
shown on any attached Schedule B (Form 941), Report of are reconciled.
Tax Liability for Semiweekly Schedule Depositors, or • Federal income tax withholding.
Schedule R (Form 941). • Social security wages.
Don't use the July 2020 revision of Form 941 to • Social security tips.
! report employment taxes for the first or second • Medicare wages and tips.
CAUTION quarter of 2020. Use the April 2020 revision of Form
941 to report employment taxes for the second quarter of For more information, see section 12 of Pub. 15 and the
2020, and use the January 2020 revision of Form 941 to Instructions for Schedule D (Form 941).
report employment taxes for the first quarter of 2020.
Where Should You File?
Completing and Filing Form 941 You’re encouraged to file Form 941 electronically. Go to
Make entries on Form 941 as follows to enable accurate IRS.gov/EmploymentEfile for more information on electronic
scanning and processing. filing. If you file a paper return, where you file depends on
• Use 10-point Courier font (if possible) for all entries if whether you include a payment with Form 941. Mail your
you’re typing or using a computer to complete your form. return to the address listed for your location in the table that
Portable Document Format (PDF) forms on IRS.gov have follows.
fillable fields with acceptable font specifications.
PDSs can't deliver to P.O. boxes. You must use the U.S.
• Don't enter dollar signs and decimal points. Commas are Postal Service to mail an item to a P.O. box address. Go to
optional. Enter dollars to the left of the preprinted decimal
point and cents to the right of it. Don’t round entries to whole IRS.gov/PDS for the current list of PDSs. For the IRS mailing
dollars. Always show an amount for cents, even if it is zero. address to use if you’re using a PDS, go to IRS.gov/
PDSstreetAddresses. Select the mailing address listed on
• Leave blank any data field (except lines 1, 2, and 12) with the webpage that is in the same state as the address to
a value of zero.
which you would mail returns filed without a payment, as
• Enter negative amounts using a minus sign (if possible). shown next.
Otherwise, use parentheses.
-6- Instructions for Form 941 (Rev. 7-2020)
Exhibit 3
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Mailing Addresses for Form 941
If you’re in . . . Without a payment . . . With a payment . . .
Connecticut, Delaware, District of Columbia, Georgia, Illinois, Indiana, Department of the Treasury Internal Revenue Service
Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, Internal Revenue Service P.O. Box 806532
New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Kansas City, MO 64999-0005 Cincinnati, OH 45280-6532
South Carolina, Tennessee, Vermont, Virginia, West Virginia, Wisconsin
Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Hawaii, Department of the Treasury Internal Revenue Service
Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Internal Revenue Service P.O. Box 932100
Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Ogden, UT 84201-0005 Louisville, KY 40293-2100
Dakota, Texas, Utah, Washington, Wyoming
No legal residence or principal place of business in any state Internal Revenue Service Internal Revenue Service
P.O. Box 409101 P.O. Box 932100
Ogden, UT 84409 Louisville, KY 40293-2100
Special filing address for exempt organizations; federal, state, and local Department of the Treasury Internal Revenue Service
governmental entities; and Indian tribal governmental entities, regardless of Internal Revenue Service P.O. Box 932100
location Ogden, UT 84201-0005 Louisville, KY 40293-2100
Your filing address may have changed from that payments due after January 1, 2021, that are required for
! used to file your employment tax return in prior years. wages paid during the quarter ending on December 31,
CAUTION Don't send Form 941 or any payments to the SSA. 2020. Employers can also defer the withholding and payment
of the employee share of social security tax on wages paid
Depositing Your Taxes on or after September 1, 2020, and on or before December
31, 2020, but only if the amount of social security wages for a
You must deposit all depository taxes electronically biweekly pay period was less than $4,000 (or an equivalent
! by EFT. For more information, see Federal tax amount for other pay periods). The deferred amount of the
CAUTION deposits must be made by electronic funds transfer employer and employee share of social security tax is
(EFT) under Reminders, earlier. reported on line 13b. Employers will also separately report on
line 24 the deferred amount of the employee share of social
Must You Deposit Your Taxes? security tax that is included on line 13b. See the instructions
for line 13b for more information about the deferral of the
You may have to deposit the federal income taxes you
employer and employee share of social security tax.
withheld and both the employer and employee social security
taxes and Medicare taxes. Reducing your deposits for COVID-19 credits.
• If your total taxes after adjustments and Employers eligible to claim the credit for qualified sick and
nonrefundable credits (line 12) are less than $2,500 for family leave wages and/or the employee retention credit can
the current quarter or the prior quarter, and you didn't reduce their deposits by the amount of their anticipated
incur a $100,000 next-day deposit obligation during the credits. Employers won’t be subject to an FTD penalty for
current quarter. You don't have to make a deposit. To avoid reducing their deposits if certain conditions are met. See the
a penalty, you must pay any amount due in full with a timely instructions for line 11b and line 11c for more information on
filed return or you must deposit any amount you owe by the these credits. This reduction in deposits is in addition to the
due date of the return. For more information on paying with a ability employers have to reduce their deposits by the amount
timely filed return, see the instructions for line 14, later. If of the employer share of social security tax they defer. For
you’re not sure your total tax liability for the current quarter more information on reducing deposits, see Notice 2020-22,
will be less than $2,500 (and your liability for the prior quarter 2020-17 I.R.B. 664, available at IRS.gov/irb/
wasn't less than $2,500), make deposits using the 2020-17_IRB#NOT-2020-22, and IRS.gov/ETD. Also see
semiweekly or monthly rules so you won't be subject to IRS.gov/ERC and IRS.gov/PLC for more information,
failure-to-deposit (FTD) penalties. including examples, about reducing deposits. See the
• If your total taxes after adjustments and instructions for line 16, later, for information on adjusting tax
nonrefundable credits (line 12) are $2,500 or more for liabilities reported on line 16 or Schedule B (Form 941) for
the current quarter and the prior quarter. You must make nonrefundable credits.
deposits according to your deposit schedule. See section 11
of Pub. 15 for information about payments made under the When Must You Deposit Your Taxes?
accuracy of deposits rule and for rules about federal tax Determine if You’re a Monthly or Semiweekly
deposits.
Schedule Depositor for the Quarter
Deferring your deposits. Employers may defer the
The IRS uses two different sets of deposit rules to determine
deposit and payment of the employer share of social security
when businesses must deposit their social security,
tax that would otherwise be due during the quarter. The
Medicare, and withheld federal income taxes. These
deferral applies before any of the nonrefundable credits
schedules tell you when a deposit is due after you have a
claimed on line 11a, 11b, or 11c. However, the deferral
payday.
doesn't reduce the amount of the employer share of social
security tax used to figure those nonrefundable credits. The Your deposit schedule isn't determined by how often you
deferral of the employer share of social security tax applies pay your employees. Your deposit schedule depends on the
for deposits and payments due on or after March 27, 2020, total tax liability you reported on Form 941 during the
and before January 1, 2021, as well as deposits and
Instructions for Form 941 (Rev. 7-2020) -7-
Exhibit 3
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Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 77 of 211
previous 4-quarter lookback period (July 1 of the second
preceding calendar year through June 30 of the preceding
Adjustment of Tax on Tips
calendar year). See section 11 of Pub. 15 for details. If you If, by the 10th of the month after the month you received an
filed Form 944 in either 2018 or 2019, your lookback period is employee's report on tips, you don't have enough employee
the 2018 calendar year. funds available to withhold the employee share of social
security and Medicare taxes, you no longer have to collect it.
Before the beginning of each calendar year, determine Report the entire amount of these tips on line 5b (Taxable
which type of deposit schedule you must use. social security tips), line 5c (Taxable Medicare wages and
• If you reported $50,000 or less in taxes during the tips), and, if the withholding threshold is met, line 5d (Taxable
lookback period, you’re a monthly schedule depositor. wages and tips subject to Additional Medicare Tax
• If you reported more than $50,000 of taxes during the withholding). Include as a negative adjustment on line 9 the
lookback period, you’re a semiweekly schedule depositor. total uncollected employee share of the social security and
If you’re a monthly schedule depositor and Medicare taxes.
! accumulate a $100,000 tax liability on any day during
CAUTION the deposit period, you become a semiweekly
schedule depositor on the next day and remain so for at least Specific Instructions:
the rest of the calendar year and for the following calendar
year. See $100,000 Next-Day Deposit Rule in section 11 of
Part 1: Answer These Questions for
Pub. 15 for more information. The $100,000 tax liability This Quarter
threshold requiring a next-day deposit is determined before
you consider any reduction of your liability for nonrefundable 1. Number of Employees Who Received Wages,
credits. See IRS.gov/ETD for more information.
Tips, or Other Compensation
What About Penalties and Interest? Enter the number of employees on your payroll for the pay
period including September 12 or December 12 for the
quarter indicated at the top of Form 941. Don't include:
Avoiding Penalties and Interest • Household employees,
You can avoid paying penalties and interest if you do all of • Employees in nonpay status for the pay period,
the following. • Farm employees,
• Deposit or pay your taxes when they are due, unless you • Pensioners, or
meet the requirements discussed in Notice 2020-22 or • Active members of the Armed Forces.
IRS.gov/ETD, or you have chosen to use the relief provided
in Notice 2020-65, 2020-38 I.R.B. 567, available at For purposes of these instructions, all references to
IRS.gov/irb/2020-38_IRB#NOT-2020-65. TIP “sick pay” mean ordinary sick pay, not “qualified sick
• File your fully completed Form 941 on time. leave wages” that are reported on line 5a(i).
• Report your tax liability accurately.
• Submit valid checks for tax payments. 2. Wages, Tips, and Other Compensation
• Furnish accurate Forms W-2 to employees. Enter amounts on line 2 that would also be included in box 1
• File Form W-3 and Copy A of Forms W-2 with the SSA on of your employees' Forms W-2. See Box 1—Wages, tips,
time and accurately. other compensation in the General Instructions for Forms
Penalties and interest are charged on taxes paid late and W-2 and W-3 for details. Include sick pay paid by your agent.
returns filed late at a rate set by law. See sections 11 and 12 Also include sick pay paid by a third party that isn't your
of Pub. 15 for details. agent (for example, an insurance company) if you were given
timely notice of the payments and the third party transferred
Use Form 843 to request abatement of assessed
liability for the employer's taxes to you.
penalties or interest. Don't request abatement of assessed
penalties or interest on Form 941 or Form 941-X. If you’re a third-party payer of sick pay and not an agent of
the employer, don't include sick pay that you paid to
If you receive a notice about a penalty after you file this
policyholders' employees here if you gave the policyholders
return, reply to the notice with an explanation and we will
timely notice of the payments. See section 6 of Pub. 15-A for
determine if you meet reasonable-cause criteria. Don't attach
more information about sick pay reporting and the
an explanation when you file your return.
procedures for transferring the liability to the employer.
If federal income, social security, and Medicare taxes
! that must be withheld (that is, trust fund taxes) aren't 3. Federal Income Tax Withheld From Wages,
CAUTION withheld or aren't deposited or paid to the United
Tips, and Other Compensation
States Treasury, the trust fund recovery penalty may apply. Enter the federal income tax you withheld (or were required
The penalty is 100% of the unpaid trust fund tax. If these to withhold) from your employees on this quarter's wages,
unpaid taxes can't be immediately collected from the including qualified sick leave wages, qualified family leave
employer or business, the trust fund recovery penalty may be wages, and qualified wages (excluding qualified health plan
imposed on all persons who are determined by the IRS to be expenses) for the employee retention credit; tips; taxable
responsible for collecting, accounting for, or paying over fringe benefits; and supplemental unemployment
these taxes, and who acted willfully in not doing so. For more compensation benefits. Don't include any income tax
information, see section 11 of Pub. 15. The trust fund withheld by a third-party payer of sick pay even if you
recovery penalty won't apply to any amount of trust fund reported it on Forms W-2. You will reconcile this difference
taxes an employer holds back in anticipation of any credits on Form W-3. Also include here any excise taxes you were
they are entitled to. It also won't apply to applicable taxes required to withhold on golden parachute payments (section
deferred under Notice 2020-65 before May 1, 2021. 4999). For information on the employment tax treatment of
-8- Instructions for Form 941 (Rev. 7-2020)
Exhibit 3
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Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 78 of 211
fringe benefits, see Pub. 15-B, Employer's Tax Guide to employer share of social security tax; therefore, the tax rate
Fringe Benefits. For information about supplemental on these wages is 6.2% (0.062). Stop paying social security
unemployment compensation benefits and golden parachute tax on and entering an employee's wages on line 5a(i) when
payments, see section 5 of Pub. 15-A. the employee's taxable wages, including wages reported on
line 5a, qualified sick leave wages, qualified family leave
If you’re a third-party payer of sick pay, enter the federal wages, and tips, reach $137,700 for the year. See the
income tax you withheld (or were required to withhold) on instructions for line 5c for reporting Medicare tax on qualified
third-party sick pay here. sick leave wages, including the portion above the social
security wage base.
4. If No Wages, Tips, and Other Compensation
Qualified sick leave wages are wages for social security
Are Subject to Social Security or Medicare and Medicare tax purposes required to be paid under the
Tax . . . Emergency Paid Sick Leave Act (EPSLA) as enacted under
If no wages, tips, and other compensation on line 2 are the Families First Coronavirus Response Act (FFCRA). See
subject to social security or Medicare tax, check the box on the instructions for line 11b for information about the credit for
line 4. If this question doesn't apply to you, leave the box qualified sick and family leave wages.
blank. For more information about exempt wages, see
section 15 of Pub. 15. For religious exemptions, see section line 5a(i) (column 1)
4 of Pub. 15-A. x 0.062
line 5a(i) (column 2)
If you’re a government employer, wages you pay
! aren't automatically exempt from social security and
CAUTION Medicare taxes. Your employees may be covered by
law or by a voluntary Section 218 Agreement with the SSA. Emergency Paid Sick Leave Act (EPSLA). The EPSLA
For more information, see Pub. 963, Federal-State requires certain government employers and private
Reference Guide. employers with fewer than 500 employees to provide paid
sick leave to employees unable to work or telework after
5a–5e. Taxable Social Security and Medicare March 31, 2020, and before January 1, 2021, because the
Wages and Tips employee:
1. Is subject to a federal, state, or local quarantine or
5a. Taxable social security wages. Enter the total wages, isolation order related to COVID-19;
including qualified wages (other than qualified health plan
expenses) for the employee retention credit; sick pay; and 2. Has been advised by a health care provider to
taxable fringe benefits subject to social security taxes you self-quarantine due to concerns related to COVID-19;
paid to your employees during the quarter. Don't include the 3. Is experiencing symptoms of COVID-19 and seeking a
qualified sick leave wages reported on line 5a(i) or qualified medical diagnosis;
family leave wages reported on line 5a(ii). For this purpose, 4. Is caring for an individual subject to an order described
sick pay includes payments made by an insurance company in (1) or who has been advised as described in (2);
to your employees for which you received timely notice from
5. Is caring for a child if the school or place of care has
the insurance company. See section 6 of Pub. 15-A for more
been closed, or the childcare provider is unavailable, due to
information about sick pay reporting. See the instructions for
COVID-19 precautions; or
line 8 for an adjustment that you may need to make on Form
941 for sick pay. 6. Is experiencing any other substantially similar
condition specified by the U.S. Department of Health and
Enter the amount before payroll deductions. Don't include
Human Services.
tips on this line. For information on types of wages subject to
social security taxes, see section 5 of Pub. 15. Government employers aren't eligible for the credit
For 2020, the rate of social security tax on taxable wages, TIP for qualified sick and family leave wages; however,
except for qualified sick leave wages and qualified family as with any employer, government employers aren't
leave wages, is 6.2% (0.062) each for the employer and liable for the employer share of the social security tax on the
employee or 12.4% (0.124) for both. Stop paying social qualified sick leave wages paid to employees.
security tax on and entering an employee's wages on line 5a Limits on qualified sick leave wages. The EPSLA
when the employee's taxable wages, including qualified sick provides different limitations for different circumstances
leave wages, qualified family leave wages, and tips, reach under which qualified sick leave wages are paid. For paid
$137,700 for the year. However, continue to withhold income sick leave qualifying under (1), (2), or (3) above, the amount
and Medicare taxes for the whole year on all wages, of qualified sick leave wages is determined at the employee's
including qualified sick leave wages, qualified family leave regular rate of pay, but the wages may not exceed $511 for
wages, and tips, even when the social security wage base of any day (or portion of a day) for which the individual is paid
$137,700 has been reached. sick leave. For paid sick leave qualifying under (4), (5), or (6)
above, the amount of qualified sick leave wages is
line 5a (column 1)
determined at two-thirds the employee's regular rate of pay,
x 0.124 but the wages may not exceed $200 for any day (or portion of
line 5a (column 2) a day) for which the individual is paid sick leave. The EPSLA
also limits each individual to a maximum of up to 80 hours of
paid sick leave for the year. Therefore, the maximum amount
5a(i). Qualified sick leave wages. Enter the qualified of paid sick leave wages for the year can’t exceed $5,110 for
taxable sick leave wages you paid to your employees during an employee for leave under (1), (2), or (3), and it can’t
the quarter. Qualified sick leave wages aren't subject to the exceed $2,000 for an employee for leave under (4), (5), or
Instructions for Form 941 (Rev. 7-2020) -9-
Exhibit 3
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Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 79 of 211
(6). For more information from the Department of Labor on For more information about qualified family leave wages,
these requirements and limits, see DOL.gov/agencies/whd/ go to IRS.gov/PLC.
pandemic.
5b. Taxable social security tips. Enter all tips your
For more information about qualified sick leave wages, go employees reported to you during the quarter until the total of
to IRS.gov/PLC. the tips and taxable wages, including qualified sick leave
5a(ii). Qualified family leave wages. Enter the qualified wages and qualified family leave wages, for an employee
taxable family leave wages you paid to your employees reach $137,700 for the year. Include all tips your employee
during the quarter. Qualified family leave wages aren't reported to you even if you were unable to withhold the
subject to the employer share of social security tax; employee tax of 6.2%. You will reduce your total taxes by the
therefore, the tax rate on these wages is 6.2% (0.062). Stop amount of any uncollected employee share of social security
paying social security tax on and entering an employee's and Medicare taxes on tips later on line 9; see Current
wages on line 5a(ii) when the employee's taxable wages, quarter's adjustments for tips and group-term life insurance,
including wages reported on line 5a, qualified sick leave later. Don’t include service charges on line 5b. For details
wages, qualified family leave wages, and tips, reach about the difference between tips and service charges, see
$137,700 for the year. See the instructions for line 5c for Rev. Rul. 2012-18, 2012-26 I.R.B. 1032, available at
reporting Medicare tax on qualified family leave wages, IRS.gov/irb/2012-26_IRB#RR-2012-18.
including the portion above the social security wage base. Your employee must report cash tips to you by the 10th
Qualified family leave wages are wages for social security day of the month after the month the tips are received. Cash
and Medicare tax purposes required to be paid under the tips include tips paid by cash, check, debit card, and credit
Emergency Family and Medical Leave Expansion Act as card. The report should include charged tips (for example,
enacted under the FFCRA. See the instructions for line 11b credit and debit card charges) you paid over to the employee
for information about the credit for qualified sick and family for charge customers, tips the employee received directly
leave wages. from customers, and tips received from other employees
under any tip-sharing arrangement. Both directly and
line 5a(ii) (column 1) indirectly tipped employees must report tips to you. No report
x 0.062 is required for months when tips are less than $20.
line 5a(ii) (column 2) Employees may use Form 4070 (available only in Pub.
1244), or submit a written statement or electronic tip record.
Don't include allocated tips (described in section 6 of Pub.
15) on this line. Instead, report them on Form 8027. Allocated
Emergency Family and Medical Leave Expansion Act. tips aren't reportable on Form 941 and aren't subject to
The Emergency Family and Medical Leave Expansion Act withholding of federal income, social security, or Medicare
requires certain government employers and private taxes.
employers with fewer than 500 employees to provide paid
family leave under the Family and Medical Leave Act of 1993 line 5b (column 1)
to an employee who has been employed for at least 30 x 0.124
calendar days. The requirement to provide leave generally line 5b (column 2)
applies when an employee is unable to work or telework after
March 31, 2020, and before January 1, 2021, due to the
need to care for a child because the school or place of care
5c. Taxable Medicare wages & tips. Enter all wages,
has been closed, or the childcare provider is unavailable, due
including qualified sick leave wages, qualified family leave
to COVID-19 related reasons. The first 10 days for which an
wages, and qualified wages (excluding qualified health plan
employee takes leave may be unpaid. During this period,
expenses) for the employee retention credit; tips; sick pay;
employees may use other forms of paid leave, such as
and taxable fringe benefits that are subject to Medicare tax.
qualified sick leave, accrued sick leave, annual leave, or
Unlike social security wages, there is no limit on the amount
other paid time off. After an employee takes leave for 10
of wages subject to Medicare tax.
days, the employer must provide the employee paid leave
(that is, qualified family leave wages) for up to 10 weeks. For The rate of Medicare tax is 1.45% (0.0145) each for the
more information from the Department of Labor on these employer and employee or 2.9% (0.029) for both. Include all
requirements, possible exceptions, and the limitations tips your employees reported during the quarter, even if you
discussed below, see DOL.gov/agencies/whd/pandemic. were unable to withhold the employee tax of 1.45%.
Government employers aren't eligible for the credit line 5c (column 1)
TIP for qualified sick and family leave wages; however, x 0.029
as with any employer, government employers aren't line 5c (column 2)
liable for the employer share of the social security tax on the
qualified family leave wages paid to employees.
Rate of pay and limit on wages. The rate of pay must For more information on tips, see section 6 of Pub. 15.
be at least two-thirds of the employee’s regular rate of pay See the instructions for line 8 for an adjustment that you may
(as determined under the Fair Labor Standards Act of 1938), need to make on Form 941 for sick pay.
multiplied by the number of hours the employee otherwise 5d. Taxable wages & tips subject to Additional Medicare
would have been scheduled to work. The qualified family Tax withholding. Enter all wages, including qualified sick
leave wages can’t exceed $200 per day or $10,000 in the leave wages, qualified family leave wages, and qualified
aggregate per employee for the year. wages (excluding qualified health plan expenses) for the
employee retention credit; tips; sick pay; and taxable fringe
-10- Instructions for Form 941 (Rev. 7-2020)
Exhibit 3
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Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 80 of 211
benefits that are subject to Additional Medicare Tax 7–9. Tax Adjustments
withholding. You’re required to begin withholding Additional Enter tax amounts on lines 7–9 that result from current
Medicare Tax in the pay period in which you pay wages in quarter adjustments. Use a minus sign (if possible) to show
excess of $200,000 to an employee and continue to withhold an adjustment that decreases the total taxes shown on line 6
it each pay period until the end of the calendar year. instead of parentheses. Doing so enhances the accuracy of
Additional Medicare Tax is only imposed on the employee. our scanning software. For example, enter “-10.59” instead of
There is no employer share of Additional Medicare Tax. All “(10.59).” However, if your software only allows for
wages that are subject to Medicare tax are subject to parentheses in entering negative amounts, you may use
Additional Medicare Tax withholding if paid in excess of the them.
$200,000 withholding threshold.
For more information on what wages are subject to Current quarter's adjustments. In certain cases, you must
Medicare tax, see the chart, Special Rules for Various Types adjust the amounts you entered as social security and
of Services and Payments, in section 15 of Pub. 15. For more Medicare taxes in column 2 of lines 5a–5d to figure your
information on Additional Medicare Tax, go to IRS.gov/ correct tax liability for this quarter's Form 941. See section 13
ADMT. See the instructions for line 8 for an adjustment that of Pub. 15.
you may need to make on Form 941 for sick pay. 7. Current quarter's adjustment for fractions of cents.
Enter adjustments for fractions of cents (due to rounding)
Once wages and tips exceed the $200,000 withholding relating to the employee share of social security and
threshold, include all tips your employees reported during the Medicare taxes withheld. The employee share of amounts
quarter, even if you were unable to withhold the employee tax shown in column 2 of lines 5a–5d may differ slightly from
of 0.9%. amounts actually withheld from employees' pay due to the
line 5d (column 1) rounding of social security and Medicare taxes based on
statutory rates. This adjustment may be a positive or a
x 0.009
negative adjustment.
line 5d (column 2)
8. Current quarter's adjustment for sick pay. If your
third-party payer of sick pay that isn't your agent (for
example, an insurance company) transfers the liability for the
5e. Total social security and Medicare taxes. Add the employer share of the social security and Medicare taxes to
column 2 amounts on lines 5a–5d. Enter the result on line 5e. you, enter a negative adjustment on line 8 for the employee
share of social security and Medicare taxes that were
5f. Section 3121(q) Notice and Demand—Tax withheld and deposited by your third-party sick pay payer on
Due on Unreported Tips the sick pay. If you’re the third-party sick pay payer and you
Enter the tax due from your Section 3121(q) Notice and transferred the liability for the employer share of the social
Demand on line 5f. The IRS issues a Section 3121(q) Notice security and Medicare taxes to the employer, enter a
and Demand to advise an employer of the amount of tips negative adjustment on line 8 for any employer share of
received by employees who failed to report or underreported these taxes required to be paid by the employer. The sick
tips to the employer. An employer isn't liable for the employer pay should be included on line 5a, line 5c, and, if the
share of the social security and Medicare taxes on withholding threshold is met, line 5d.
unreported tips until notice and demand for the taxes is made No adjustment is reported on line 8 for sick pay that is paid
to the employer by the IRS in a Section 3121(q) Notice and through a third party as an employer’s agent. An employer’s
Demand. The tax due may have been determined from tips agent bears no insurance risk and is reimbursed on a
reported to the IRS on employees' Forms 4137, Social cost-plus-fee basis for payment of sick pay and similar
Security and Medicare Tax on Unreported Tip Income, or amounts. If an employer uses an agent to pay sick pay, the
other tips that weren't reported to their employer as employer reports the wages on line 5a, line 5c, and, if the
determined by the IRS during an examination. For additional withholding threshold is met, line 5d, unless the employer
information, see Rev. Rul. 2012-18, 2012-26 I.R.B. 1032, has an agency agreement with the third-party payer that
available at IRS.gov/irb/2012-26_IRB#RR-2012-18. requires the third-party payer to do the collecting, reporting,
Deposit the tax within the time period required under your and/or paying or depositing employment taxes on the sick
deposit schedule to avoid any possible deposit penalty. pay. See section 6 of Pub. 15-A for more information about
However, see the instructions for line 13b, later, for sick pay reporting.
information about deferring the employer share of social 9. Current quarter's adjustments for tips and
security due from the Section 3121(q) Notice and Demand. group-term life insurance. Enter a negative adjustment
The tax is treated as accumulated by the employer on the for:
“Date of Notice and Demand” as printed on the Section • Any uncollected employee share of social security and
3121(q) Notice and Demand. The employer must include this Medicare taxes on tips, and
amount on the appropriate line of the record of federal tax • The uncollected employee share of social security and
liability (Part 2 of Form 941 for a monthly schedule depositor Medicare taxes on group-term life insurance premiums paid
or Schedule B (Form 941) for a semiweekly schedule for former employees.
depositor). See the General Instructions for Forms W-2 and W-3 for
information on how to report the uncollected employee share
6. Total Taxes Before Adjustments of social security and Medicare taxes on tips and group-term
Add the total federal income tax withheld from wages, tips, life insurance on Form W-2.
and other compensation (line 3); the total social security and Prior quarter's adjustments. If you need to correct any
Medicare taxes before adjustments (line 5e); and any tax due adjustment reported on a previously filed Form 941,
under a Section 3121(q) Notice and Demand (line 5f). Enter complete and file Form 941-X. Form 941-X is an adjusted
the result on line 6.
Instructions for Form 941 (Rev. 7-2020) -11-
Exhibit 3
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return or claim for refund and is filed separately from Form Any credit in excess of the remaining amount of the
941. See section 13 of Pub. 15. employer share of social security tax is refundable and
reported on Form 941, line 13c. For more information on the
10. Total Taxes After Adjustments credit for qualified sick and family leave wages, go to
Combine the amounts shown on lines 6–9 and enter the IRS.gov/PLC.
result on line 10. Qualified health plan expenses allocable to qualified
sick leave and family leave wages. The credit for qualified
11a. Qualified Small Business Payroll Tax Credit sick leave wages and qualified family leave wages is
for Increasing Research Activities increased to cover the qualified health plan expenses that
Enter the amount of the credit from Form 8974, line 12. are properly allocable to the qualified leave wages for which
the credit is allowed. These qualified health plan expenses
If you enter an amount on line 11a, you must attach
are amounts paid or incurred by the employer to provide and
! Form 8974. The December 2017 revision of Form
CAUTION 8974 instructs you to enter the amount from Form
maintain a group health plan but only to the extent such
amounts are excluded from the employees’ income as
8974, line 12, on Form 941, line 11. For the second, third,
coverage under an accident or health plan. The amount of
and fourth quarters of 2020, the amount from Form 8974,
qualified health plan expenses generally includes both the
line 12, should be entered on Form 941, line 11a.
portion of the cost paid by the employer and the portion of the
cost paid by the employee with pre-tax salary reduction
11b. Nonrefundable Portion of Credit for contributions. However, qualified health plan expenses don’t
Qualified Sick and Family Leave Wages From include amounts that the employee paid for with after-tax
Worksheet 1 contributions. For more information, go to IRS.gov/PLC.
Form 941 and these instructions use the terms You must include the full amount (both the
TIP “nonrefundable” and “refundable” when discussing TIP nonrefundable and refundable portions) of the credit
credits. The term “nonrefundable” means the portion for qualified sick and family leave wages in your
of the credit which is limited by law to the amount of the gross income for the tax year that includes the last day of any
employer share of social security tax. The term “refundable” calendar quarter in which a credit is allowed. You can't use
means the portion of the credit which is in excess of the the same wages for the employee retention credit and the
employer share of social security tax. credits for paid sick and family leave.
Businesses and tax-exempt organizations with fewer than
500 employees that are required to provide paid sick leave
11c. Nonrefundable Portion of Employee
under the EPSLA and/or to provide paid family leave under Retention Credit From Worksheet 1
the Emergency Family and Medical Leave Expansion Act are An employer may not claim the employee retention
eligible to claim the credit for qualified sick and family leave credit if the employer receives a Small Business
wages for the period after March 31, 2020, and before !
CAUTION Interruption Loan under the Paycheck Protection
January 1, 2021. Enter the nonrefundable portion of the Program (PPP) that is authorized under the Coronavirus Aid,
credit for qualified sick and family leave wages from Relief, and Economic Security (CARES) Act (“Paycheck
Worksheet 1, Step 2, line 2j. The credit for qualified sick and Protection Loan”). An employer that receives a Paycheck
family leave wages consists of the qualified sick leave Protection Loan shouldn’t claim an employee retention credit.
wages, the qualified family leave wages, and the qualified An employer that applied for a Paycheck Protection Loan,
health plan expenses and employer share of Medicare tax received payment, and repaid the loan by May 18, 2020, will
allocable to those wages. The nonrefundable portion of the be treated as though the employer had not received a
credit is limited to the employer share of social security tax covered loan under the PPP for purposes of the employee
reported on Form 941, lines 5a and 5b, after that share is first retention credit.
reduced by any credit claimed on Form 8974 for the qualified
small business payroll tax credit for increasing research Enter the nonrefundable portion of the employee retention
activities, or any credit to be claimed on Form 5884-C for the credit from Worksheet 1, Step 3, line 3h. The employee
work opportunity credit for qualified tax-exempt organizations retention credit is 50% of the qualified wages you paid to your
hiring qualified veterans. employees in the quarter. Qualified wages include qualified
health plan expenses for the employee retention credit. The
If you're a third-party payer of sick pay that isn't an nonrefundable portion of the credit is limited to the employer
! agent (for example, an insurance company) and share of social security tax reported on Form 941, lines 5a
CAUTION you're claiming the credit for qualified sick and family
and 5b, after that share is first reduced by any credit claimed
leave wages for amounts paid to your own employees, the on Form 8974 for the qualified small business payroll tax
amount of the employer share of social security tax reported credit for increasing research activities, or any credit to be
on line 5a must be reduced by any adjustment you make on claimed on Form 5884-C for the work opportunity credit for
line 8 for the employer share of social security tax transferred qualified tax-exempt organizations hiring qualified veterans,
to your client. If you received a Section 3121(q) Notice and and/or any credit claimed for the nonrefundable portion of the
Demand for tax due on unreported tips (Letter 3263 or Letter credit for qualified sick and family leave wages.
4520) during the quarter, you report the amount for the
employer share of social security tax and Medicare tax on If you're a third-party payer of sick pay that isn't an
Form 941, line 5f. Letter 3263 or Letter 4520 includes an ! agent (for example, an insurance company) and
CAUTION you're claiming the employee retention credit for
attachment that shows the employer share of social security
tax. This amount of the employer share of social security tax amounts paid to your own employees, the amount of the
can also be reduced by the nonrefundable portion of the employer share of social security tax reported on line 5a must
credit. See Worksheet 1 to figure your credit. be reduced by any adjustment you make on line 8 for the
-12- Instructions for Form 941 (Rev. 7-2020)
Exhibit 3
Page 12 of 20
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 82 of 211
employer share of social security tax transferred to your plan. The amount of qualified health plan expenses taken
client. If you received a Section 3121(q) Notice and Demand into account in determining the amount of qualified wages
for tax due on unreported tips (Letter 3263 or Letter 4520) generally includes both the portion of the cost paid by the
during the quarter, you report the amount for the employer employer and the portion of the cost paid by the employee
share of social security tax and Medicare tax on Form 941, with pre-tax salary reduction contributions. However, the
line 5f. Letter 3263 or Letter 4520 includes an attachment qualified health plan expenses shouldn't include amounts
that shows the employer share of social security tax. This that the employee paid for with after-tax contributions.
amount of the employer share of social security tax can also Generally, the qualified health plan expense is the amount
be reduced by the nonrefundable portion of the credit. See that is allocable to the hours for which the employees receive
Worksheet 1 to figure your credit. qualified wages for the employee retention credit. However,
qualified health plan expenses for purposes of the employee
Any credit in excess of the remaining amount of the retention credit may include health plan expenses allocable
employer share of social security tax is refundable and to the applicable periods even if the employer isn’t paying
reported on Form 941, line 13d. For more information on the any qualified wages to the employee. For more information,
employee retention credit, go to IRS.gov/ERC. see the frequently asked questions for qualified health plan
expenses at IRS.gov/ERC.
The employee retention credit for qualified wages
TIP paid between March 13, 2020, and March 31, 2020, 11d. Total Nonrefundable Credits
is claimed on Form 941 for the second quarter of
2020. Don't file Form 941-X for the first quarter of 2020 to Add lines 11a, 11b, and 11c. Enter the total on line 11d.
claim the employee retention credit for this period.
12. Total Taxes After Adjustments and
Qualified wages for the employee retention credit. The Nonrefundable Credits
tax credit is equal to 50% of qualified wages paid to Subtract line 11d from line 10 and enter the result on line 12.
employees between March 13, 2020, and December 31,
2020. Qualified wages, including qualified health plan • If line 12 is less than $2,500 or line 12 on the prior
expenses, are limited to a maximum of $10,000 for each quarterly return was less than $2,500, and you didn't
employee for the cumulative total of all calendar quarters. incur a $100,000 next-day deposit obligation during the
Qualified wages are wages for social security and Medicare current quarter. You may pay the amount with Form 941 or
tax purposes paid to certain employees during any period in you may deposit the amount. To avoid a penalty, you must
a quarter in which your operations are fully or partially pay any amount you owe in full with a timely filed return or
suspended due to a government order or during a quarter in you must deposit any amount you owe before the due date of
which you have had a significant decline in gross receipts. the return. For more information on paying with a timely filed
The law provides that the significant decline in gross receipts return, see the instructions for line 14, later.
is the period beginning with any quarter in which your gross • If line 12 is $2,500 or more and line 12 on the prior
receipts are less than 50% of what they were in the same quarterly return was $2,500 or more, or if you incurred a
calendar quarter in 2019 and ending with the quarter that $100,000 next-day deposit obligation during the current
follows the first quarter beginning after the quarter in which quarter. You must make required deposits according to your
your gross receipts were greater than 80% of what they were deposit schedule. See Notice 2020-22, Notice 2020-65, and
in the same calendar quarter in 2019. IRS.gov/ETD for information about the reduction and deferral
of certain deposits. The amount shown on line 12 must equal
The wages and qualified health plan expenses considered the “Total liability for quarter” shown on line 16 or the “Total
in calculating your credit depend on the size of your liability for the quarter” shown on Schedule B (Form 941). For
workforce. Eligible employers that had an average number of more information, see the line 16 instructions, later.
100 or fewer full-time employees during 2019 count wages
paid to all their employees and the qualified health plan For more information and rules about federal tax deposits,
expenses paid or incurred for all employees during any see Depositing Your Taxes, earlier, and section 11 of Pub.
period in the quarter in which operations are fully or partially 15.
suspended due to a government order or during a quarter in
If you’re a semiweekly schedule depositor, you must
which there has been a significant decline in gross receipts.
! complete Schedule B (Form 941). If you fail to
Eligible employers that had an average number of more than CAUTION complete and submit Schedule B (Form 941), the
100 full-time employees in 2019 may count only wages paid
IRS may assert deposit penalties based on available
to employees for time that the employees weren't working,
information.
and qualified health plan expenses paid or incurred by the
employer allocable to the time those employees weren't
working, due to the suspension or significant decline in gross 13a. Total Deposits for This Quarter
receipts; these eligible employers can count only wages that Enter your deposits for this quarter, including any
don’t exceed what the employer would have paid that overpayment from a prior quarter that you applied to this
employee for working for the same amount of time during the return. Also include in the amount shown any overpayment
prior 30 days. More information on the employee retention that you applied from filing Form 941-X, 941-X (PR), 944-X,
credit is available at IRS.gov/ERC. or 944-X (SP) in the current quarter. Don’t include any
Qualified health plan expenses for the employee amount that you don’t deposit because you chose to defer
retention credit. Qualified wages for the employee the employer or employee share of social security tax. For
retention credit include qualified health plan expenses. more information about the deferral, see the line 13b
Qualified health plan expenses are amounts paid or incurred instructions next. Also, don’t include any amount you didn’t
by the employer to provide and maintain a group health plan deposit because you reduced your deposits in anticipation of
but only to the extent such amounts are excluded from the the credit for qualified sick and family leave wages or the
employees' income as coverage under an accident or health employee retention credit, as discussed in Notice 2020-22.
Instructions for Form 941 (Rev. 7-2020) -13-
Exhibit 3
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Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 83 of 211
13b. Deferred Amount of Social Security Tax Medicare tax on Form 941, line 5f. Letter 3263 or Letter 4520
Include on line 13b the combined amount of the employer includes an attachment that shows the employer share of
and employee share of social security tax that you're social security tax. This amount of the employer share of
deferring for the quarter. social security tax can also be deferred.
Paying the deferred amount of the employer share of
Deferred amount of the employer share of social securi- social security tax. One-half of the employer share of
ty tax. Include on line 13b the amount of the employer share social security tax is due by December 31, 2021, and the
of social security tax that you’re deferring for the quarter. The remainder is due by December 31, 2022. Any payments or
CARES Act allows employers, including government deposits you make before December 31, 2021, are first
employers, to defer the deposit and payment of the employer applied against your payment due on December 31, 2021,
share of social security tax for deposits and payments due on and then applied against your payment due on December 31,
or after March 27, 2020, and before January 1, 2021, as well 2022. For example, if your employer share of social security
as deposits and payments due after January 1, 2021, that are tax for the third quarter of 2020 is $20,000 and you deposited
required for wages paid during the quarter ending on $5,000 of the $20,000 during the third quarter of 2020 and
December 31, 2020. Generally, your employer share of defer $15,000 on line 13b, then you must pay $5,000 by
social security tax is 50% of column 2 of line 5a plus 50% of December 31, 2021, and $10,000 by December 31, 2022.
column 2 of line 5b. However, if you're a third-party payer of However, if your employer share of social security tax for the
sick pay that isn't an agent or if you're an employer that third quarter of 2020 was $20,000 and you deposited
received a Section 3121(q) Notice and Demand during the $15,000 of the $20,000 during the third quarter of 2020 and
quarter, see Figuring the employer share of social security defer $5,000 on line 13b, then you don’t need to pay any
tax for certain employers, later, for exceptions. Don’t include deferred amount by December 31, 2021, because 50% of the
the employee social security tax reported on lines 5a(i) and amount that could have been deferred ($10,000) has already
5a(ii) as part of the deferred amount of the employer share of been paid and is first applied against your payment that
social security tax. Don’t reduce the amount reported on would be due on December 31, 2021. Accordingly, you must
line 13b by any credits claimed on line 11a, 11b, or 11c or pay the $5,000 deferral by December 31, 2022. For
any credit to be claimed on Form 5884-C, line 11, for the additional information, go to IRS.gov/ETD.
work opportunity credit for qualified tax-exempt organizations
hiring qualified veterans. However, you can’t defer tax that Deferred amount of the employee share of social secur-
you have already paid; therefore, the maximum amount of ity tax. In addition to the deferred amount of the employer
social security tax (both the employer and employee share of share of social security tax, include on line 13b the amount of
social security tax) that can be deferred each quarter is the the employee share of social security tax that you’re
lesser of (1) the total of the employer and employee share of deferring for the quarter. On August 8, 2020, the President
social security tax, or (2) the excess of (a) line 10 (reduced issued a Presidential Memorandum directing the Secretary of
by the amount, if any, on line 11a) over (b) line 13a. For more the Treasury to use his authority pursuant to section 7508A
information about the deferral of employment tax deposits, of the Internal Revenue Code to defer the withholding,
including limitations on the maximum amount you can defer, deposit, and payment of certain payroll tax obligations. In
go to IRS.gov/ETD. Notice 2020-65, the Secretary made relief available under
section 7508A to employers required to withhold social
The deferred amount of the employer share of social security taxes from wages paid to employees. Specifically,
TIP security tax is a deferral of deposits and payments, under the notice, the due date for withholding and payment of
not a deferral of liability. You won't receive a refund the employee share of social security tax on applicable
or credit of any amount of the employer share of social wages is postponed until the period beginning on January 1,
security tax already deposited or paid for the quarter. 2021, and ending on April 30, 2021. Applicable wages are
However, in determining whether any amount of the social security wages of less than $4,000 in any biweekly pay
employer share of social security tax was already deposited period (or the equivalent threshold amount for other pay
for this purpose, you can consider prior deposits during the periods), paid on a pay date during the period beginning on
quarter as first being deposited for employment taxes other September 1, 2020, and ending on December 31, 2020. The
than the employer share of social security tax. Although determination of whether the deferral of withholding or
employers depositing taxes using EFTPS identify the payment of the employee share of social security tax is
subcategory of separate deposits for the different available is made on a pay period-by-pay period basis.
employment taxes (for example, social security tax and Nothing prohibits employers from getting employee input on
Medicare tax), those entries are for informational purposes whether to apply the relief to postpone the due date for the
only. The IRS doesn't use that information in comparing withholding and payment of the employee share of social
liabilities reported on the employment tax return and the total security tax on applicable wages paid to the employee.
deposits made.
You can’t defer tax that you have already paid; therefore,
Figuring the employer share of social security tax for the maximum amount of social security tax (both the
certain employers. If you're a third-party payer of sick pay employer and employee share of social security tax) that can
that isn't an agent (for example, an insurance company), the be deferred each quarter is the lesser of (1) the total of the
amount of the employer share of social security tax reported employer and employee share of social security tax, or (2)
on line 5a must be reduced by any adjustment you make on the excess of (a) line 10 (reduced by the amount, if any, on
line 8 for the employer share of social security tax transferred line 11a) over (b) line 13a.
to your client, before deciding your employer share of social If you paid an employee supplemental wages (for
security tax that can be deferred. If you received a Section
TIP example, a bonus or commission) and included the
3121(q) Notice and Demand for tax due on unreported tips supplemental wages with the employee’s regular
(Letter 3263 or Letter 4520) during the quarter, you report the wages in a single payment (that is, in a single paycheck) for a
amount for the employer share of social security tax and pay period, but you didn’t specifically identify the amount of
-14- Instructions for Form 941 (Rev. 7-2020)
Exhibit 3
Page 14 of 20
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 84 of 211
each, then the entire amount of the payment must be below Department of the Treasury Department of the Treasury
$4,000 (or equivalent amount for pay periods other than a Internal Revenue Service or Internal Revenue Service
biweekly pay period) to be eligible for the deferral of the Ogden, UT 84201-0030 Kansas City, MO 64999-0030
withholding and payment of the employee share of social
security tax on the wages. If the entire amount is below
$4,000, then you may defer the withholding and payment of Send your payment to the address above that is in the same
the employee share of social security tax on the entire state as the address to which you would mail returns filed
payment of the wages. If you paid the supplemental wages without a payment, as shown under Where Should You File,
separately from the employee’s regular wages (that is, in a earlier.
separate check), or you combined the wages in a single For more information about the deferral of social security
payment but you specifically identified the amount of each, tax, go to IRS.gov/ETD and see Notice 2020-65.
then the supplemental wages are disregarded for purposes
of determining whether the regular wages are below $4,000 13c. Refundable Portion of Credit for Qualified
(or equivalent amount), but the supplemental wages aren’t
Sick and Family Leave Wages From
eligible for the deferral of the withholding and payment of the
employee share of social security tax. Worksheet 1
Businesses and tax-exempt organizations with fewer than
Paying the deferred amount of the employee share of 500 employees that are required to provide paid sick leave
social security tax. The due date for the withholding and under the EPSLA and/or to provide paid family leave under
payment of the employee share of social security tax is the Emergency Family and Medical Leave Expansion Act are
postponed until the period beginning on January 1, 2021, eligible to claim the credit for qualified sick and family leave
and ending on April 30, 2021. The employer must withhold wages. Enter the refundable portion of the credit for qualified
and pay the total deferred employee share of social security sick and family leave wages from Worksheet 1, Step 2,
tax ratably from wages paid to the employee between line 2k. The credit for qualified sick and family leave wages
January 1, 2021, and April 30, 2021. If necessary, the consists of the qualified sick leave wages, the qualified family
employer may make arrangements to otherwise collect the leave wages, the allocable qualified health plan expenses,
total deferred taxes from the employee. The employer is and the employer share of Medicare tax allocable to those
liable to pay the deferred taxes to the IRS and must do so wages. The refundable portion of the credit is allowed after
before May 1, 2021, to avoid interest, penalties, and the employer share of social security tax is reduced to zero
additions to tax on those amounts. For more information by nonrefundable credits.
about the deferral of the employee share of social security
tax, see Notice 2020-65. 13d. Refundable Portion of Employee Retention
If you initially deferred (that is, didn't deposit) the Credit From Worksheet 1
TIP employer or employee share of social security tax Enter the refundable portion of the employee retention credit
and later decide to pay or deposit it in the same from Worksheet 1, Step 3, line 3i. The employee retention
quarter, see Adjusting tax liability for the deferred amount of credit is 50% of the qualified wages you paid to your
social security tax that you pay or deposit in the same quarter employees in the quarter. The refundable portion of the credit
it was deferred, later. is allowed after the employer share of social security tax is
reduced to zero by nonrefundable credits.
How to pay the deferred amount of the employer and
employee share of social security tax. You may pay the 13e. Total Deposits, Deferrals, and Refundable
amount you owe electronically using EFTPS, by credit or
Credits
debit card, or by a check or money order. The preferred
method of payment is EFTPS. For more information, visit Add lines 13a, 13b, 13c, and 13d. Enter the total on line 13e.
EFTPS.gov, or call 800-555-4477 or 800-733-4829 (TDD).
To pay the deferred amount using EFTPS, select Form 941, 13f. Total Advances Received From Filing
the calendar quarter in 2020 to which the payment relates, Form(s) 7200 for the Quarter
and the option for payment due on an IRS notice. Enter the total advances received from filing Form(s) 7200 for
To pay by credit or debit card, go to IRS.gov/PayByCard. the quarter. If you filed a Form 7200 before the end of the
If you pay by check or money order, include a 2020 Form quarter but you haven’t received the advance before filing
941-V, Payment Voucher, for the quarter in which you Form 941, don’t include that amount. Employers were eligible
originally deferred the deposit and payment. Darken the to file Form 7200 for the quarter if they paid qualified sick
circle identifying the quarter for which the payment is being leave wages, qualified family leave wages, and/or qualified
made. The 2020 Form 941-V is on page 5 of Form 941 and is wages for the employee retention credit and the amount of
available at IRS.gov/Form941 (select the link for "All Form employment tax deposits they retained wasn’t sufficient to
941 Revisions" under "Other Items You May Find Useful"). cover the cost of qualified sick and family leave wages and
Make the check or money order payable to “United States the employee retention credit.
Treasury.” Enter your EIN, “Form 941,” and the calendar Form 7200 may be filed for a quarter up to the earlier
quarter in which you originally deferred the deposit and TIP of the end of the month after the end of each quarter
payment (for example, “2nd Quarter 2020”). or filing of Form 941 for the quarter. However, if you
Where to send payments. Payments should be sent to: file Form 7200 after the end of the quarter, it's possible that it
may not be processed prior to the processing of the filed
Form 941. Advance payment requests on Form 7200 for a
quarter won't be paid after your Form 941 is processed for
that quarter. When the IRS processes Form 941, we will
correct the amount reported on line 13f to match the amount
Instructions for Form 941 (Rev. 7-2020) -15-
Exhibit 3
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of advance payments issued or contact you to reconcile the interest on the amount of tax not paid by the due date of the
difference before we finish processing Form 941. return.
13g. Total Deposits, Deferrals, and Refundable 15. Overpayment
Credits Less Advances If line 13g is more than line 12, enter the difference on
line 15.
Subtract line 13f from line 13e. Enter the result on line 13g.
Never make an entry on both lines 14 and 15.
14. Balance Due
If line 12 is more than line 13g, enter the difference on If you deposited more than the correct amount for the
line 14. Otherwise, see Overpayment, later. quarter, you can choose to have the IRS either refund the
overpayment or apply it to your next return. Check only one
Never make an entry on both lines 14 and 15. box on line 15. If you don't check either box or if you check
You don't have to pay if line 14 is under $1. Generally, you both boxes, we will generally apply the overpayment to your
should have a balance due only if your total taxes after next return. Regardless of any boxes you check or don't
adjustments and nonrefundable credits (line 12) for the check on line 15, we may apply your overpayment to any
current quarter or prior quarter are less than $2,500, and you past due tax account that is shown in our records under your
didn't incur a $100,000 next-day deposit obligation during the EIN.
current quarter. However, see section 11 of Pub. 15 for If line 15 is under $1, we will send a refund or apply it to
information about payments made under the accuracy of your next return only if you ask us in writing to do so.
deposits rule.
If you were required to make federal tax deposits, pay the Part 2: Tell Us About Your Deposit
amount shown on line 14 by EFT. If you weren't required to Schedule and Tax Liability for This
make federal tax deposits (see Must You Deposit Your
Taxes, earlier) or you're a monthly schedule depositor Quarter
making a payment under the accuracy of deposits rule, you
may pay the amount shown on line 14 by EFT, credit card, 16. Tax Liability for the Quarter
debit card, check, money order, or EFW. For more Check one of the boxes on line 16. Follow the instructions for
information on electronic payment options, go to IRS.gov/ each box to determine if you need to enter your monthly tax
Payments. liability on Form 941 or your daily tax liability on Schedule B
If you pay by EFT, credit card, or debit card, file your (Form 941).
return using the Without a payment address under Where De minimis exception. If line 12 is less than $2,500 or
Should You File, earlier, and don't file Form 941-V, Payment line 12 on the prior quarterly return was less than $2,500, and
Voucher. you didn't incur a $100,000 next-day deposit obligation
If you pay by check or money order, make it payable to during the current quarter, check the first box on line 16 and
“United States Treasury.” Enter your EIN, “Form 941,” and go to Part 3.
the tax period (“1st Quarter 2020,” “2nd Quarter 2020,” “3rd If you meet the de minimis exception based on the
Quarter 2020,” or “4th Quarter 2020”) on your check or prior quarter and line 12 for the current quarter is
money order. Complete Form 941-V and enclose with Form
!
CAUTION $100,000 or more, you must provide a record of your
941. federal tax liability. If you’re a monthly schedule depositor,
If line 12 is $2,500 or more on both your prior and current complete the deposit schedule on line 16. If you’re a
quarter Form 941, and you’ve deposited all taxes when due, semiweekly schedule depositor, attach Schedule B (Form
the balance due on line 14 should be zero. 941).
If you’re required to make deposits and instead pay Monthly schedule depositor. If you reported $50,000 or
! the taxes with Form 941, you may be subject to a less in taxes during the lookback period, you’re a monthly
CAUTION penalty. See Must You Deposit Your Taxes, earlier. schedule depositor unless the $100,000 Next-Day Deposit
What if you can't pay in full? If you can't pay the full Rule discussed in section 11 of Pub. 15 applies. Check the
amount of tax you owe, you can apply for an installment second box on line 16 and enter your tax liability for each
agreement online. You can apply for an installment month in the quarter. Enter your tax liabilities in the month
agreement online if: that corresponds to the dates you paid wages to your
employees, not the date payroll liabilities were accrued or
• You can't pay the full amount shown on line 14, deposits were made. Add the amounts for each month. Enter
• The total amount you owe is $25,000 or less, and the result in the “Total liability for quarter” box.
• You can pay the liability in full in 24 months.
To apply using the Online Payment Agreement Note that your total tax liability for the quarter must equal
Application, go to IRS.gov/OPA. your total taxes shown on line 12. If it doesn't, your tax
deposits and payments may not be counted as timely. Don't
Under an installment agreement, you can pay what you reduce your total liability reported on line 16 by the deferred
owe in monthly installments. There are certain conditions you amount of the employer or employee share of social security
must meet to enter into and maintain an installment tax, the refundable portion of the credit for qualified sick and
agreement, such as paying the liability within 24 months, and family leave wages, or the refundable portion of the
making all required deposits and timely filing tax returns employee retention credit. The deferred amount of the
during the length of the agreement. employer or employee share of social security tax reported
If your installment agreement is accepted, you will be on line 13b doesn't reflect deferred liabilities, but instead
charged a fee and you will be subject to penalties and postponed due dates for payment. Don't change your tax
-16- Instructions for Form 941 (Rev. 7-2020)
Exhibit 3
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liability on line 16 by adjustments reported on any Forms any payroll tax credit is remaining at the end of the quarter
941-X. that hasn’t been used completely because it exceeds the
You’re a monthly schedule depositor for the calendar year employer share of social security tax for the quarter, the
if the amount of your Form 941 taxes reported for the excess credit may be carried forward to the succeeding
lookback period is $50,000 or less. The lookback period is quarter and allowed as a payroll tax credit for the succeeding
the 4 consecutive quarters ending on June 30 of the prior quarter. The payroll tax credit may not be taken as a credit
year. For 2020, the lookback period begins July 1, 2018, and against income tax withholding, Medicare tax, or the
ends June 30, 2019. For details on the deposit rules, see employee share of social security tax. Also, the remaining
section 11 of Pub. 15. If you filed Form 944 in either 2018 or payroll tax credit may not be carried back and taken as a
2019, your lookback period is the 2018 calendar year. credit against wages paid from preceding quarters.
The amounts entered on line 16 are a summary of Example. Rose Co. is an employer with a calendar tax
your monthly tax liability, not a summary of deposits year that filed its timely income tax return on April 15, 2020.
!
CAUTION you made. If you don't properly report your liabilities
Rose Co. elected to take the qualified small business payroll
when required or if you’re a semiweekly schedule depositor tax credit for increasing research activities on Form 6765.
and enter your liabilities on line 16 instead of on Schedule B The third quarter of 2020 is the first quarter that begins after
(Form 941), you may be assessed an “averaged” FTD Rose Co. filed the income tax return making the payroll tax
penalty. See Deposit Penalties in section 11 of Pub. 15 for credit election. Therefore, the payroll tax credit applies
more information. against Rose Co.'s share of social security tax on wages paid
to employees in the third quarter of 2020. Rose Co. is a
Reporting adjustments from lines 7–9 on line 16. If semiweekly schedule depositor. Rose Co. completes
your net adjustment during a month is negative and it Schedule B (Form 941) by reducing the amount of liability
exceeds your total tax liability for the month, don't enter a entered for the first payroll payment in the third quarter of
negative amount for the month. Instead, enter "-0-" for the 2020 that includes wages subject to social security tax by the
month and carry over the unused portion of the adjustment to lesser of (1) its share of social security tax on the wages, or
the next month. (2) the available payroll tax credit. If the payroll tax credit
Semiweekly schedule depositor. If you reported more elected is more than Rose Co.'s share of social security tax
than $50,000 of taxes for the lookback period, you’re a on the first payroll payment of the quarter, the excess payroll
semiweekly schedule depositor. Check the third box on tax credit would be carried forward to succeeding payroll
line 16. payments in the third quarter until it is used. If the amount of
the payroll tax credit exceeds Rose Co.'s share of social
You must complete Schedule B (Form 941) and submit it security tax on wages paid to its employees in the third
with your Form 941. Don't file Schedule B (Form 941) with quarter, the excess credit would be treated as a payroll tax
your Form 941 if you’re a monthly schedule depositor. credit against its share of social security tax on wages paid in
Don't change your tax liability on Schedule B (Form 941) the fourth quarter. If the amount of the payroll tax credit
by adjustments reported on any Forms 941-X. remaining exceeded Rose Co.'s share of social security tax
Adjusting tax liability for nonrefundable credits claimed on wages paid in the fourth quarter, it could be carried
on lines 11a, 11b, and 11c. Monthly schedule depositors forward and treated as a payroll tax credit for the first quarter
and semiweekly schedule depositors must account for of 2021.
nonrefundable credits claimed on lines 11a, 11b, and 11c Nonrefundable portion of credit for qualified sick and
when reporting their tax liabilities on line 16 or Schedule B family leave wages (line 11b). The nonrefundable portion
(Form 941). The total tax liability for the quarter must equal of the credit for qualified sick and family leave wages is
the amount reported on line 12. Failure to account for the limited to the employer share of social security tax on wages
nonrefundable credits on line 16 or Schedule B (Form 941) paid in the quarter that is remaining after that share is first
may cause line 16 or Schedule B (Form 941) to report more reduced by any credit claimed on Form 941, line 11a, for the
than the total tax liability reported on line 12. Don't reduce qualified small business payroll tax credit for increasing
your monthly tax liability reported on line 16 or your daily tax research activities, and/or any credit to be claimed on Form
liability reported on Schedule B (Form 941) below zero. 5884-C, line 11, for the work opportunity credit for qualified
Qualified small business payroll tax credit for tax-exempt organizations hiring qualified veterans. In
increasing research activities (line 11a). The qualified completing line 16 or Schedule B (Form 941), you take into
small business payroll tax credit for increasing research account the entire quarter's nonrefundable portion of the
activities is limited to the employer share of social security tax credit for sick and family leave wages (including the qualified
on wages paid in the quarter that begins after the income tax health plan expenses and employer share of Medicare tax
return electing the credit has been filed. In completing line 16 allocable to those wages) against the liability for the first
or Schedule B (Form 941), you take into account the payroll payroll payment of the quarter, but not below zero. Then
tax credit against the liability for the employer share of social reduce the liability for each successive payroll payment in the
security tax starting with the first payroll payment of the quarter until the nonrefundable portion of the credit is used.
quarter that includes payments of wages subject to social Any credit for qualified sick and family leave wages that is
security tax to your employees. The credit may be taken to remaining at the end of the quarter because it exceeds the
the extent of the employer share of social security tax on employer share of social security tax for the quarter is
wages associated with the first payroll payment, and then to claimed on line 13c as a refundable credit. The refundable
the extent of the employer share of social security tax portion of the credit doesn’t reduce the liability reported on
associated with succeeding payroll payments in the quarter line 16 or Schedule B (Form 941).
until the credit is used. Consistent with the entries on line 16 Example. Maple Co. is a semiweekly schedule depositor
or Schedule B (Form 941), the payroll tax credit should be that pays employees every other Friday. In the third quarter
taken into account in making deposits of employment tax. If of 2020, Maple Co. had pay dates of July 10, July 24, August
Instructions for Form 941 (Rev. 7-2020) -17-
Exhibit 3
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Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 87 of 211
7, August 21, September 4, and September 18. Maple Co. For example, if you're a monthly schedule depositor that
paid qualified sick and family leave wages on August 7 and has an employment tax liability of $1,000 every month in
August 21. The nonrefundable portion of the credit for 2020 and you defer $200 of the employer's share of social
qualified sick and family leave wages for the quarter is security tax from your July liability, but deposit your deferred
$10,000. On Schedule B (Form 941), Maple Co. will use the amount of $200 together with your $1,000 deposit for your
$10,000 to reduce the liability for the July 10 pay date, but August tax liability, you would report $800 for your July tax
not below zero. If any nonrefundable portion of the credit liability ($1,000 minus $200) and $1,200 for your August
remains, Maple Co. applies it to the liability for the July 24 liability ($1,000 plus $200) on line 16. Don’t include the $200
pay date, then the August 7 pay date, and so forth until the deferral on Form 941, line 13b.
entire $10,000 is used.
Nonrefundable portion of employee retention credit Part 3: Tell Us About Your Business
(line 11c). The nonrefundable portion of the employee
In Part 3, answer only those questions that apply to your
retention credit is limited to the employer share of social
business. If the questions don't apply, leave them blank and
security tax on wages paid in the quarter that is remaining
go to Part 4.
after that share is first reduced by any credit claimed on Form
941, line 11a, for the qualified small business payroll tax 17. If Your Business Has Closed . . .
credit for increasing research activities; any credit to be
claimed on Form 5884-C, line 11, for the work opportunity If you go out of business or stop paying wages, you must file
credit for qualified tax-exempt organizations hiring qualified a final return. To tell the IRS that a particular Form 941 is your
veterans; and/or any credit claimed on Form 941, line 11b, final return, check the box on line 17 and enter the final date
for the nonrefundable portion of the credit for qualified sick you paid wages in the space provided. For additional filing
and family leave wages. In completing line 16 or Schedule B requirements, including information about attaching a
(Form 941), you take into account the entire quarter's statement to your final return, see If Your Business Has
nonrefundable portion of the employee retention credit Closed, earlier.
against the liability for the first payroll payment of the quarter,
but not below zero. Then reduce the liability for each
18. If You’re a Seasonal Employer . . .
successive payroll payment in the quarter until the If you hire employees seasonally—such as for summer or
nonrefundable portion of the credit is used. Any employee winter only—check the box on line 18. Checking the box tells
retention credit that is remaining at the end of the quarter the IRS not to expect four Forms 941 from you throughout the
because it exceeds the employer share of social security tax year because you haven't paid wages regularly.
for the quarter is claimed on line 13d as a refundable credit. Generally, we won't ask about unfiled returns if at least
The refundable portion of the credit doesn’t reduce the one taxable return is filed each year. However, you must
liability reported on line 16 or Schedule B (Form 941). check the box on line 18 on every Form 941 you file.
Example. Maple Co. is a semiweekly schedule depositor Otherwise, the IRS will expect a return to be filed for each
that pays employees every other Friday. In the third quarter quarter.
of 2020, Maple Co. had pay dates of July 10, July 24, August
Also, when you complete Form 941, be sure to check the
7, August 21, September 4, and September 18. Maple Co.
box on the top of the form that corresponds to the quarter
paid qualified wages for the employee retention credit on
reported.
August 7 and August 21. The nonrefundable portion of the
employee retention credit for the quarter is $10,000. On The amounts entered on lines 19 through 23 are
Schedule B (Form 941), Maple Co. will use the $10,000 to ! amounts that you use on Worksheet 1 to figure the
reduce the liability for the July 10 pay date, but not below CAUTION credit for qualified sick and family leave wages and
zero. If any nonrefundable portion of the credit remains, the employee retention credit. If you’re claiming these
Maple Co. applies it to the liability for the July 24 pay date, credits, you must enter the applicable amounts.
then the August 7 pay date, and so forth until the entire
$10,000 is used. 19. Qualified Health Plan Expenses Allocable to
You may reduce your deposits by the amount of the Qualified Sick Leave Wages
TIP nonrefundable and refundable portions of the credit Enter the qualified health plan expenses allocable to qualified
for qualified sick and family leave wages, the sick leave wages. This amount is also entered on Worksheet
nonrefundable and refundable portions of the employee 1, Step 2, line 2b.
retention credit, and any deferred employment taxes, as
discussed earlier under Reducing your deposits for 20. Qualified Health Plan Expenses Allocable to
COVID-19 credits. Qualified Family Leave Wages
Adjusting tax liability for the deferred amount of social Enter the qualified health plan expenses allocable to qualified
security tax that you pay or deposit in the same quarter family leave wages. This amount is also entered on
it was deferred. If you defer the employer and/or employee Worksheet 1, Step 2, line 2f.
share of social security tax and subsequently pay or deposit
that deferred amount in the same quarter it was deferred, you 21. Qualified Wages for the Employee Retention
should report the amount of the payment or deposit on Form Credit
941, line 16, or on Schedule B (Form 941) on the date of the Enter the qualified wages for the employee retention credit
payment or deposit and not the date of liability. You shouldn’t (excluding the amount of any qualified health plan expenses
include any portion of the deferred amount of social security allocable to these wages). This amount is also entered on
taxes already paid or deposited by the end of the quarter on Worksheet 1, Step 3, line 3a.
Form 941, line 13b.
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Exhibit 3
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Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 88 of 211
22. Qualified Health Plan Expenses Allocable to 941. If you or your designee wants to terminate the
Wages Reported on Line 21 authorization, write to the IRS office for your location using
the Without a payment address under Where Should You
Enter the qualified health plan expenses for the employee File, earlier.
retention credit. These expenses are generally allocable to
the wages reported on Form 941, Part 3, line 21. However, in Part 5: Sign Here (Approved Roles)
some circumstances, qualified health plan expenses for
purposes of the employee retention credit are treated as Complete all information and sign Form 941. The following
allocable to qualified wages for the employee retention credit persons are authorized to sign the return for each type of
even if no wages are paid to the employees during the business entity.
applicable period (for example, when you furlough an • Sole proprietorship—The individual who owns the
employee because your operations are fully or partially business.
suspended due to a government order but you continue to • Corporation (including a limited liability company
pay qualified health plan expenses). For more information, go (LLC) treated as a corporation)—The president, vice
to IRS.gov/ERC. The amount from line 22 is also entered on president, or other principal officer duly authorized to sign.
Worksheet 1, Step 3, line 3b. • Partnership (including an LLC treated as a
partnership) or unincorporated organization—A
23. Credit From Form 5884-C, Line 11, for This responsible and duly authorized partner, member, or officer
Quarter having knowledge of its affairs.
If applicable, enter the credit to be claimed on line 11 of Form • Single-member LLC treated as a disregarded entity
5884-C for the work opportunity credit for qualified for federal income tax purposes—The owner of the LLC
tax-exempt organizations hiring qualified veterans for this or a principal officer duly authorized to sign.
quarter. Entering an amount here doesn’t change your • Trust or estate—The fiduciary.
requirement to file Form 5884-C separately from Form 941. Form 941 may be signed by a duly authorized agent of the
You’re entering the amount here to notify us that you will file taxpayer if a valid power of attorney has been filed.
Form 5884-C for the quarter and therefore reduce the
amount of the employer share of social security tax that is Alternative signature method. Corporate officers or duly
available to be reduced by the nonrefundable portion of the authorized agents may sign Form 941 by rubber stamp,
credit for qualified sick and family leave wages and the mechanical device, or computer software program. For
nonrefundable portion of the employee retention credit. details and required documentation, see Rev. Proc. 2005-39,
2005-28 I.R.B. 82, available at IRS.gov/irb/
24. Deferred Amount of the Employee Share of 2005-28_IRB#RP-2005-39.
Social Security Tax Included on Line 13b Paid Preparer Use Only
Enter the deferred amount of the employee share of social A paid preparer must sign Form 941 and provide the
security tax that you included on line 13b. The IRS will use information in the Paid Preparer Use Only section of Part 5 if
this information to determine the amount of the employer the preparer was paid to prepare Form 941 and isn't an
share of social security tax that is included on line 13b. employee of the filing entity. Paid preparers must sign paper
Part 4: May We Speak With Your returns with a manual signature. The preparer must give you
a copy of the return in addition to the copy to be filed with the
Third-Party Designee? IRS.
If you want to allow an employee, a paid tax preparer, or If you’re a paid preparer, enter your Preparer Tax
another person to discuss your Form 941 with the IRS, check Identification Number (PTIN) in the space provided. Include
the “Yes” box in Part 4. Enter the name, phone number, and your complete address. If you work for a firm, enter the firm's
the five-digit personal identification number (PIN) of the name and the EIN of the firm. You can apply for a PTIN
specific person to speak with—not the name of the firm that online or by filing Form W-12. For more information about
prepared your tax return. The designee may choose any five applying for a PTIN online, go to IRS.gov/PTIN. You can't use
numbers as his or her PIN. your PTIN in place of the EIN of the tax preparation firm.
By checking “Yes,” you authorize the IRS to talk to the Generally, don't complete this section if you’re filing the
person you named (your designee) about any questions we return as a reporting agent and have a valid Form 8655 on
may have while we process your return. You also authorize file with the IRS. However, a reporting agent must complete
your designee to do all of the following. this section if the reporting agent offered legal advice, for
• Give us any information that is missing from your return. example, advising the client on determining whether its
• Call us for information about processing your return. workers are employees or independent contractors for
• Respond to certain IRS notices that you’ve shared with federal tax purposes.
your designee about math errors and return preparation. The
IRS won't send notices to your designee. How To Get Forms, Instructions, and
You’re not authorizing your designee to bind you to
anything (including additional tax liability) or to otherwise
Publications
represent you before the IRS. If you want to expand your You can view, download, or print most of the forms,
designee's authorization, see Pub. 947. instructions, and publications you may need at
IRS.gov/Forms. Otherwise, you can go to IRS.gov/
The authorization will automatically expire 1 year from the
OrderForms to place an order and have them mailed to you.
due date (without regard to extensions) for filing your Form
Instructions for Form 941 (Rev. 7-2020) -19-
Exhibit 3
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Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 89 of 211
Worksheet 1. Credit for Qualified Sick and Family Leave Wages and
the Employee Retention Credit Keep for Your Records
Determine how you will complete this worksheet
If you paid both qualified sick and family leave wages and qualified wages for purposes of the employee retention credit this quarter, complete
Step 1, Step 2, and Step 3. If you paid qualified sick and family leave wages this quarter but you didn't pay any qualified wages for purposes of
the employee retention credit this quarter, complete Step 1 and Step 2. If you paid qualified wages for purposes of the employee retention credit
this quarter but you didn't pay any qualified sick and family leave wages this quarter, complete Step 1 and Step 3.
Step 1. Determine the employer share of social security tax this quarter after it is reduced by any credit claimed on Form
8974 and any credit to be claimed on Form 5884-C
1a Enter the amount of social security tax from Form 941, Part 1, line 5a,
column 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1a
1b Enter the amount of social security tax from Form 941, Part 1, line 5b,
column 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1b
1c Add lines 1a and 1b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1c
1d Multiply line 1c by 50% (0.50) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1d
1e If you’re a third-party payer of sick pay that isn't an agent and you're claiming credits
for amounts paid to your employees, enter the employer share of social security tax
included on Form 941, Part 1, line 8 (enter as a positive number) . . . . . . . . . . . . . . . . 1e
1f Subtract line 1e from line 1d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1f
1g If you received a Section 3121(q) Notice and Demand during the quarter, enter the
amount of the employer share of social security tax from the notice . . . . . . . . . . . . . . 1g
1h Employer share of social security tax. Add lines 1f and 1g . . . . . . . . . . . . . . . . . . 1h
1i Enter the amount from Form 941, Part 1, line 11a (credit from Form 8974) . . . . . . . . . 1i
1j Enter the amount to be claimed on Form 5884-C, line 11, for this quarter . . . . . . . . . . 1j
1k Total nonrefundable credits already used against the employer share of social
security tax. Add lines 1i and 1j . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1k
1l Employer share of social security tax remaining. Subtract line 1k
from line 1h . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1l
Step 2. Figure the sick and family leave credit
2a Qualified sick leave wages reported on Form 941, Part 1, line 5a(i), column 1 . . . . . . 2a
2a(i) Qualified sick leave wages included on Form 941, Part 1, line 5c, but not included on
Form 941, Part 1, line 5a(i), column 1, because the wages reported on that line were
limited by the social security wage base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2a(i)
2a(ii) Total qualified sick leave wages. Add lines 2a and 2a(i) . . . . . . . . . . . . . . . . . . . . . . . 2a(ii)
2b Qualified health plan expenses allocable to qualified sick leave wages (Form 941, Part
3, line 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2b
2c Employer share of Medicare tax on qualified sick leave wages. Multiply line 2a(ii) by
1.45% (0.0145) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2c
2d Credit for qualified sick leave wages. Add lines 2a(ii), 2b, and 2c . . . . . . . . . . . . . 2d
2e Qualified family leave wages reported on Form 941, Part 1, line 5a(ii),
column 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2e
2e(i) Qualified family leave wages included on Form 941, Part 1, line 5c, but not included on
Form 941, Part 1, line 5a(ii), column 1, because the wages reported on that line were
limited by the social security wage base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2e(i)
2e(ii) Total qualified family leave wages. Add lines 2e and 2e(i) . . . . . . . . . . . . . . . . . . . . . 2e(ii)
2f Qualified health plan expenses allocable to qualified family leave wages (Form 941,
Part 3, line 20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2f
2g Employer share of Medicare tax on qualified family leave wages. Multiply line 2e(ii) by
1.45% (0.0145) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2g
2h Credit for qualified family leave wages. Add lines 2e(ii), 2f, and 2g . . . . . . . . . . . . 2h
2i Credit for qualified sick and family leave wages. Add lines 2d and 2h . . . . . . . . . 2i
2j Nonrefundable portion of credit for qualified sick and family leave wages. Enter
the smaller of line 1l or line 2i. Enter this amount on Form 941, Part 1, line 11b . . . . . . 2j
2k Refundable portion of credit for qualified sick and family leave wages. Subtract
line 2j from line 2i and enter this amount on Form 941, Part 1, line 13c . . . . . . . . . . . . 2k
Step 3. Figure the employee retention credit
3a Qualified wages (excluding qualified health plan expenses) for the employee retention
credit (Form 941, Part 3, line 21) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3a
3b Qualified health plan expenses allocable to qualified wages for the employee retention
credit (Form 941, Part 3, line 22) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3b
3c Add lines 3a and 3b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3c
3d Retention credit. Multiply line 3c by 50% (0.50) . . . . . . . . . . . . . . . . . . . . . . . . . . . 3d
3e Enter the amount of the employer share of social security tax from Step 1,
line 1l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3e
3f Enter the amount of the nonrefundable portion of the credit for qualified sick and family
leave wages from Step 2, line 2j . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3f
3g Subtract line 3f from line 3e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3g
3h Nonrefundable portion of employee retention credit. Enter the smaller of line 3d
or line 3g. Enter this amount on Form 941, Part 1, line 11c . . . . . . . . . . . . . . . . . . . . . 3h
3i Refundable portion of employee retention credit. Subtract line 3h from line 3d and
enter this amount on Form 941, Part 1, line 13d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3i
-20- Instructions for Form 941 (Rev. 7-2020)
Exhibit 3
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September 29, 2022
Number: 2023-0001
Release Date: 3/31/2023
CONEX-117116-22
UIL: 3504.00-00, 3134.00-00
The Honorable John Cornyn
United States Senator
5001 Spring Valley Road, Suite 1125E
Dallas, TX 75244
Attention: ------------------
Dear Senator Cornyn:
I’m responding to your July 18, 2022, inquiry on behalf of your constituent,
--------------------- of ---------------------------------------. He asked about his company filing
independently for the employee retention credit (ERC). He explained that his company
uses a professional employer organization (PEO) to pay employment taxes and to file
employment tax returns. You asked for a response to --------------------- concerns.
There is no requirement that an employer, including the taxpayer, use a PEO to pay
employment taxes and satisfy employment tax return filing obligations. -------------- mentions
that many small employers choose to work with PEOs for the sake of convenience. The
terms of the contract between a PEO and its clients govern their relationship. However,
these clients are generally responsible for making sure that the PEO filed their tax returns
and made their tax deposits and employment tax payments. This is true even if a PEO
agrees to perform these acts. In many cases, both the PEO and the client remain liable if
the third party fails to perform any required action.1
Also, the Internal Revenue Service (IRS) has rules and regulations in place to help protect
the interests of employees, employers, and PEOs. These rules help ensure the proper
withholding and payment of employment taxes. As required by statute, the IRS issued
guidance on the procedures PEOs use to claim the ERC on behalf of their clients. The ERC
may only be claimed with respect to the qualified wages reported for clients on the Form
941 filed by the PEO, and only provided the employers are eligible for the ERC. (See Notice
2021-20, 2021-11 I.R.B. 922).
1 See Internal Revenue Code (Code) section 3504 and Treas. Reg. 31.3504-2. Different rules apply to
arrangements involving Certified Professional Employer Organizations, but those types of organizations
were not mentioned in the letter.
Exhibit 4
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CONEX-117116-22 2
When an employer uses a PEO to pay its employment taxes and satisfy its employment tax
return filing obligations, the PEO is the taxpayer before the IRS. The PEO reports the
wages, employment taxes, and credits on behalf of all its employer clients. If there is a
refund owed to the PEO after applying the PEO’s total credit amount for all clients to the
PEO’s total aggregate tax liability reported for all clients, the IRS will release the refund
directly to the PEO. The IRS uses this process because the PEO deposits, pays, and
reports the employment taxes under its own employer identification number (EIN) against
which the PEO is claiming the ERC. How the PEO distributes the refund amounts to its
clients is a contractual matter between the PEO and its clients.
As written by Congress, the ERC hinges on the depositing, payment, and reporting of
employment taxes. A PEO is obligated to collect from its client any information regarding
the client’s eligibility for the ERC, including whether the client filed Form 7200, Advance
Payment of Employer Credits Due to COVID-19, and received advanced payments. Either
the PEO or the client may maintain the records which substantiate the client's eligibility for
the ERC. However, if the client maintains the records, and if the IRS requests this
information, the PEO must get it from the client and provide the tax records that support the
client’s eligibility for the ERC. The PEO uses this information to claim the credit on its
client's behalf on the PEO’s employment tax return. PEOs normally use Form 941,
Employer’s Quarterly Federal Tax Return,2 and attach Schedule R detailing credit amounts
claimed on behalf of each client.
Although a PEO provides client-by-client specified information concerning the ERC on the
Schedule R it attaches to its employment tax return, a client can’t claim the credit except
through the PEO because the client doesn’t deposit, pay, or report the employment taxes
under its own EIN. In other words, when the client hires the PEO, the PEO becomes the
taxpayer for the IRS’s purposes. The IRS accepts the information concerning the qualified
wages reported by the PEO for their clients on Form 941 and only the PEO can claim the
ERC. After the IRS processes the ERC, the PEO is responsible for making sure each of its
clients receives any credit or overpayment (including any ERC refund) owed to the client.
In accordance with their liability under the Code and applicable regulations, the client and
the PEO will each be liable for employment taxes owed because of any improper ERC claim
for employment taxes reported on the federal employment tax return the PEO filed claiming
the credit. This joint liability isn’t solely for the claiming of the ERC. In general, the client and
the PEO are both liable for paying the client’s employment taxes, filing returns, and making
deposits and payments for the taxes reported.
2 Employers who need to make a change or adjustment to a previously filed Form 941 use Form 941-X,
Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, to make those changes and
adjustments. The same procedures (and the reasons for these procedures) apply whether the PEO files
Form 941 to claim the ERC for its clients or Form 941-X to adjust the ERC amounts it previously claimed
for its clients.
Exhibit 4
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CONEX-117116-22 3
I hope this information is helpful. If you have questions, please call me at ------------------- or
a member of your staff may contact ----------------, general attorney, at -------------------.
Sincerely,
Rachel Leiser Levy, Associate Chief Counsel
Employee Benefits, Exempt Organizations,
and Employment Tax
Exhibit 4
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Johnson Pool and Spa
ERC – Qualification and Evidence Support
Johnson Pool and Spa (the “Company”) in accordance through the qualifies under the
“partial suspension” of operations for the Employee Retention Credit from Coronavirus Aid,
Relief and Economic Security Act ("CARES Act"), and in reference to IRS Notice 2021-20,
Notice 2021-23, and Notice 2021-49, qualifies for the Employee Retention Credit (“ERC”)
through the “partial suspension” of business operations from March 13th 2020 – June 15th
2021.
The Company was subject to mandates from the following state, and local governments:
• State of California
• County of Sonoma
• City of Santa Rosa
• City of Windsor
The Company is a pool and spa distributor, retailer, contractor, and servicing company
Timeline:
• [[March 13th, 2020]] [[Sonoma Order C19-01]]
o https://socoemergency.org/order-of-the-health-officer-of-the-county-of-sonoma-c19-01/
o Effective date within order:
▪ This Order shall become effective at 11:00 a.m. on March 13, 2020 and will continue to be in
effect until it is earlier rescinded, superseded, or amended in writing by the Health Officer or by the
State Public Health Officer.
o Social distancing requirement making it impossible to operate in normal capacity operate or
interact with clients
▪ The business immediately implemented policy that conformed with the orders
including shutting down many of the ongoing work being performed
o The main impact to the business was to their two retail sites which had to completely close
and make up greater than a non-nominal part of the Company’s business operations
o Defines Essential Services initially as 14 industries
▪ https://covid19.ca.gov/img/EssentialCriticalInfrastructureWorkers.pdf
▪ The Company was only deemed essential for their contracting work they perform.
The other divisions were forced to shelter and close
• Service
Exhibit 5
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• Retail
o The Company is not able to work remotely. All retail sales and service are in person
o The Company meets the definition of a partial suspension according to Notice 2021-
20 under this order
• [[March 17th, 2020]] [[Sonoma Order C19-03]]
o https://socoemergency.org/order-of-the-health-officer-shelter-in-place/
o Sonoma County Health official shelter in place order
o Complete Shelter in place for all non-essential services with the addition of shelter in
place, social distancing requirements, and complete lock down of almost all
economic operations
o Essential businesses were mandated to only operate with Minimum Basic Operations
(“MBO”) as defined below
▪ For the purposes of this Order, “Minimum Basic Operations” include the following, provided that
employees comply with Social Distancing Requirements as defined in this Section, to the extent
possible, while carrying out such operations:
• The minimum necessary activities to maintain the value of the business’s inventory, ensure
security, process payroll and employee benefits, or for related functions.
• The minimum necessary activities to facilitate employees of the business being able to
continue to work remotely from their residences.
o This order brought additional restrictions to the division of contracting not previously
required
o Additional text citing social distancing and lock down orders – Added to the MBO mandate
which limited how even essential businesses could operate in Sonoma County
▪ All individuals currently living within Sonoma County (the “County”) are ordered to shelter at
their place of residence. To the extent individuals are using shared or outdoor spaces, they must at
all times as reasonably possible maintain social distancing of at least six feet from any other person
when they are outside their residence. All persons may leave their residences only for Essential
Activities, Essential Governmental Functions, or to operate Essential Businesses, all as defined in
Section 10. Individuals experiencing homelessness are exempt from this Section, but are strongly
urged to obtain shelter, and governmental and other entities are strongly urged to make such shelter
available as soon as possible and to the maximum extent practicable (and to utilize Social
Distancing Requirements in their operation).
▪ All businesses with a facility in the County, except Essential Businesses as defined below in Section
10, are required to cease all activities at facilities located within the County except Minimum Basic
Operations, as defined in Section 10. For clarity, businesses may also continue operations consisting
exclusively of employees or contractors performing activities at their own residences (i.e., working
from home). All Essential Businesses are strongly encouraged to remain open. To the greatest
extent feasible, Essential Businesses shall comply with Social Distancing Requirements as defined
in Section 10 below, including, but not limited to, when any customers are standing in line.
▪ All public and private gatherings of any number of people occurring outside a household or living
unit are prohibited, except for the limited purposes as expressly permitted in Section 10. Nothing in
this Order prohibits the gathering of members of a household or living
o Text citing reference to business qualifying as essential service, Section 10.f.iv
Exhibit 5
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▪ Businesses that are necessary to supply agriculture, food, and beverage cultivation, processing, and
distribution;
o In the same C19-03 order a blanket statement defining further essential services allowable
but stating these actions are only permitted if social distancing requirements are able to be
followed
▪ For purposes of this Order, individuals may leave their residence to provide any services or perform
any work necessary to the operations and maintenance of “Essential Infrastructure,” including, but
not limited to, **public works construction, construction of housing (in particular affordable
housing or housing for individuals experiencing homelessness), airport operations, water, sewer, gas,
electrical, oil refining, roads and highways, public transportation , solid waste collection and
removal, internet, and telecommunications systems (including the provision of essential global,
national, and local infrastructure for computing services, business infrastructure, communications,
and web-based services), **provided that they can carry out those services or that
work in compliance with social distancing requirements as defined this
Section
o The Company is still mandated to distance and only operate in a limited capacity with their
retail and servicing businesses remaining shuttered
o The Company meets the definition of a partial suspension according to Notice 2021-
20 under this order
• [[March 31st, 2020]] [[Sonoma Order C19-05]]
o https://socoemergency.org/order-of-the-health-officer-shelter-in-place-extended/
o Extends shelter in place from April 1st to May 3rd
o Classifies again that all businesses are now subject to Minimum Basic Operations in Section
13.a.iv, which states what is allowed
▪ To perform work providing essential products and services at an Essential Business or to otherwise
carry out activities specifically permitted in this Order, including Minimum Basic Operations
o No language specifically addressed the Company, however the business felt they were able to
continue operating as long as MBOs were met for their contracting business
▪ For the purposes of this Order, “Minimum Basic Operations” include the following, provided that
employees comply with social distancing requirements as defined in this Section, to the extent
possible, while carrying out such operations:
▪ The minimum necessary activities to maintain the value of the business’s inventory, ensure security,
process payroll and employee benefits, or for related functions.
▪ The minimum necessary activities to facilitate employees of the business being able to continue to
work remotely from their residences.
o The MBO requirements remained in effect and were increased in terms of the requirements
for a business to operate
o The Company employed social distancing and adjusted operations to remain compliant with
the mandate and were such, impacted
o The Company began implementing policy that conformed with these orders. Most notable
the Company was forced to adjust shift and team logistics, having all individuals travel to
and from job sites in individual vehicles. This brought additional logistical burden and
impact that further exacerbated the material impact to the Company’s business.
o The Company meets the definition of a partial suspension according to Notice 2021-
20 under this order
Exhibit 5
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• [[May 1st, 2020]][[Sonoma Order C19-09]]
o https://socoemergency.org/amendment-to-health-order-no-c19-09-shelter-in-place/
o Expanded essential businesses to allow for more education focused businesses to meet
definition, no impact to The Company
o Extended the order with business restrictions to continue. Expanded the definition
of MBO
▪ For the purposes of this Order, “Minimum Basic Operations” include the following activities when
they cannot be performed remotely, provided that there are only the minimum number of persons on-
site and persons comply with Social Distancing and Hygiene Requirements as defined this Section:
▪ The minimum necessary activities to maintain and protect the value of the business’s inventory and
facilities; ensure security, safety, and sanitation; process payroll and employee benefits; and related
functions.
▪ The minimum necessary activities to facilitate owners, personnel, and contractors of the business
being able to continue to work remotely from their residences, and to ensure that the business can
deliver its service remotely.
▪ Retail or wholesale curbside pickup, shipping, or delivery of goods, including but not limited to
bookstores, jewelry stores, toy stores, clothing stores, shoe stores, home and furnishing stores, sporting
goods stores, antique stores, music stores. Shopping malls and storefront shall remain closed to the
public. Retail or wholesale businesses operating under this subsection shall prepare, post, and
implement a Social Distancing Protocol at each of their facilities at which they are maintaining
operations. This provision shall only apply to the sale of goods and does not apply to provision of
services.
o The Company meets the definition of a partial suspension according to Notice 2021-
20 under this order
• [[May 23rd, 2020]] [[Sonoma Order Amendment 3 C19-02]]
o https://socoemergency.org/amendment-no-3-to-health-order-no-c19-09/
o This order allows for some non-essential business to re-open but changes nothing about the
impact to essential businesses.
o At this time the Company was able to begin operations in a severely limited capacity in both
their servicing and retail departments
o Through the MBOs and the outright restrictions on their retail operations the business still is
materially impacted by these orders
o The company continues to be impacted by the capacity and distancing mandates and must
operate with their adjusted shifts and lab facility.
o The Company meets the definition of a partial suspension according to Notice 2021-
20 under this order
• [[June 5th, 2020]] [[Sonoma Order C19-14]]
o https://socoemergency.org/order-of-the-health-officer-c19-14-stay-well-sonoma-county/
o The stay-at-home order continues, but allows businesses to begin to operate in a partially
suspended capacity
▪ Purpose and Intent. The intent of this Order is to ensure that people continue to shelter in their
places of residence to slow the spread of COVID-19 to the maximum extent possible and mitigate
the impact on delivery of critical healthcare services. All provisions of this Order must be interpreted
to effectuate this intent. This Order also adopts the State of California’s Stay- at-Home Order’s
Exhibit 5
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designations for Allowed Business, Essential Infrastructure, and outdoor recreation, and thus
allows a limited number of additional activities to resume while the Health Officer continues to
assess the transmissibility and clinical severity of COVID-19. This Order also clarifies when Face
Coverings are required, as set forth in Section 20 below. Failure to comply with any of the
provisions of this Order constitutes an imminent threat and menace to public health, constitutes a
public nuisance, and is punishable by fine, imprisonment, or both.
▪ Businesses. All businesses except for Allowed Businesses, defined below, and businesses designated
by the State Public Health Officer as Essential Critical Infrastructure Workers
(https://covid19.ca.gov/img/EssentialCriticalInfrastructureWorkers.pdf) are required to cease all
activities except for Minimum Basic Operations, as defined in this Section. All businesses operating
in the County shall continue to prepare, post, and implement a Social Distancing Protocol at each
of their facilities at which they are maintaining operations, as specified in this Section.
o Also, at this time, the Company began receiving word from their suppliers in California, that
their businesses were being subjected to significant impact. Though the Company continued
to qualify under their own suspension of operations, at this time the Company also begins to
qualify through the supply chain impact
▪ The Company delivery time increased by close to 5x normal, due to their suppliers
impacts related directly to health orders limiting their ability to operate
o Below are emails received by the Company at the time of this health order
▪ I just wanted to reach out and let you know that I still don’t have any new information on the
reopening of the factory in Mexico. Our executive staff is working non-stop with the Government to
meet the requirements of manufacturing while practicing social distancing. I know it is very difficult
to not have anything to communicate with customers who have deposits. The minute I have any
additional information I will get it out to you. – Watkins Manufacturing 6/10/2020
▪ For LTL (Common Carrier) shipments, each order must be for a minimum of 4 Replacement
Covers (so we can palletize them), and up to a maximum of 20 Replacement Covers (2 pallets of
10 each). Multiple orders of 20 can be placed (though they will likely not ship together), and lead-
times will be extended. – Watkins Manufacturing 6/17/2020
▪ As the order volume rate has increased over the previous weeks, we once again need to adjust our
lead-times. Effective on orders entered June 25th, promise dates will be assigned at a 20-week lead
time. We do expect the order volume rate to continue to increase in the very near term and as a
result we plan to adjust our lead-times in real-time. Our plan moving forward is to adjust our
promise dates as necessary dependent on volume and will communicate to dealers if we need to use
dates beyond 24 weeks. Our manufacturing, engineering and sourcing teams are all working
diligently on projects to increase our daily capacity. These new lead-time numbers do not assume
completion of these projects, and as they come online, we will “re-date” open orders to reflect the
improvements. The projects range in scope and impact but every opportunity is being pursued to
improve our delivery commitments. We are confident in our products, our people and in our dealers.
There is no team better suited to address these new challenges then we have in our own teams and
trusted dealer networks. Thanks once again for your continued patience, commitment and
innovation. We understand these changes have a big impact on your business and appreciate your
partnership. – Jacuzzi Manufacturing 6/25/2020
Exhibit 5
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o The Company meets the definition of a partial suspension according to Notice 2021-
20 under this order.
• [[June 18th, 2020]] [[Sonoma Order C19-15]]
o https://socoemergency.org/order-of-the-health-officer-c19-15-stay-well-sonoma-county/
o Through this order all businesses were allowed to operate but distancing and capacity
restrictions remained in effect
o These orders would impact the showroom through June 2021
o The social distancing mandate remained through this order which restricted how the
Company could interact with customers in their two retail locations
▪ All businesses, including public agencies, operating in the County shall comply with local and state
orders and guidance, including preparing, posting, and implementing a Social Distancing Protocol
(https://socoemergency.org/wp-content/uploads/2020/05/Appendix-A_05-01-
2020extended.pdf) at all facilities operating in the County, as well as requiring all employees to
perform a self-check for COVID-19 symptoms and temperature check before reporting to work site
or other assignment away from their residence. Employers should use the free Sonoma County SoCo
COVID-19 Check Application at the link below, and soon to be available on the
SoCoEmergency website. An alternative system may be utilized as long as it meets the same
purpose of employee and employer assessments and as long as it allows the electronic reporting of
equivalent data to be reported to the County in aggregate form.
o The specific distancing orders the Company become subject to at this point are found
below:
▪ County Orders and Guidance are located here:
• https://socoemergency.org/emergency/novel-coronavirus/health-orders/
• http://sonomaedb.org/Business-Assistance/Coronavirus/Business-Management-Plans/
▪ State Orders and Guidance are located here:
• https://www.cdph.ca.gov/Programs/CID/DCDC/CDPH%20Document%20Libra
ry/COVID-19/SHO%20Order%205-7-2020.pdf
• https://covid19.ca.gov/industry-guidance/
o The Company meets the definition of a partial suspension according to Notice 2021-
20 under this order
• [[August 28th, 2020]] [[California Blueprint for Safer Economy Mandate]]
o https://www.gov.ca.gov/2020/08/28/governor-newsom-unveils-blueprint-for-a-safer-
economy-a-statewide-stringent-and-slow-plan-for-living-with-covid-19/
o Creates Tier System to reopen
o Effective August 28, 2020 – June 15th 2021 (Forward looking)
o Created a pathway and uniform metrics to reopen partially or fully
o “Each county will fall into one of four colored tiers – Purple (Widespread), Red
(Substantial), Orange (Moderate) and Yellow (Minimal) – based on how prevalent COVID-
19 is in each county and the extent of community spread. That color will indicate how
sectors can operate.
o Under this structure, the Company remains partially impacted in all tiers.
o They continue to have a partial suspension of a non-nominal portion of business while
Sonoma County remains in the tier system. The tiers ended on June 15th in Sonoma County
Exhibit 5
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arrowpointtaxes.com
(707) 382-3905
o The Company also continued to receive word from their suppliers that they too were
impacted due to restrictions and to expect delays
▪ I spoke with shipping again and they said that the truck only had room for three spas. Since those
were the oldest ones three, those are the ones we shipped. We are planning on shipping the rest this
week. – Jacuzzi Manufacturing 11/17/2020
▪ I wanted to make sure everyone was aware of the recent changes with cover colors. As many of you
are aware, waiting on covers for completed tubs has slowed down shipments recently, as our cover
supplier is facing challenges meeting the huge increase in demand in the industry. As we continue to
expand our manufacturing capacity and turn out tubs quicker, the best solution for our supplier is
to also increase their output. In order to do that, we need to limit our cover offering to black only.
This will allow them to produce faster and will allow us to ship your completed tubs faster. I know
this is not ideal, but hopefully we will be able to return to offering multiple colors soon as we
continue to work through the backlog and start to receive them in time to ship tubs. The
announcement below was sent out through the Dealer Community email distribution list on 02/23.
If you are not receiving these emails please let me know! We communicate vital information
through the Dealer Community emails and I want to make sure everyone is reading these
announcements. – Watkins Manufacturing 3/2/2021
▪
County 8-Dec 15-Dec 22-Dec 29-Dec 4-Jan 11-Jan 19-Jan 25-Jan 2-Feb 9-Feb 16-Feb 23-Feb 2-Mar 9-Mar 13-Mar 16-Mar
Contra Costa Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple red Red
Marin Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Red Red Red Red Red
Napa Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple red red Red Red
Sacramento Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Red
San Francisco Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Red Red Red Red
Santa Clara Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Red Red Red Red
Solano Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Red Red Red
▪ Sonoma Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Red Red
County 16-Mar 23-Mar 30-Mar 6-Apr 13-Apr 20-Apr 27-Apr 4-May 11-May 18-May 25-May 1-Jun 8-Jun 15-Jun
Contra Costa Red Red Red Orange Orange Orange Orange Orange Orange Orange Orange orange orange orange Contra Costa
Marin Red Orange Orange orange orange orange orange Orange Orange Orange Orange yellow yellow yellow Marin
Napa Red Red Orange Orange Orange Orange Orange Orange Orange Orange Orange orange yellow yellow Napa
Sacramento Red Red Red Red Red Red Red Red Red Red Red orange orange orange Sacremento
San Francisco Red Orange Orange Orange Orange Orange Orange Yellow Yellow Yellow Yellow yellow yellow yellow SF
Santa Clara Red Orange Orange Orange Orange Orange Orange Orange Orange Yellow Yellow yellow yellow yellow Santa Clara
Solano Red Red Red Red Red Red Red Red Red Red Red orange orange orange Solano
▪ Sonoma Red Red Red Orange Orange Orange Orange Orange orange Orange Orange Orange Orange Orange Sonoma
o Definition of four California tiers
▪ Purple
• Widespread cases with 100% closure for indoor businesses
• Modifications for essential businesses
▪ Red
• Substantial impact with 75% closure for indoor businesses
• Modifications for essential businesses
▪ Orange
• Moderate impact with 50% closure for indoor businesses
• Modifications for essential businesses
▪ Yellow
Exhibit 5
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arrowpointtaxes.com
(707) 382-3905
• Minimal impact with some businesses subject to 50% closure standard
• Modifications for essential businesses
▪ https://www.kcra.com/article/covid-19-yellow-tier-covid-restrictions-what-is-
allowed/36269752#
o Sonoma County remained in the Orange Tier throughout the Blueprint
▪ The new public health order effective June 15, 2021 supersedes all prior health orders. The order
has limited restrictions, only related to masking and mega-events, as well as settings serving children
and youth pending an expected update to the K-12 schools guidance by the Centers for Disease
Control and Prevention.
▪ Restrictions that ended on June 15, 2021 include:
• Physical distancing
• Capacity limits on businesses
• County tier system
o The Company meets the definition of a partial suspension according to Notice 2021-
20 under this order throughout the tier system. At the time this order expired, the
orders moved from mandates to guidance for the Company. At this time, June 15th,
the Company ceased to qualify under the partial suspension guidelines.
Exhibit 5
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arrowpointtaxes.com
(707) 382-3905
The Company qualifies for the Employee Retention Credit for the following quarters:
• Q2 2020 (Including parts of March 2020) – through partial suspension
• Q3 2020 – through partial suspension
• Q4 2020 – through partial suspension
• Q1 2021 – through partial suspension
• Q2 2021 – through partial suspension
X________________________________
Matt Perezchica
Johnson Pool and Spa
(707) 573-8107
mattp@johnsonpoolandspa.com
X________________________________
Duncan Kelm
Tax Consultant
Arrow Point
707.382.3905
duncan@arrowpointtaxes.com
Exhibit 5
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Effective Dates (in Materiality Threshold Source
Jurisdiction Order / Citation Operative Requirement (abridged) Operational Change Required Materiality Path (>10%)
scope) Met? (link)
Event-driven retail traffic and related
Immediate cancellation of in-store events, vendor
Sonoma County C19-01 — Moratorium on Large Cancels mass gatherings ≥250; violation staffing eliminated, beginning the reduction Yes (as precursor;
Mar 13, 2020 demos, and municipal/HOA-related gatherings Link
(Health Officer) Gatherings enforceable as a misdemeanor. that compounded under subsequent SIP compounded with SIP)
tied to pool service/retail promotions.
orders.
‑
All residents shelter at home; non essential Closed pool & spa showrooms to the public; Retail division shuttered; service crews
‑
Sonoma County businesses cease on site operations except limited retail to MBO only; service/contracting reduced and reorganized → well over 10% of
C19-03 — Shelter-in-Place (SIP) Mar 18 – Apr 7, 2020 ‑ Yes Link
(Health Officer) “Minimum Basic Operations” (MBO). Essential restricted to safety/essential work with 6 ft employees unable to perform normal
businesses must follow 6 ft distancing. distancing. duties.
‑ ‑
‑ ‑ ‑
‑ ‑ Residents must heed State Public Health Reinforced SIP closures; limited Johnson Pools to State overlay corroborated county
State of California Executive Order N 33 20 —
Mar 19, 2020 (statewide) directives; operations limited to Essential essential/safety work; non essential in store retail shutdown of non essential operations Yes Link
(Governor) Statewide Stay at Home
Critical Infrastructure sectors. halted statewide. affecting >10% of employees.
‑
‑ ‑ Suspended public site work
Closed public parks/open spaces to reduce Paused public site contracts and field work
Sonoma County C19-04 — Order Closing Parks, Mar 23, 2020 (with later (municipal/HOA/open space pool facilities) and
crowding; incorporated N 33 20 and SIP segments—adding to >10% workforce Yes Link
(Health Officer) Beaches, and Access Points amendments) limited crew access/logistics for certain outdoor
references. unable to perform normal duties.
service jobs.
‑
Operational redesign of field/service & warehouse: Crew density limits and MBO
Supersedes/extends SIP; **requires all ‑
Sonoma County C19-05 — SIP Extended; Social staggered shifts, per vehicle headcount limits, continued—sustained impact >10% of
Mar 31 – May 3, 2020 operating businesses to prepare, post, and ‑ Yes Link
(Health Officer) Distancing Protocol (Appendix A) on site spacing, sanitation; retail remained closed workforce even among “essential”
implement a Social Distancing Protocol**.
to walk ins. functions.
Continues SIP; allows **retail curbside Showrooms still closed to the public; pivot to Retail staff redeployed/limited; continued
Sonoma County C19-09 — SIP Extended with May 1 – May 23, 2020
pickup/shipping**; businesses must maintain curbside only, reconfiguring staffing, inventory restrictions left >10% employees unable to Yes Link
(Health Officer) Limited Additions (incl. curbside) (then amended)
posted Social Distancing Protocols. staging, and customer flow. perform normal duties.
Phased additions while SIP remained; Selective expansion did not restore full indoor Even with limited reopenings, >10% of
Sonoma County Amendment No. 3 to C19-09 —
Effective May 23, 2020 maintained distancing protocol obligations and retail or normal crew logistics; distancing controls employees remained constrained by Yes (ongoing) Link
(Health Officer) Phased reopen (limited)
limits. remained. capacity/distancing rules.
Maintains shelter at home intent; **all
Retail reopens with capacity/distancing controls Capacity limits + distancing continued to
Sonoma County C19-14 — “Stay Well Sonoma operating businesses must prepare, post,
Jun 5 – Jun 17, 2020 and posted protocols; field operations continue cap staffing and throughput >10% below Yes (partial but >10%) Link
(Health Officer) County” implement Social Distancing Protocols** and
under construction/field safety rules. normal.
comply with State sector guidance.
Continues distancing/hygiene mandates; Sustained capacity/spacing limits for showrooms; Constraints on indoor retail/customer
Sonoma County C19-15 — Updated Stay Well Jun 18, 2020 onward
requires posted protocols and daily symptom continued vehicle/headcount limits and staggered interaction and crew logistics kept Yes (continuing) Link
(Health Officer) Order (superseded later)
checks; aligns with State guidance. starts for crews. workforce >10% below normal utilization.
‑ ‑
‑ Showroom capacity caps, Tier based capacity restrictions and
‑ Risk based **Purple/Red/Orange/Yellow** ‑ ‑
State of California Blueprint for a Safer Economy — Aug 31, 2020 – Jun 15, shopping by appointment/spacing controls; distancing persistently constrained staffing Yes (through June 15,
tiers set capacity/indoor operation limits by Link
(CDPH/Governor) Color Tier Framework 2021 swim school/close contact services restricted; and sales throughput (>10% employees 2021)
sector (e.g., retail/showrooms).
field crews continued under distancing protocols. affected) until June 15, 2021.
‑ ‑
State rescinds tier system; ends Restored normal indoor retail and staffing models; End point of partial suspension; operations
State of California Beyond the Blueprint —
Effective Jun 15, 2021 physical distancing and capacity limits (with ended tier based constraints that had limited no longer materially restricted by N/A after 6/15/2021 Link
(CDPH) Retirement of Color Tiers
limited exceptions for mega events). deployment of >10% of employees. State/County mandates.
Exhibit 6
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2019 EE Count (NA
Client means they were Start Date w/ Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021
FEIN Claim Type Client Name NAIC Address 1 Address 2 City State Zip
Number not a BBSI client in BBSI Amount Amount Amount Amount Amount Amount
2019)
Refund JOHNSON POOLS 9650 OLD REDWOOD
68-0173856 902138 89 236220 10/17/2012 WINDSOR CA 95492 267,776 30,273 21,508 367,469 388,326 -
claim INC HWY
Exhibit 7
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Dear Client,
We are writing to inform you that the Internal Revenue Service (IRS) has selected your
company’s Employee Retention Credit (ERC) claim for audit.
The following information identifies the specific entity selected:
• Client Name: JOHNSON POOLS INC
• FEIN: 68-0173856
The IRS has selected the following quarter(s) of your ERC claim for review:
Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021
As part of the audit process, the IRS has requested the following documentation for each
quarter identified above:
• Any governmental order to suspend the employer’s business operations.
• Any records the employer relied upon to determine whether more than a nominal portion
of its operations were suspended due to a governmental order or whether a
governmental order had more than a nominal effect on its business operations.
• Any records the employer used to determine it had experienced a significant decline in
gross receipts.
• Any records of which employees received qualified wages and in what amounts.
• In the case of a large eligible employer, work records and documentation showing that
wages were paid for time an employee was not providing services.
• Documentation to show how the employer determined the amount of allocable qualified
health plan expenses.
• Documentation related to the determination of whether the employer is a member of an
aggregated group treated as a single employer for purposes of the employee retention
credit and, if so, how the aggregation affects the determination and allocation of the
credit.
• Copies of any completed Forms 7200 that the employer submitted to the IRS.
• Records of information provided to the third-party payer regarding the employer’s
entitlement to credit claimed on the federal employment tax return, including whether the
employer’s industry is considered essential or not.
The IRS has requested that the documentation be submitted by July 16, 2025. Please make
every effort to meet this deadline. If you are unable to do so, please let us know how much time
will be needed. We are in contact with the IRS auditor and will inquire about extending this
deadline on your behalf. We will notify you as we have more information.
8100 NE Parkway Drive Vancouver, WA 98662 360.828.0700 www.BBSI.com
Exhibit 8
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Please note that BBSI does not provide legal or tax advice. If you would like to involve your
own tax and/or legal advisors in responding to the IRS, please contact our tax counsel listed
below. They will coordinate with you to connect your advisors directly with the IRS auditor
assigned to your case.
Daniel G. Strickland
Partner
Holland & Knight LLP
(202) 469-5592
Daniel.Strickland@hklaw.com
To assist you in preparing your response, our primary client contact will be provided access to a
secure Box folder. The primary contact may assign access to additional client contacts or
advisors within Box. We will pre-populate the Box folder for you to include:
• A copy of this letter
• The ERC agreement or contract addendum previously signed by your company
• Your Company’s payroll reports for the quarter(s) selected for audit
• An audit response template you and your advisors may use to organize your
documentation and response
Please upload all additional requested materials directly to this Box folder. If you have any
questions about using the folder or compiling your documentation, our team is available to
support you.
Once all documents are uploaded to the Box folder and you are ready for them to be provided to
the IRS, please send an email to our tax counsel (Daniel.Strickland@hklaw.com) with your
Company’s FEIN in the subject line and include the following statement:
“All of the documents requested by the IRS have been uploaded to our Box
folder. They are ready to be transmitted by BBSI to the IRS. Please transmit all of
the documents in the Box folder to the IRS on our behalf.”
We recommend beginning this process promptly to avoid unnecessary delays. Thank you for
your attention to this matter.
Sincerely,
8100 NE Parkway Drive Vancouver, WA 98662 360.828.0700 www.BBSI.com
Exhibit 8
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Guidance on the Employee Retention Credit under Section 2301 of the Coronavirus Aid,
Relief, and Economic Security Act
Notice 2021-20
I. PURPOSE
This notice provides guidance on the employee retention credit provided under
section 2301 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act),
Pub. L. No. 116-136, 134 Stat. 281 (March 27, 2020), as amended by section 206 of the
Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act), which was enacted
as Division EE of the Consolidated Appropriations Act, 2021, Pub. L. No. 116-260, 134
Stat. 1182 (December 27, 2020). The guidance provided in this notice addresses the
employee retention credit as it applies to qualified wages paid after March 12, 2020, and
before January 1, 2021. This notice does not address the changes made by section
207 of the Relief Act that apply to the employee retention credit for qualified wages paid
after December 31, 2020. The Department of the Treasury (Treasury) and the Internal
Revenue Service (IRS) will address the modifications made by section 207 of the Relief
Act applicable to calendar quarters in 2021 in future guidance.
II. BACKGROUND
Section 2301 of the CARES Act allows a credit (employee retention credit or
credit) against applicable employment taxes for eligible employers, including tax-exempt
organizations, that pay qualified wages, including certain health plan expenses, to some
1
Exhibit 9
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or all employees after March 12, 2020, and before January 1, 2021. Section 206 of the
Relief Act adopts amendments and technical changes to section 2301 of the CARES
Act for qualified wages paid after March 12, 2020, and before January 1, 2021, primarily
relating to who may claim the credit.1 Section 207 of the Relief Act amends section
2301 of the CARES Act to extend the application of the employee retention credit to
qualified wages paid after December 31, 2020, and before July 1, 2021, and to modify
the calculation of the credit amount for qualified wages paid during that time.2
Following the enactment of the CARES Act, the IRS posted Frequently Asked
Questions (FAQs) on IRS.gov to aid taxpayers in calculating and claiming the employee
retention credit. As of the publication date of this notice, the FAQs have not been
updated to reflect the changes made by the Relief Act. This notice incorporates the
information provided in the FAQs and addresses additional issues, including the
amendments to section 2301 of the CARES Act made by section 206 of the Relief Act.
This notice also identifies instances in which section 206 of the Relief Act made
1 The amendments made by section 206 of the Relief Act take effect as if included in the
provisions of the CARES Act to which they relate.
2 Section 207 of the Relief Act makes substantial changes to the employee retention credit that
apply to qualified wages paid during the first and second quarter of 2021. Among other changes, section
207 of the Relief Act (1) makes the employee retention credit available for eligible employers paying
qualified wages that are paid after December 31, 2020, and before July 1, 2021; (2) increases the
maximum credit amount that may be claimed per employee (making it equal to 70 percent of $10,000 of
qualified wages paid to an employee per calendar quarter); (3) expands the category of employers that
may be entitled to claim the credit; (4) modifies the gross receipts test; (5) modifies the definition of
qualified wages; (6) broadens the denial of double benefit rule and applies it to sections 41, 45A, 45P, 51,
and 1396 of the Code; and (7) changes the eligibility to receive advance payments and limits the amount
of the advances.
2
Exhibit 9
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changes to section 2301 of the CARES Act that resulted in rules that are substantially
similar to the interpretation provided in the FAQs.
The remainder of this Section II provides a summary of the relevant provisions of
section 2301 of the CARES Act, as amended by section 206 of the Relief Act, as they
apply to qualified wages paid in 2020. References to section 2301 of the CARES Act
include the amendments made by section 206 of the Relief Act, unless otherwise noted.
This Section II also includes an overview of the options for employers to defer the
deposit and payment of the employer’s share of social security tax under section 2302
of the CARES Act and to defer the withholding and payment of the employee’s share of
social security tax under Notice 2020-65, as modified by Notice 2021-11, which may
affect the amount that an employer can request as an advance payment of the credit.
Section III of this notice provides guidance in Q/A format regarding the application of
section 2301 of the CARES Act. Any term defined in this Section II or within a Q/A in
Section III applies to all Q/A’s in Section III.
A. Claiming the Employee Retention Credit and Accessing Funds in
Anticipation of the Credit
An employer that is an eligible employer as defined in section 2301(c)(2) of the
CARES Act and that, after March 12, 2020, and before January 1, 2021, pays qualified
wages, as defined in section 2301(c)(3) of the CARES Act, is entitled to claim the
employee retention credit against the taxes imposed on employers by section 3111(a)
of the Internal Revenue Code (Code) (employer’s share of the Old Age, Survivors, and
Disability Insurance (social security tax)), after these taxes are reduced by any credits
3
Exhibit 9
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claimed under section 3111(e) and (f) of the Code,3 sections 7001 and 7003 of the
Families First Coronavirus Response Act (FFCRA), Pub. L. No. 116-127, 134 Stat. 178
(March 18, 2020),4 and section 303(d) of the Relief Act.5 Eligible employers subject to
the Railroad Retirement Tax Act (RRTA) are entitled to take the employee retention
credit against the taxes imposed on employers by section 3221(a) of the Code (Tier 1
tax under the RRTA) that are attributable to the rate in effect under section 3111(a) of
the Code, after these taxes are reduced by any credits allowed under sections 7001 and
7003 of the FFCRA and section 303(d) of the Relief Act.
3 Section 3111(e) of the Code permits qualified tax-exempt organizations that hire qualified
veterans to claim a credit against the employer’s share of social security tax imposed under section
3111(a) of the Code. Section 3111(f) of the Code permits a qualified small business to elect to apply part
or all of its research credit available under section 41 against the tax imposed under section 3111(a) of
the Code.
4 Under sections 7001 and 7003 of the FFCRA, employers with fewer than 500 employees that
provide paid sick and family leave, up to specified limits, to employees unable to work or telework due to
certain circumstances related to COVID-19 may claim tax credits. The FFCRA, as amended by the
COVID-related Tax Relief Act of 2020 (COVID Relief Act), provides employers with fewer than 500
employees (eligible FFCRA employers) refundable tax credits that reimburse them for the cost of
providing paid sick and family leave wages to employees unable to work or telework for reasons related
to COVID-19 under the Emergency Paid Sick Leave Act (EPSLA) and the Emergency Family and Medical
Leave Expansion Act (Expanded FMLA), respectively. The credits are allowed against the employer’s
share of social security tax imposed under section 3111(a) of the Code, and so much of the taxes
imposed on employers under section 3221(a) of the Code as are attributable to the rate in effect under
section 3111(a) of the Code. The FFCRA required eligible FFCRA employers to provide paid leave to
such employees for periods after March 31, 2020, and before January 1, 2021. The COVID Relief Act
extended the period for which tax credits are available for employers providing paid sick and family leave
that otherwise would meet the requirements of the FFCRA until March 31, 2021, although the
requirement that employers provide the leave expired on December 31, 2020. See Section 286 of the
COVID Relief Act, which was enacted as Subtitle B of Title II of Division N of the Consolidated
Appropriations Act, 2021, Pub. L. 116-260, 134 Stat.1182 (Dec. 27, 2020).
5 Section 303(d) of the Relief Act relates to a separate, unrelated employee retention credit for
certain tax-exempt organizations affected by qualified natural disasters. Section 303(d)(3)(C)(iii) of the
Relief Act added a reference to section 303(d) to section 2301(b)(2) of the CARES Act, which impacts the
ordering of the credits.
4
Exhibit 9
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Section 2301(b)(3) of the CARES Act provides that if the amount of the credit
exceeds the applicable employment taxes (reduced by any credits claimed under
section 3111(e) and (f) of the Code, sections 7001 and 7003 of the FFCRA, or section
303(d) of the Relief Act) for any calendar quarter, then the excess is treated as an
overpayment and refunded to the employer under sections 6402(a) or section 6413(b)
of the Code.
Eligible employers report their total qualified wages for purposes of the employee
retention credit and claim the employee retention credit (including any refund in excess
of the employer portion of social security tax) on their federal employment tax returns;
for most employers, this is the quarterly Form 941, Employer’s Quarterly Federal Tax
Return.6
Section 2301(k) of the CARES Act instructs the Secretary of the Treasury (or the
Secretary’s delegate) to waive the penalty under section 6656 of the Code for failure to
deposit the employer share of social security tax in anticipation of the allowance of the
refundable credit under the CARES Act. In addition, section 2301(l)(1) and (2) of the
CARES Act provides for the advance payment of the credit (subject to the limitations of
6 Some eligible employers will use other federal employment tax returns, such as the Form 944,
Employer’s Annual Federal Tax Return, Form 943, Employer’s Annual Federal Tax Return for Agricultural
Employees, or Form CT-1, Employer’s Annual Railroad Tax Return, to report the amount of total qualified
wages paid.
5
Exhibit 9
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the credit and based on information the Secretary requires) and the reconciliation of the
advance payment at the time of filing the employment tax return.
Notice 2020-22, 2020-17 I.R.B. 664, provides eligible employers relief from the
failure to deposit penalty imposed by section 6656 of the Code for an employer’s failure
to timely deposit employment taxes to the extent the amounts not deposited are equal
to or less than the amount of refundable tax credits to which the eligible employer is
entitled under the FFCRA and the CARES Act.7 Under the notice, an eligible employer
will not be subject to a penalty under section 6656 for failing to deposit employment
taxes in a calendar quarter if (1) the eligible employer paid qualified wages to its
employees in the calendar quarter prior to the time of the required deposit, (2) the
amount of employment taxes that the employer does not timely deposit, reduced by the
amount of employment taxes not deposited in anticipation of the credits claimed under
sections 7001 and 7003 of the FFCRA, is less than or equal to the amount of the
employer’s anticipated employee retention credit for the calendar quarter as of the time
of the required deposit, and (3) the employer did not seek payment of an advance credit
by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19, with
respect to the anticipated credits it relied upon to reduce its deposits. Accordingly, in
anticipation of receiving the employee retention credit, eligible employers can (1) reduce
7 Treasury and IRS will address the application of Notice 2020-22 in relation to the employee
retention credit available for quarters in 2021 in future guidance.
6
Exhibit 9
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their deposits of federal employment taxes, including withheld taxes, that would
otherwise be required, up to the amount of the anticipated credit, and (2) request an
advance of the amount of the anticipated credit that exceeds the reduced federal
employment tax deposits by filing Form 7200. Reductions in deposits and advance
payments are accounted for on the eligible employer’s employment tax return.
B. Definition of “Eligible Employer”
The employee retention credit is available only to employers that are eligible
employers. Section 2301(c)(2)(A) of the CARES Act defines the term “eligible
employer” as any employer carrying on a trade or business during calendar year 2020,
and, with respect to any calendar quarter, for which (1) the operation of the trade or
business carried on during calendar year 2020 is fully or partially suspended due to
orders from an appropriate governmental authority limiting commerce, travel, or group
meetings (for commercial, social, religious, or other purposes) due to COVID-19, or (2)
such calendar quarter is within the period in which the employer had a significant
decline in gross receipts, as described in section 2301(c)(2)(B) of the CARES Act.
Section 2301(c)(2)(B)(i) of the CARES Act provides that the period during which
an employer experiences a significant decline in gross receipts begins with the first
calendar quarter beginning after December 31, 2019, for which gross receipts (within
the meaning of section 448(c) of the Code) for the calendar quarter are less than 50
percent of gross receipts for the same calendar quarter in the prior year. Section
2301(c)(2)(B)(ii) of the CARES Act provides that the period during which an employer
experiences a significant decline in gross receipts ends with the calendar quarter that
7
Exhibit 9
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follows the first calendar quarter beginning after a calendar quarter described in section
2301(c)(2)(B)(i) of the CARES Act for which gross receipts of the employer are greater
than 80 percent of gross receipts for the same calendar quarter in the prior year.
Section 2301(c)(2)(C)(i) of the CARES Act provides that in the case of an
organization described in section 501(c) of the Code and exempt from tax under section
501(a) of the Code (a tax-exempt organization), sections 2301(c)(2)(A)(i) (relating to the
requirement of carrying on a trade or business) and 2301(c)(2)(A)(ii)(I) (relating to a full
or partial suspension of the operation of a trade or business due to a governmental
order) apply to all operations of the organization. Section 2301(c)(2)(C)(ii) of the
CARES Act provides that, in the case of a tax-exempt organization, any reference to
gross receipts in section 2301 of the CARES Act is treated as a reference to gross
receipts within the meaning of section 6033 of the Code. Therefore, tax-exempt
organizations should refer to the definition of gross receipts under section 6033 of the
Code to determine whether they experienced a significant decline in gross receipts
under section 2301 of the CARES Act.8
Section 2301(f) of the CARES Act provides that the employee retention credit
does not apply to the Government of the United States, the government of any State or
8 Prior to the changes made by the Relief Act, section 448(c) of the Code applied to determine
gross receipts of tax-exempt organizations under section 2301 of the CARES Act. Although the Relief
Act changed the definition of gross receipts applicable to tax-exempt organizations to reference the
definition under section 6033 of the Code, the result under section 2301 of the CARES Act, as revised by
the Relief Act, is substantially the same as the interpretation of “gross receipts” applicable to tax-exempt
organizations in the FAQs posted on IRS.gov in 2020.
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political subdivision thereof, or any agency or instrumentality of those governments.
Accordingly, these entities are not eligible employers.
Prior to the Relief Act amendments, section 2301(j) of the CARES Act provided
that an eligible employer that received a covered loan under paragraph (36) of section
7(a) of the Small Business Act (15 U.S.C. 636(a)), as added by section 1102 of the
CARES Act (a Paycheck Protection Program loan or PPP loan) would not be eligible for
the employee retention credit. Section 206 of the Relief Act amended section 2301 of
the CARES Act to permit an employer that received a PPP loan to be eligible to claim
an employee retention credit under section 2301 of the CARES Act by striking section
2301(j) of the CARES Act, effective retroactive to the original effective date of the
CARES Act.
C. Definition of “Qualified Wages”
Section 2301(a) of the CARES Act provides that the credit amount is equal to 50
percent of qualified wages with respect to each employee for each applicable calendar
quarter in 2020.
For purposes of determining “qualified wages,” section 2301(c)(5)(A) of the
CARES Act provides that the term “wages” generally means wages as defined in
section 3121(a) of the Code and compensation as defined in section 3231(e) of the
Code. Section 2301(c)(5)(B) of the CARES Act provides that “wages” include amounts
paid by an eligible employer to provide and maintain a group health plan (as defined in
section 5000(b)(1) of the Code), but only to the extent that the amounts are excluded
from the gross income of employees by reason of section 106(a) of the Code. Amounts
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treated as wages under section 2301(c)(5)(B) of the CARES Act are treated as paid
with respect to any employee (and with respect to any period) to the extent the amounts
are properly allocable to the employee (and to the period), and, except as otherwise
provided by the Secretary of the Treasury (Secretary), the allocation will be treated as
proper if made on the basis of being pro rata among periods of coverage. References
to “allocable qualified health plan expenses” or “qualified health plan expenses” in this
notice are to the health plan expenses described in section 2301(c)(5)(B) of the CARES
Act.9
Section 2301(c)(3)(A) of the CARES Act provides different definitions of “qualified
wages” depending on the size of the employer, which is measured by the average
number of full-time employees (within the meaning of section 4980H of the Code)
employed by the eligible employer during 2019.
Section 2301(c)(3)(A)(i) of the CARES Act provides that if an eligible employer
averaged more than 100 employees during 2019 (large eligible employer), qualified
wages are those wages paid by the eligible employer with respect to which an
employee is not providing services due to circumstances described in section
2301(c)(2)(A)(ii)(I) of the CARES Act (relating to a full or partial suspension of the
9 The Relief Act removed the term “qualified health plan expenses” from the definition of qualified
wages under section 2301(c)(3) of the CARES Act and included health plan expenses as part of the
definition of wages in section 2301(c)(5) of the CARES Act. The result under section 2301 of the CARES
Act, as revised by the Relief Act, is substantially the same as the interpretation provided in the FAQs
posted on IRS.gov in 2020.
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operation of a trade or business due to a governmental order) or section
2301(c)(2)(A)(ii)(II) of the CARES Act (relating to a significant decline in gross receipts).
For large eligible employers, section 2301(c)(3)(B) of the CARES Act limits qualified
wages that may be taken into account to the amount that the employee would have
been paid for working an equivalent duration during the 30 days immediately preceding
the period in which the qualified wages are paid or incurred.
Section 2301(c)(3)(A)(ii) of the CARES Act provides that if an eligible employer
averaged 100 or fewer employees in 2019 (small eligible employer), qualified wages are
those wages paid by the eligible employer with respect to an employee during any
period described in section 2301(c)(2)(A)(ii)(I) of the CARES Act (relating to a calendar
quarter for which the operation of a trade or business is fully or partially suspended due
to a governmental order) or during a calendar quarter within the period described in
section 2301(c)(2)(A)(ii)(II) of the CARES Act (relating to a significant decline in gross
receipts).
The flush language in section 2301(c)(3)(A) of the CARES Act provides that
qualified wages do not include any wages taken into account for purposes of the credits
under sections 7001 or 7003 of the FFCRA.
Section 2301(b)(1) of the CARES Act limits the amount of qualified wages with
respect to any employee that may be taken into account under section 2301(a) of the
CARES Act to $10,000 for all calendar quarters in 2020. Therefore, the maximum credit
amount with respect to each employee for all four calendar quarters in 2020 is $5,000.
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D. Election Not to Take Certain Wages into Account and Coordination
with PPP Loan
Section 2301(g)(1) of the CARES Act provides that section 2301 of the CARES
Act does not apply to qualified wages paid by an eligible employer to the extent the
employer elects not to take them into account for purposes of section 2301 of the
CARES Act (at such time and in such manner as the Secretary may prescribe). Section
2301(g)(2) of the CARES Act provides that the Secretary, in consultation with the
Administrator of the Small Business Administration, will issue guidance providing that
payroll costs paid during the covered period for a PPP loan will not fail to be treated as
qualified wages under section 2301 of the CARES Act, if an employer makes an
election under section 2301(g)(1) of the CARES Act, to the extent that the PPP loan of
the eligible employer is not forgiven by reason of a decision under section 7A(g) of the
Small Business Act.10
Related to section 2301(g)(2) of the CARES Act, section 206(e)(2) of the Relief
Act provides a special rule for employers that filed an employment tax return before
December 27, 2020. Section 206(e)(2)(A) of the Relief Act provides that those
employers may elect to treat any “applicable amount” as an amount paid in the fourth
10 Section 7A(g) of the Small Business Act (15 U.S.C. 636(a)) sets forth the timing rule for lenders
that receive an application for loan forgiveness from eligible recipients that received a Paycheck
Protection Program loan. Specifically, section 7A(g) of the Small Business Act requires lenders to provide
a decision regarding forgiveness no later than 60 days after the date on which the lender receives an
application of loan forgiveness from an eligible recipient. The Relief Act added section 2301(g)(2) to the
CARES Act when it struck section 2301(j) of the CARES Act, discussed above.
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calendar quarter of 2020. Section 206(e)(2)(B) of the Relief Act defines the “applicable
amount,” in part, as the amount of wages that are permitted to be treated as qualified
wages under guidance issued pursuant to section 2301(g)(2) of the CARES Act
(relating to the decision not to forgive a loan under section 7A(g) of the Small Business
Act), that were paid in the first, second, or third calendar quarter of 2020, and that were
not taken into account by the taxpayer in calculating the employee retention credit for
such calendar quarter (special fourth quarter rule).11
E. Aggregation Rules
Section 2301(d) of the CARES Act provides that all persons treated as a single
employer under section 52(a) or (b) of the Code, or section 414(m) or (o) of the Code,
will be treated as a single employer for purposes of the employee retention credit.
While this notice describes the aggregation rules under sections 52(a) and (b) and
414(m) and (o) in general terms, it does not provide separate guidance on the
substantive requirements of those aggregation rules or otherwise interpret those rules.
F. Other Rules Related to the Employee Retention Credit
Section 2301(e) of the CARES Act provides that rules similar to section 280C(a)
of the Code apply for purposes of the employee retention credit. Section 280C(a) of the
Code generally disallows a deduction for the portion of wages or salaries paid or
11 The special fourth quarter rule also applies to the applicable amount described in section
2301(c)(5)(B) of the CARES Act, which is qualified health plan expenses.
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incurred equal to the sum of certain credits determined for the taxable
year. Accordingly, a similar deduction disallowance applies under section 2301(e) of
the CARES Act with regard to the employee retention credit, such that an employer's
deduction for qualified wages, including qualified health plan expenses, is reduced by
the amount of the employee retention credit.
Section 2301(e) of the CARES Act also provides that rules similar to the rules of
section 51(i)(1) of the Code (relating to the work opportunity credit) apply for purposes
of the employee retention credit. Section 51(i)(1) provides that wages paid to “related
individuals” (within the meaning of section 51(i)(1)) may not be taken into account for
determining the credit under section 51(a) of the Code. Accordingly, wages paid to
related individuals may not be taken into account for determining qualified wages for the
employee retention credit. Similarly, section 2301(h)(1) of the CARES Act provides that
an employee will not be included for purposes of computing the employee retention
credit for any period that an employer is allowed a work opportunity credit under section
51 with respect to that employee for that period.
Section 2301(h)(2) of the CARES Act states that any wages taken into account in
determining the employee retention credit will not be taken into account for purposes of
determining the credit allowed under section 45S of the Code (relating to paid and
family medical leave).
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Finally, section 2301(h)(3) of the CARES Act provides that the employee
retention credit is treated as a credit described in section 3511(d)(2) of the Code.12
G. Regulations and Guidance
Section 2301(l) of the CARES Act requires the Secretary to issue forms,
instructions, regulations, and guidance, as necessary, to allow for the advance payment
of the credit, provide for reconciliation of the advance payment at the time of filing the
employment tax return, and to apply the credit to third-party payers. Section 2301(l) of
the CARES Act also gives the Secretary authority to issue guidance on the application
of the definition of a “significant decline in gross receipts” in the case of any employer
that was not carrying on a trade or business for all or part of the same calendar quarter
in the prior year and to prevent avoidance of the purposes of the limitations applicable
to the employee retention credit.
H. Deferral Under Section 2302 of the CARES Act
Section 2302 of the CARES Act provides that employers may defer the deposit
and payment of the employer’s share of social security tax and the portion of Tier 1 tax
12 Section 3511 provides rules for Certified Professional Employer Organizations (CPEOs) and
their customers with regard to employment taxes on wages paid by the CPEO to the customer’s
employees. Section 3511(d) provides the following rules for certain credits specified in section
3511(d)(2): (1) credits with respect to a customer’s work site employee apply to the customer, not the
CPEO; (2) the customer, not the CPEO, takes into account wages and employment taxes paid by the
CPEO with respect to the work site employee and for which the CPEO receives payment from the
customer; and (3) the CPEO must furnish the customer and the Secretary with any information necessary
for the customer to claim the credits.
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under the RRTA that is equivalent to the employer’s share of social security tax for the
period of March 27, 2020, through December 31, 2020. Section 2302 does not impact
an employer’s eligibility to claim the employee retention credit. However, because an
employer may defer deposits under section 2302 before reducing deposits in
anticipation of claiming the credit, the deferral may affect the amount that an employer
may request as an advance of the credit.
I. Deferral Under Notice 2020-65 as Modified by Notice 2021-11
Notice 2020-65, 2020-38 I.R.B. 567, as modified by Notice 2021-11, 2021-6
I.R.B. 827, permits employers to postpone the withholding and payment of the
employee’s share of social security tax or the employee’s share of Tier 1 tax under the
RRTA that is equivalent to the employee’s share of social security tax with respect to
applicable wages (as defined in Notice 2020-65) paid to an employee on a pay date
during the period beginning on September 1, 2020, and ending on December 31, 2020.
Deferral under Notice 2020-65, as modified by Notice 2021-11, during the third or fourth
quarter of 2020 does not impact an employer’s eligibility to claim the employee retention
credit. However, because an employer may defer deposits of the employee’s share of
social security tax before reducing deposits in anticipation of claiming the credit, the
deferral may affect the amount that an employer may request as an advance of the
credit.
III. GUIDANCE
This Section III provides guidance in Q/A format on the following topics:
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A. Eligible Employers
B. Aggregation Rules
C. Governmental Orders
D. Full or Partial Suspension of Trade or Business Operations
E. Significant Decline in Gross Receipts
F. Maximum Amount of Employer’s Employee Retention Credit
G. Qualified Wages
H. Allocable Qualified Health Plan Expenses
I. Interaction with Paycheck Protection Program (PPP) Loans
J. Claiming the Employee Retention Credit
K. Special Issues for Employees: Income and Deduction
L. Special Issues for Employers: Income and Deduction
M. Special Issues for Employers: Use of Third-Party Payers
N. Substantiation Requirements
A. Eligible Employers
Question 1: What is a “trade or business” for purposes of the employee retention
credit?
Answer 1: For purposes of the employee retention credit, “trade or business” has
the same meaning as when used in section 162 of the Code other than the trade or
business of performing services as an employee. Under section 162, an activity does
not qualify as a trade or business unless its primary purpose is to make a profit and it is
carried on with regularity and continuity. The facts and circumstances of each case
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determine whether an activity is a trade or business. A taxpayer does not necessarily
need to make a profit in any particular year in order to be in a trade or business as long
as a good faith profit motive is present.
For purposes of the employee retention credit, a tax-exempt organization
described in section 501(c) of the Code that is exempt from tax under section 501(a) of
the Code is deemed to be engaged in a “trade or business” with respect to all
operations of the organization.
Question 2: How does an organization determine if it is considered an
“instrumentality” of the Federal government, or of a State or local government, for
purposes of the employee retention credit?
Answer 2: In general, for employment tax purposes, the IRS considers six
factors in determining whether an organization is a government instrumentality. The six
factors that are used to determine whether an organization is an instrumentality are:
• whether the organization is used for a governmental purpose and performs a
governmental function;
• whether performance of the organization’s function is on behalf of one or more
States or political subdivisions;
• whether there are any private interests involved, or whether the States or political
subdivisions involved have the powers and interests of an owner;
• whether control and supervision of the organization is vested in a public authority
or authorities;
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• if express or implied statutory or other authority is necessary for the creation
and/or use of such an instrumentality, and whether such authority exists; and
• the degree of financial autonomy and the source of its operating expenses.
See Rev. Rul. 57-128, 1957-1 C.B. 311. No one factor is determinative; instrumentality
status is based on all the facts and circumstances. These same factors apply to identify
an instrumentality of the Federal government, or of a State or local government, for
purposes of the employee retention credit.
Question 3: Are tribal governments and tribal entities eligible for the employee
retention credit?
Answer 3: Yes. Any tribal government or tribal entity that operates a trade or
business may be an eligible employer for purposes of the employee retention credit if it
otherwise satisfies the eligibility requirements to claim the credit.
As a general rule, whether activities constitute a trade or business for purposes
of the employee retention credit is determined under section 162 of the Code.
However, because tribal governments are not subject to income tax under the Code
and, therefore, are generally not otherwise required to determine whether an activity of
the tribe constitutes the carrying on of a trade or business under section 162, the
Treasury Department and IRS have concluded that the section 162 standards are not
the appropriate bases for determining whether a tribal government is carrying on a trade
or business for purposes of the employee retention credit. Instead, solely for purposes
of the employee retention credit, a tribal government is treated as carrying on trade or
business activities, and all activities conducted by the tribal government will be
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considered part of such trade or business activities, without the need for further analysis
of whether those activities meet a particular standard for identifying trade or business
operations. In addition, solely for purposes of the employee retention credit, any entity
that a tribal government reasonably believes shares the same tax status as the tribal
government (tribal entity employer) may also consider all of its activities as trade or
business activities. Any entity other than a tribal government or a tribal entity employer
must determine whether its activities constitute carrying on a trade or business under
section 162 for purposes of determining eligibility for the employee retention credit.
Question 4: Are employers in U.S. Territories eligible for the employee retention
credit?
Answer 4: Yes. If an employer in a U.S. Territory otherwise qualifies for the
employee retention credit then the employer is entitled to claim the credit. Section
2301(c)(5)(A) of the CARES Act provides that qualified wages are, in general, wages as
defined in section 3121(a) of the Code for purposes of the Federal Insurance
Contributions Act (FICA) tax. Payments of wages by employers in U.S. Territories are
wages within the meaning of section 3121(a). Accordingly, eligible employers include
employers in the U.S. Territories that pay qualified wages and otherwise meet the
requirements for the credit.
Question 5: Are self-employed individuals eligible for the employee retention
credit?
Answer 5: Self-employed individuals are not eligible for the employee retention
credit with respect to their own self-employment earnings. However, a self-employed
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individual who employs other individuals in the self-employed individual’s trade or
business and who otherwise meets the requirements to be an eligible employer may be
eligible for the employee retention credit with respect to qualified wages the self-
employed individual pays to the employees.
Question 6: Are household employers eligible for the employee retention credit?
Answer 6: No. Household employers are not considered to operate a trade or
business and, therefore, are not eligible for the employee retention credit with respect to
their household employees. However, household employers who are also employers
operating a trade or business and who generally report employment taxes attributable to
their household employees on the same federal employment tax return used to report
the employment taxes attributable to the employees of the trade or business, may be
eligible for the employee retention credit, but only with respect to the trade or business
employees and their qualified wages paid with respect to the trade or business.
B. Aggregation Rules
Question 7: What is the general impact of the aggregation rules that treat certain
entities as a single employer?
Answer 7: All entities that are members of a controlled group of corporations or
trades or businesses under common control under sections 52(a) or (b) of the Code,
members of an affiliated service group under section 414(m) of the Code, or otherwise
aggregated under section 414(o) of the Code are treated as a single employer for
purposes of applying the employee retention credit. As a result, employers required to
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be aggregated are treated as a single employer for purposes of the following rules
applicable to the employee retention credit:
• Determining whether the employer has a trade or business operation that was
fully or partially suspended due to orders related to COVID-19 from an
appropriate governmental authority;
• Determining whether the employer experiences a significant decline in gross
receipts;
• Determining whether the employer averaged more than 100 full-time
employees; and
• Determining the maximum credit amount per employee.
The aggregation rules under section 52(a) and (b) generally apply to determine
which entities are treated as a single employer for purposes of the tax credits available
to an employer under section 51 of the Code, as well as for other Code provisions.
Under section 52(a), corporate taxpayers that are members of a controlled group
of corporations are treated as a single employer. A controlled group of corporations
may be either a parent-subsidiary controlled group, a brother-sister controlled group, or
a combined group of corporations.13 The section 52(b) aggregation rules apply to
13 A parent-subsidiary controlled group of corporations is one or more chains of corporations
where the common parent corporation owns more than 50 percent of the total combined voting power of
all classes of stock entitled to vote, or more than 50 percent of the value of all classes of stock of each
corporation. A brother-sister controlled group of corporations is two or more corporations where (1) five
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partnerships, trusts, estates, corporations, or sole proprietorships in trades or
businesses under common control. Under this rule, entities are treated as a single
employer if they are under common control applying rules similar to the parent-
subsidiary or brother-sister controlled group rules or the rules for a combined group of
corporations.
Section 414(m)(1) provides that employees of members in an affiliated service
group under section 414(m)(2) and (5) are treated as employed by a single employer for
purposes of employee benefit requirements listed in section 414(m)(4).14 In addition,
section 414(o) generally provides that the Secretary shall prescribe regulations
necessary to prevent avoidance of any of the employee benefit requirements listed in
section 414(m)(4) through the use of separate organizations or other arrangements.
Many Code provisions, particularly those addressing employee benefits, apply the
aggregation rules of section 414(m) and (o). For example, section 414(t) generally
or fewer persons who are individuals, estates, or trusts own at least 80 percent of the total combined
voting power of all classes of stock entitled to vote, or the total value of shares of all classes of stock of
each corporation; and (2) the same five or fewer persons, taking into account ownership only to the extent
that it is identical with respect to each corporation, own more than 50 percent of the total voting power of
all classes of stock entitled to vote, or total value of shares of all classes of stock of each corporation. A
combined group of corporations is three or more corporations, each of which is a member of either a
parent-subsidiary or a brother-sister controlled group, and at least one of which is both the common
parent of a parent-subsidiary controlled group and also a member of a brother-sister controlled group.
See Treas. Reg. § 1.52-1.
14 There are three types of affiliated service groups described in section 414(m). The first and
second types of affiliated service groups are described under section 414(m)(2) and require a
combination of common ownership and performance of services among certain organizations. The third
type of affiliated service group is described under section 414(m)(5), requires no common ownership, and
aggregates employers based on the performance of management functions by one organization for
another organization (and related organizations).
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provides that the aggregation rules in section 414(m) and (o) apply to various Code
provisions listed in section 414(t)(2).
Question 8: How is the employee retention credit allocated to an eligible
employer that is a member of an aggregated group?
Answer 8: The amount of the employee retention credit with respect to a
member of the aggregated group is based on the member's proportionate share of the
qualified wages giving rise to the credit for each calendar quarter (or other prescribed
period for which a tax return is required to be filed) for which the credit is claimed.
Question 9: How do the aggregation rules apply to tribes and tribal entities?
Answer 9: In determining eligibility for the employee retention credit, all
employers must apply the aggregation rules under section 52(a) and (b) and section
414(m) and (o) of the Code. For purposes of the employee retention credit, tribal
governments and tribal entity employers (as defined in Q/A–3) should use a reasonable,
good faith interpretation in determining how the aggregation rules apply.
C. Governmental Orders
Question 10: What “orders from an appropriate governmental authority” may be
taken into account by an employer for purposes of determining eligibility for the
employee retention credit?
Answer 10: Orders, proclamations, or decrees from the Federal government or
any State or local government may be taken into account by an employer as “orders
from an appropriate governmental authority” only if they limit “commerce, travel, or
group meetings (for commercial, social, religious, or other purposes) due to the
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coronavirus disease 2019 (COVID-19)” and relate to the suspension of an employer’s
operation of its trade or business. Orders that are not from the Federal government
must be from a State or local government that has jurisdiction over the employer’s
operations. These orders are referred to as “governmental orders.” Whether orders,
proclamations or decrees are governmental orders is determined without regard to the
level of enforcement of the governmental order.
Statements from a governmental official, including comments made during press
conferences or in interviews with the media, do not rise to the level of a governmental
order for purposes of the employee retention credit. Additionally, the declaration of a
state of emergency by a governmental authority is not sufficient to rise to the level of a
governmental order if it does not limit commerce, travel, or group meetings in any
manner. Further, such a declaration that limits commerce, travel, or group meetings,
but does so in a manner that does not relate to the suspension of an employer’s
operation of its trade or business does not rise to the level of a governmental order for
purposes of the employer’s determination of its eligibility for the employee retention
credit.
Governmental orders include:
• An order from the city’s mayor stating that all non-essential businesses must
close for a specified period;
• A State’s emergency proclamation that residents must shelter in place for a
specified period, other than residents who are employed by an essential
business and who may travel to and work at the workplace location;
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• An order from a local official imposing a curfew on residents that impacts the
operating hours of a trade or business for a specified period;
• An order from a local health department mandating a workplace closure for
cleaning and disinfecting.
Whether the operations of a trade or business are considered essential or non-
essential will often vary from jurisdiction to jurisdiction. An employer should determine
whether it is operating an essential or non-essential business by referring to the
governmental order affecting the employer’s operation of its trade or business.
Example 1: Governor of State Y issues an order that all non-essential businesses
must close from March 20, 2020, until April 30, 2020. The order provides a list of non-
essential businesses, including gyms, spas, nightclubs, barber shops, hair salons, tattoo
parlors, physical therapy offices, waxing salons, fitness centers, bowling alleys,
arcades, racetracks, indoor children’s play areas, theaters, chiropractors, planetariums,
museums, and performing arts centers. The governor’s order is a governmental order
limiting the operations of non-essential businesses; therefore, employers with non-
essential businesses to which the governmental order applies may be considered
eligible employers for purposes of the employee retention credit.
Example 2: Mayor of City Y holds a press conference encouraging residents to
practice social distancing to prevent the spread of COVID-19. The statement during the
press conference is not an order limiting commerce, travel, or group meetings.
Accordingly, the mayor’s statement would not be a governmental order for purposes of
the employee retention credit.
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Example 3: A restaurant is ordered by a local health department to close due to a
health code violation. Since the order is unrelated to COVID-19, it would not be
considered a governmental order for purposes of the employee retention credit.
D. Full or Partial Suspension of Trade or Business Operations
Question 11: If a governmental order requires non-essential businesses to
suspend operations but allows essential businesses to continue operations, is an
essential business considered to have a full or partial suspension of operations due to a
governmental order?
Answer 11: An employer that operates an essential business is not considered
to have a full or partial suspension of operations if the governmental order allows all of
the employer’s operations to remain open. However, an employer that operates an
essential business may be considered to have a partial suspension of operations if,
under the facts and circumstances, more than a nominal portion of its business
operations are suspended by a governmental order. For example, an employer that
maintains both essential and non-essential business operations, each of which are
more than nominal portions of the business operations, may be considered to have a
partial suspension of its operations if a governmental order restricts the operations of
the non-essential portion of the business, even if the essential portion of the business is
unaffected. In addition, an essential business that is permitted to continue its
operations may, nonetheless, be considered to have a partial suspension of its
operations if a governmental order requires the business to close for a period of time
during normal working hours.
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Solely for purposes of this employee retention credit, a portion of an employer’s
business operations will be deemed to constitute more than a nominal portion of its
business operations if either (i) the gross receipts from that portion of the business
operations is not less than 10 percent of the total gross receipts (both determined using
the gross receipts of the same calendar quarter in 2019), or (ii) the hours of service
performed by employees in that portion of the business is not less than 10 percent of
the total number of hours of service performed by all employees in the employer’s
business (both determined using the number of hours of service performed by
employees in the same calendar quarter in 2019).
Question 12: If a governmental order causes the suppliers to a business to
suspend their operations, is the business considered to have a suspension of
operations due to a governmental order?
Answer 12: An employer may be considered to have a full or partial suspension
of operations due to a governmental order if, under the facts and circumstances, the
business’s suppliers are unable to make deliveries of critical goods or materials due to a
governmental order that causes the supplier to suspend its operations. If the facts and
circumstances indicate that the business’s operations are fully or partially suspended as
a result of the inability to obtain critical goods or materials from its suppliers because
they were required to suspend operations, then the business would be considered an
eligible employer for calendar quarters during which its operations are fully or partially
suspended and may be eligible to receive the employee retention credit.
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Example: Employer A operates an auto parts manufacturing business. Employer
A’s supplier of raw materials is required to fully suspend its operations due to a
governmental order. Employer A is unable to procure these raw materials from an
alternate supplier. As a consequence of the suspension of Employer A’s supplier,
Employer A is not able to perform its operations for a period of time. Under these facts
and circumstances, Employer A would be considered an eligible employer during this
period because its operations have been suspended due to the governmental order that
suspended operations of its supplier.
Question 13: If a governmental order causes the customers of a business to
stay at home, or otherwise causes a reduction in demand for its products or services,
and the business responds to the lack of demand by suspending some or all of its
operations, is the business considered to have a suspension of operations due to a
governmental order?
Answer 13: No. An employer that suspends some or all of its operations
because its customers are subject to a government order requiring them to stay at
home or otherwise causing a reduction in demand for its products or services is not
considered to have a full or partial suspension of its operations due to a governmental
order.
If an employer’s operations are not suspended due to a governmental order but
the employer experiences a reduction in demand, the employer may be considered an
eligible employer if it experiences a significant decline in gross receipts.
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Example: Employer B, an automobile repair service business, is an essential
business and is not required to close its locations or suspend its operations. Due to a
governmental order that limits travel and requires members of the community to stay at
home except for certain essential travel, such as going to the grocery store, Employer
B’s business has declined significantly. Employer B suspends its operations due to the
lack of demand. Employer B is not considered to have a full or partial suspension of
operations due to a governmental order.
Question 14: If an employer voluntarily suspends operation of a trade or
business or voluntarily reduces hours due to COVID-19, but the suspension or reduction
in hours is not due to a governmental order, may the employer qualify as an eligible
employer solely on the basis of the voluntary suspension or reduction in hours?
Answer 14: No. An employer that voluntarily suspends operation of a trade or
business or voluntarily reduces hours due to COVID-19 is not eligible for the employee
retention credit on the basis of a full or partial suspension of its operations.
Question 15: If a governmental order requires an employer to close its
workplace, but the employer is able to continue operations comparable to its operations
prior to the closure by requiring employees to telework, is the employer considered to
have a suspension of operations?
Answer 15: No. If an employer’s workplace is closed by a governmental order,
but the employer is able to continue operations comparable to its operations prior to the
closure, including by requiring its employees to telework, the employer’s operations are
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not considered to have been fully or partially suspended as a consequence of a
governmental order.
However, if the closure of the workplace causes the employer to suspend
business operations for certain purposes, but not others, it may be considered to have a
partial suspension of operations due to the governmental order.
Example 1: Employer C, a software development company, maintains an office in
a city where the mayor has ordered that only essential businesses may operate.
Employer C’s business is not essential under the mayor’s order, and therefore Employer
C is required to close its office. Prior to the governmental order, all employees at the
company teleworked once or twice per week, and business meetings were held at
various locations. Following the governmental order, the company ordered mandatory
telework for all employees and limited client meetings to telephone or video
conferences. Employer C’s business operations are not considered to be fully or
partially suspended due to the governmental order because the employer is able to
continue its business operations in a comparable manner.
Example 2: Employer D operates a physical therapy facility in a city where the
mayor has ordered that only essential businesses may operate. Employer D’s business
is not considered essential under the mayor’s order, and therefore Employer D is
required to close its workplace. Prior to the governmental order, none of Employer D’s
employees provided services through telework and all appointments, administration,
and other duties were carried out at Employer D’s workplace. Following the
governmental order, Employer D moves to an online format and is able to serve some
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clients remotely, but employees cannot access specific equipment or tools that they
typically use in therapy and not all clients can be served remotely. Employer D’s
business operations are considered to be partially suspended due to the governmental
order because Employer D’s workplace, including access to physical therapy
equipment, is central to its operations, and the business operations cannot continue in a
comparable manner.
Example 3: Employer E, a scientific research company with facilities in a state in
which the governor has ordered that only essential businesses may operate, conducts
research in a laboratory setting and through the use of computer modeling. Employer
E’s business is not essential under the governor’s order, and therefore Employer E is
required to close its workplace. Prior to the governmental order, Employer E’s
laboratory-based research operations could not be conducted remotely (other than
certain related administrative tasks) and employees involved in laboratory-based
research worked on-site. Employer E’s computer modeling research operations could
be conducted remotely, and employees who engaged in this portion of the business
often teleworked. Following the governmental order, the employees engaged in the
laboratory-based research cannot perform their work while the facility is closed and are
limited to performing administrative tasks during the closure. In contrast, all employees
engaged in computer modeling research are directed to telework, and those business
operations are able to continue in a comparable manner. Employer E’s business
operations are considered to be partially suspended due to the governmental order
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because Employer E’s laboratory-based research business operations cannot continue
in a comparable manner.
Question 16: What factors should be considered in determining if an employer is
able to continue operations comparable to its operations prior to closure such that the
employer’s operations are not considered to have been fully or partially suspended due
to a governmental order?
Answer 16: The following factors should be considered in determining if an
employer is able to continue comparable operations, although additional factors may be
considered as well if relevant:
(1) Employer’s telework capabilities. Determine whether an employer has
adequate support (IT and otherwise) such that operations can continue via
work from another location.
(2) Portability of employees’ work. Determine the amount of portable work, or
work otherwise adaptable to be performed from a remote location, within an
employer’s trade or business operations.
(3) Need for presence in employee’s physical work space. Evaluate the role that
the employer’s physical work space plays in an employer’s trade or business
(may be critical and necessary, beneficial but not necessary, or merely
convenient). If the employer’s physical work space is so critical to its trade or
business operations that tasks central to the trade or business’s operations
are unable to be performed remotely, then this factor alone indicates that the
employer is not able to continue comparable operations. Examples of work
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space that is critical include laboratories or manufacturing involving special
equipment or materials that cannot be accessed or operated remotely.
(4) Transitioning to telework operations. If an employer can conduct comparable
operations via telework, but the employer’s operations did not previously
allow for telework, or allowed for only minimal telework, then some
adjustment period is expected, and, generally, the employer’s operations are
not considered partially suspended during that period. However, if an
employer incurs a significant delay (for example, beyond 2 weeks) in moving
operations to comparable telework (for example, implementing telework
policies or providing employees with equipment to telework), then the
employer’s trade or business operations may be deemed subject to a partial
suspension during that transition period.
Question 17: If a governmental order requires an employer to close its
workplace for certain purposes, but the workplace may remain operational for other
limited purposes, is the employer considered to have a suspension of operations due to
the governmental order?
Answer 17: If an employer’s workplace is closed due to a governmental order for
certain purposes, but the employer’s workplace may remain open for other limited
purposes, the employer’s operations would be considered to be partially suspended if,
under the facts and circumstances, the operations that are closed are more than a
nominal portion of its business operations and cannot be performed remotely in a
comparable manner. If all, or all but a nominal portion, of an employer’s business
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operations may continue, but the operations are subject to modification due to a
governmental order (for example, to satisfy distancing requirements), such a
modification of operations is considered to be a partial suspension of business
operations due to a governmental order if the modification required by the governmental
order has more than a nominal effect on the business operations under the facts and
circumstances. See Q/A 18 for a description of factors that may be used for determining
if a modification required by a governmental order has more than a nominal effect on
business operations.
Example 1: Employer F, a restaurant business, must close its restaurant to on-
site dining due to a governmental order closing all restaurants, bars, and similar
establishments for sit-down service. Employer F is allowed to continue food or
beverage sales to the public on a carry-out, drive-through, or delivery basis. On-site
dining is more than a nominal portion of Employer F’s business operations. Employer
F’s business operations are considered to be partially suspended because, under the
facts and circumstances, more than a nominal portion of its business operations—its
indoor and outdoor dining service—is suspended due to the governmental order.
Example 2: Same facts as Example 1, except that two months later, under a
subsequent governmental order, Employer F is permitted to offer sit-down service in its
outdoor space, but its indoor dining service continues to be closed. During this period,
Employer F is allowed to operate only its outdoor sit-down and carry-out service in
accordance with the order. Indoor dining is more than a nominal portion of Employer
F’s business operations. Employer F’s business operations are considered to be
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partially suspended because, under the facts and circumstances, more than a nominal
portion of its business operations – its indoor dining service – is suspended due to a
governmental order. The following month, under a further governmental order,
Employer F is permitted to offer indoor dining service, in addition to outdoor sit-down
and carry-out service, provided that all tables in the indoor dining room must be spaced
at least six feet apart. This spacing constraint has more than a nominal effect on
Employer F’s business operations. During this period, even though Employer F
resumed all categories of its business operations, Employer F’s business operations
continue to be partially suspended because, under the facts and circumstances, the
governmental order restricting its indoor dining service has more than a nominal effect
on its operations.
Example 3: Employer G, a retail business, must close its retail storefront
locations due to a governmental order. The retail business also maintains a website
through which it continues to fulfill online orders; the retailer’s online ordering and
fulfillment system is unaffected by the governmental order. The retail storefront
locations are more than a nominal portion of Employer G’s business operations.
Employer G’s business operations are considered to have been partially suspended due
to the governmental order requiring it to close its retail storefront locations, which are
more than a nominal portion of its business operations.
Example 4: Employer H, a hospital, is considered to be operating an essential
business under a governmental order with respect to its emergency department,
intensive care, and other services for conditions requiring urgent medical care.
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However, the governmental order treats Employer H’s elective and non-urgent medical
procedures as non-essential business operations and prevents Employer H from
performing these services. Employer H suspends operations related to elective and
non-urgent medical procedures, which are more than a nominal portion of Employer H’s
business operations. Although Employer H is an essential business, Employer H is
considered to have a partial suspension of operations due to the governmental order
that prevents Employer H from performing elective and non-urgent medical procedures,
which are more than a nominal portion of its business operations under the facts and
circumstances.
Example 5: Employer I, a grocery store, is considered to be operating an
essential business under a governmental order. However, the governmental order
requires grocery stores to discontinue their self-serve offerings, such as salad bars,
though they may offer prepared or prepackaged food. Employer I modifies its
operations to close its salad bar and other self-serve offerings and instead offers
prepackaged salads and other items. The salad bar and other self-serve offerings are
not more than a nominal portion of Employer I’s business operations. Further, the
governmental order requiring Employer I to discontinue its self-serve offerings does not
have more than a nominal effect on Employer I’s business operations under the facts
and circumstances, even though Employer I was required to modify its business
operations. Accordingly, Employer I’s business operations are not considered to be
partially suspended due to a governmental order.
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Example 6: Employer J, a large retailer, is required to close its storefront location
due to a governmental order, but is permitted to provide customers with curbside
service to pick up items ordered online or by phone. The retail storefront location is
more than a nominal portion of Employer J’s business operations. During this period,
Employer J’s business operations are considered to have been partially suspended due
to the governmental order requiring it to close its storefront location. Two months later,
under a subsequent governmental order, Employer J is permitted to reopen its
storefront location. Under the subsequent governmental order, however, Employer J
must enforce social distancing guidelines that require Employer J to admit only a
specified number of customers into the store per 1,000 square feet. While the
governmental order results in customers waiting in line for a short period of time to enter
the store during certain busy times of the week, the size of Employer J’s storefront is
large enough that it is able to accommodate all of its customers after these short waits
outside the store. The governmental order requiring Employer J to enforce social
distancing guidelines does not have more than a nominal effect on Employer J’s
business operations under the facts and circumstances, even though Employer J is
required to modify its business operations. During this period, Employer J’s business
operations are not considered to be partially suspended due to the governmental order
because the governmental order requiring enforcement of social distancing guidelines
does not have more than a nominal effect on its operations.
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Question 18: What factors should be taken into account in determining whether
a modification required by a governmental order has more than a nominal effect on
business operations for purposes of Q/A–17?
Answer 18: The types of modifications that are contemplated by Q/A–17 are
those required by a governmental order as a condition of reopening a physical space for
business or service to the public. Examples of these modifications include: limiting
occupancy to provide for social distancing, requiring services to be performed only on
an appointment basis (for businesses that previously offered walk-in service), changing
the format of service (for example, restrictions on buffet or self-serve, but not
prepackaged or carry-out), or requiring employees and customers to wear face
coverings.
The mere fact that an employer must make a modification to business operations
due to a governmental order does not result in a partial suspension unless the
modification has more than a nominal effect on the employer’s business operations.
Whether a modification required by a governmental order has more than a nominal
effect on the business operations is based on the facts and circumstances. A
governmental order that results in a reduction in an employer’s ability to provide goods
or services in the normal course of the employer’s business of not less than 10 percent
will be deemed to have more than a nominal effect on the employer’s business
operations. For example, occupancy restrictions at a restaurant with indoor dining
service may result in an actual, and more than nominal, reduction of the restaurant’s
ability to service customers; however, an occupancy restriction at a retailer with
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sufficient physical space to accommodate its customers regardless of the restriction will
likely not result in an actual, and more than nominal, reduction of the retailer’s ability to
provide goods to its customers.
Modifications altering customer behavior (for example, mask requirements or
making store aisles one way to enforce social distancing) or that require employees to
wear masks and gloves while performing their duties will not result in more than a
nominal effect on the business operations.
Question 19: Are an employer’s operations considered to be partially suspended
for purposes of the employee retention credit if the employer is required to reduce its
operating hours by a governmental order?
Answer 19: Yes. An employer that reduces its operating hours due to a
governmental order is considered to have partially suspended its operations since the
employer’s operations have been limited by a governmental order.
Example: Employer K operates a food processing facility that normally operates
24 hours a day. A governmental order issued by the local health department requires
all food processing businesses to deep clean their workplaces once every 24 hours in
order to reduce the risk of COVID-19 exposure. In order to comply with the
governmental order, Employer K reduces its daily operating hours by five hours per day
so that a deep cleaning may be conducted within its workplace once every 24 hours.
Employer K is considered to have partially suspended its operations due to the
governmental order requiring it to reduce its hours of operation.
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Question 20: Is an employer that operates a trade or business in multiple
locations and is subject to governmental orders requiring full or partial suspension of its
operations in some jurisdictions, but not in others, considered to have a partial
suspension of operations?
Answer 20: Yes. Employers that operate a trade or business in multiple
locations and are subject to State and local governmental orders requiring full or partial
suspension of operations in some, but not all, jurisdictions are considered to have a
partial suspension of operations. Employers that operate a trade or business on a
national or regional basis may be subject to governmental orders requiring closure of
their locations in certain jurisdictions, but may not be subject to a governmental order in
other jurisdictions. To operate in a consistent manner in all jurisdictions, these
employers may establish a policy that complies with the local governmental orders, as
well as the Center for Disease Control and Prevention (CDC) recommendations and the
Department of Homeland Security (DHS) guidance; in this case, even though the
employer may not be subject to a governmental order to suspend operations of its trade
or business in certain jurisdictions, and may merely be following CDC or DHS guidelines
in those jurisdictions, the employer would still be considered to have partially suspended
operations due to the governmental orders requiring closure of its business operations
in certain jurisdictions. Therefore, the employer would be an eligible employer with
respect to all of its operations in all locations for calendar quarters during which the
employer’s operations are partially suspended whether or not the employer voluntarily
adopts consistent measures for its business operations in other jurisdictions.
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Example: Employer L is a national retail store chain with operations in every state
in the United States. In some jurisdictions, Employer L is subject to a governmental
order to close its stores to customers, but is permitted to provide customers with
curbside service to pick up items ordered online or by phone. In these jurisdictions,
Employer L determines that it is not continuing comparable operations and that the
stores that are closed to customers are more than a nominal portion of its business
operations. In other jurisdictions, Employer L is not subject to any governmental order
to close its stores to customers or is considered an essential business permitting its
stores to fully remain open. Employer L establishes a company-wide policy, in
compliance with the local governmental orders and consistent with the CDC and DHS
recommendations and guidance, requiring the closure of all stores and operating with
curbside pick-up only, even in those jurisdictions where the business was not subject to
a governmental order. As a result of the governmental orders requiring closure of
Employer L’s stores to customers in certain jurisdictions, Employer L has a partial
suspension of operations of its trade or business whether or not Employer L chooses to
take consistent measures for stores in other jurisdictions. The partial suspension
results in Employer L being an eligible employer nationwide for calendar quarters during
which the employer’s operations are partially suspended.
Question 21: If the operations of a trade or business of one member of an
aggregated group are fully or partially suspended due to a governmental order, are the
operations of the trade or business of the other members of the aggregated group
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considered to be fully or partially suspended for purposes of the employee retention
credit?
Answer 21: Yes. All members of an aggregated group that are treated as a
single employer under the aggregation rules are treated as a single employer for
purposes of the employee retention credit. If a trade or business is operated by multiple
members of an aggregated group, and if the operations of one member of the
aggregated group are suspended due to a governmental order, then all members of the
aggregated group are considered to have their operations partially suspended, even if
another member of the group is in a jurisdiction that is not subject to a governmental
order.
Example: Employer Group M is a restaurant chain that operates a single trade or
business through multiple subsidiary corporations located in various jurisdictions.
Employer Group M is treated as a single employer under the aggregation rules for
purposes of the employee retention credit. Certain members of Employer Group M’s
operations are fully suspended due to a governmental order, while other members of
Employer Group M’s operations are not subject to a governmental order and remain
open. Because Employer Group M is treated as a single employer for purposes of the
employee retention credit, the operations of all members of Employer Group M are
treated as fully or partially suspended due to governmental orders suspending the
operations of certain of Employer Group M members.
Question 22: If an employer is subject to a governmental order to fully or
partially suspend its business operations and the order is subsequently lifted in the
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middle of a calendar quarter, is the employer an eligible employer for the entire calendar
quarter?
Answer 22: Yes. An employer with business operations that are fully or partially
suspended due to a governmental order during a portion of a calendar quarter is an
eligible employer for the entire calendar quarter. However, only wages paid with
respect to the period during which the employer is fully or partially suspended due to a
governmental order may be considered qualified wages.
Example: State Y issued a governmental order for all non-essential businesses
to close from March 10, 2020, through April 30, 2020, and the governmental order was
not extended. Pursuant to the order, Employer N, which operates a non-essential
business in State Y, closes from March 10 through April 30. Employer N is a large
eligible employer in the first quarter and second quarter of 2020, but may claim the
credit only for qualified wages paid from March 13, 2020, the effective date of section
2301 of the CARES Act, through April 30, 2020, with respect to employees who were
not providing services during this period because of the suspension of operations due to
State Y’s governmental order.
E. Significant Decline in Gross Receipts
Question 23: How is the period during which there is a significant decline in
gross receipts determined?
Answer 23: The period during which there is a significant decline in gross
receipts is determined by identifying the first calendar quarter in 2020 (if any) in which
an employer’s gross receipts are less than 50 percent of its gross receipts for the same
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calendar quarter in 2019. The period during which there is a significant decline in gross
receipts ends with the earlier of January 1, 2021, or the calendar quarter that follows the
first calendar quarter in which the employer’s 2020 quarterly gross receipts are greater
than 80 percent of its gross receipts for the same calendar quarter in 2019
Example: Employer A’s gross receipts were $100,000, $190,000, and $230,000
in the first, second, and third calendar quarters of 2020, respectively. Its gross receipts
were $210,000, $230,000, and $250,000 in the first, second, and third calendar quarters
of 2019, respectively. Thus, Employer A’s 2020 first, second, and third quarter gross
receipts were approximately 48 percent, 83 percent, and 92 percent of its 2019 first,
second, and third quarter gross receipts, respectively. Accordingly, Employer A
experienced a significant decline in gross receipts commencing on the first day of the
first calendar quarter of 2020 (the calendar quarter in which gross receipts were less
than 50 percent of those in the same quarter of 2019) and ending on the first day of the
third calendar quarter of 2020 (the quarter following the first quarter in which the gross
receipts were more than 80 percent of those in the same quarter of 2019). Thus,
Employer A is an eligible employer during the first and second calendar quarters of
2020.
Question 24: What are “gross receipts” for an employer other than a tax-exempt
organization?
Answer 24: “Gross receipts” for purposes of the employee retention credit, for an
employer other than a tax-exempt organization, has the same meaning as when used
under section 448(c) of the Code. Under the section 448(c) regulations, “gross receipts”
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means gross receipts of the taxable year and generally includes total sales (net of
returns and allowances) and all amounts received for services. In addition, gross
receipts include any income from investments, and from incidental or outside sources.
For example, gross receipts include interest (including original issue discount and tax-
exempt interest within the meaning of section 103 of the Code), dividends, rents,
royalties, and annuities, regardless of whether those amounts are derived in the
ordinary course of the taxpayer's trade or business. Gross receipts are generally not
reduced by cost of goods sold, but are generally reduced by the taxpayer’s adjusted
basis in certain property used in a trade or business or capital assets sold. Gross
receipts do not include the repayment of a loan, or amounts received with respect to
sales tax if the tax is legally imposed on the purchaser of the good or service, and the
taxpayer merely collects and remits the sales tax to the taxing authority.
Question 25: What are “gross receipts” for a tax-exempt employer?
Answer 25: “Gross receipts” for purposes of the employee retention credit, for a
tax-exempt organization, has the same meaning as under section 6033 of the Code.
Under the section 6033 regulations, “gross receipts” means the gross amount received
by the organization from all sources without reduction for any costs or expenses
including, for example, cost of goods or assets sold, cost of operations, or expenses of
earning, raising, or collecting such amounts. Thus, gross receipts includes, but is not
limited to, the gross amount received as contributions, gifts, grants, and similar amounts
without reduction for the expenses of raising and collecting such amounts, the gross
amount received as dues or assessments from members or affiliated organizations
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without reduction for expenses attributable to the receipt of such amounts, gross sales
or receipts from business activities (including business activities unrelated to the
purpose for which the organization qualifies for exemption), the gross amount received
from the sale of assets without reduction for cost or other basis and expenses of sale,
and the gross amount received as investment income, such as interest, dividends,
rents, and royalties.
To determine whether there has been a significant decline in gross receipts, a
tax-exempt employer computes its gross receipts received from all of its operations
during the calendar quarter and compares those gross receipts to the gross receipts
received for the same calendar quarter in 2019.
Question 26: For members of an aggregated group, is a significant decline in
gross receipts determined based on the entire group?
Answer 26: Yes. All entities that are treated as a single employer under the
aggregation rules are treated as a single employer for purposes of determining whether
the employer experienced a significant decline in gross receipts.
To be an eligible employer on the basis of a significant decline of gross receipts,
the employer must take into account the gross receipts of all members of the
aggregated group. If the aggregated group does not experience a significant decline in
gross receipts, then no member of the group may claim the employee retention credit
on that basis.
Example: Employer B and Employer C are members of a section 52(a) controlled
group of corporations and are treated as a single employer under the aggregation rules.
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Because Employer B and Employer C are treated as a single employer under the
aggregation rules, they must be treated as a single employer for purposes of
determining whether there has been a significant decline in gross receipts. Neither
Employer B nor Employer C is subject to a governmental order suspending business
operations. Employer B has gross receipts of $1,000,000 in the second quarter of 2019
and $400,000 in the second quarter of 2020. Employer C has gross receipts of
$1,000,000 in second quarter of 2019 and $750,000 in second quarter of 2020.
Although Employer B’s gross receipts in the second quarter of 2020 were 40 percent of
its 2019 second quarter gross receipts, neither Employer B nor Employer C can claim
the employee retention credit due to a significant decline in gross receipts. This is
because Employers B and C are treated as a single employer for purposes of the
employee retention credit and had combined gross receipts of $2,000,000 in the second
quarter of 2019 and $1,150,000 in the second quarter of 2020. Their combined gross
receipts for the second quarter of 2020 would have had to be less than $1,000,000 (50
percent of $2,000,000) for Employers B and C to have experienced a significant decline
in gross receipts for the second quarter of 2020.
Question 27: How does an employer that started its business in 2019 determine
whether it experienced a significant decline in gross receipts for purposes of the
employee retention credit?
Answer 27: An employer that started its business in the first quarter of 2019
should use the gross receipts for the applicable quarter of 2019, as described below, for
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comparison to the gross receipts for the same quarter in 2020 to determine whether it
experienced a significant decline in gross receipts in any quarter of 2020.
An employer that started its business in the second quarter of 2019 should use
that quarter as the base period to determine whether it experienced a significant decline
in gross receipts for the first two quarters in 2020 and should use the third and fourth
quarters of 2019 for comparison to the third and fourth quarters of 2020, respectively, to
determine whether it experienced a significant decline in gross receipts for those
quarters.
An employer that started its business in the third quarter of 2019 should use that
quarter as the base period to determine whether it experienced a significant decline in
gross receipts for the first three quarters in 2020 and should use the fourth quarter of
2019 for comparison to the fourth quarter of 2020 to determine whether it experienced a
significant decline in gross receipts for that quarter.
An employer that started its business in the fourth quarter of 2019 should use
that quarter as the base period to determine whether it experienced a significant decline
in gross receipts for any quarter in 2020.
If an employer commenced business in the middle of a quarter in 2019, the
employer should estimate the gross receipts it would have had for the entire quarter
based on the gross receipts for the portion of the quarter that the business was in
operation. To calculate this amount, the employer may use any reasonable method,
including extrapolating the gross receipts for the quarter based on the gross receipts for
the number of days its business was operating during the quarter.
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Question 28: How does an employer that acquires a trade or business during
the 2020 calendar year determine if the employer experienced a significant decline in
gross receipts?
Answer 28: For purposes of the employee retention credit, to determine whether
an employer experiences a significant decline in gross receipts, an employer that
acquires (in an asset purchase, stock purchase, or any other form of acquisition) a trade
or business during 2020 (an acquired business) is required to include the gross receipts
from the acquired business in its gross receipts computation for each calendar quarter
that it owns and operates the acquired business. Solely for purposes of the employee
retention credit, when an employer compares its gross receipts for a 2020 calendar
quarter when it owns an acquired business to its gross receipts for the same calendar
quarter in 2019, the employer may, to the extent the information is available, include the
gross receipts of the acquired business in its gross receipts for the 2019 calendar
quarter. Under this safe harbor approach, the employer may include these gross
receipts regardless of the fact that the employer did not own the acquired business
during that 2019 calendar quarter.
An employer that acquires a trade or business in the middle of a calendar quarter
in 2020 and that chooses to use this safe harbor approach must estimate the gross
receipts it would have had from that acquired business for the entire quarter based on
the gross receipts for the portion of the quarter that it owned and operated the acquired
business. However, an employer that chooses not to use this safe harbor approach is
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required to include only the gross receipts from the acquired business for the portion of
the quarter that it owned and operated the acquired business.
Example: Employer D acquired all of the assets of a trade or business in a
taxable transaction on January 1, 2020. The gross receipts of the acquired business
were $50,000 for the quarter beginning January 1, 2020, and ending March 31, 2020,
and $200,000 for the quarter beginning January 1, 2019, and ending March 31,
2019. Employer D has access to the books and records from the prior owner of the
acquired trade or business and can determine the amount of gross receipts attributable
to the trade or business for the quarter beginning January 1, 2019, and ending March
31, 2019. For purposes of the employee retention credit, Employer D must include
$50,000 in its gross receipts computation for the quarter beginning January 1, 2020,
and ending March 31, 2020 (because Employer D actually owned the trade or business)
and may include $200,000 in its gross receipts computation for the quarter beginning
January 1, 2019, and ending March 31, 2019.
F. Maximum Amount of Employer’s Employee Retention Credit
Question 29: How is the maximum amount of the employee retention credit
available to eligible employers determined?
Answer 29: The credit equals 50 percent of qualified wages (including allocable
qualified health plan expenses) that an eligible employer pays in a calendar quarter.
The maximum amount of qualified wages (including allocable qualified health plan
expenses) taken into account with respect to each employee for all calendar quarters in
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2020 is $10,000, which means that the maximum credit for qualified wages (including
allocable qualified health plan expenses) paid to any employee in 2020 is $5,000.
If an employee is employed by two or more entities treated as a single employer
under the aggregation rules, the maximum amount of qualified wages for all calendar
quarters that may be taken into account with respect to that employee is $10,000 in the
aggregate; thus, an aggregated group treated as a single employer may not claim more
than the maximum credit of $5,000 with respect to any one individual employed by the
members of the aggregated group. With respect to such an employee, the amount of
the employee retention credit that may be claimed by any member of an aggregated
group is based on the member’s proportionate share of qualified wages giving rise to
the credit per the return period for which the credit is claimed.
Example 1: Employer A is an eligible employer and pays $10,000 in qualified
wages to Employee B in the second quarter of 2020. The employee retention credit
available to Employer A for the qualified wages paid to Employee B is $5,000.
Example 2: Employer C is an eligible employer and pays $8,000 in qualified
wages to Employee D in the second quarter 2020 and $8,000 in qualified wages in the
third quarter 2020. The credit available to Employer C for the qualified wages paid to
Employee D is equal to $4,000 in the second quarter and $1,000 in the third quarter due
to the overall limit of 50 percent of $10,000 of qualified wages per employee for all
calendar quarters.
Example 3: Employer E and Employer F are members of an aggregated group
treated as a single employer and together are an eligible employer. Employee G is
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employed by both Employer E and Employer F. Employee G received $10,000 in
qualified wages from each employer during the second quarter of 2020, for a total of
$20,000. Because Employers E and F are treated as a single employer under the
aggregation rules, the total amount of qualified wages that may be taken into account
for determining the employee retention credit with respect to Employee G is limited to
$10,000, and the maximum credit available for qualified wages paid to Employee G is
$5,000. Employers E and F can claim their proportionate share of the $5,000 credit.
Since Employers E and F paid equal amounts of qualified wages to Employee G, they
can each claim $2,500. Additionally, because Employers E and F each paid the
maximum amount of qualified wages ($10,000) to Employee G during the second
quarter, Employers E and F are not entitled to the employee retention credit for wages
paid to Employee G in any remaining quarter in 2020.
G. Qualified Wages
Question 30: What are “qualified wages”?
Answer 30: Qualified wages are generally limited to wages (as defined in section
3121(a) of the Code) and compensation (as defined in section 3231(e) of the Code),
both determined without regard to the social security wage base, paid by an eligible
employer to some or all of its employees after March 12, 2020, and before January 1,
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2021.15 Section 2301(c)(5)(B) of the CARES Act provides that “wages” include amounts
paid by an eligible employer to provide and maintain a group health plan (as defined in
section 5000(b)(1) of the Code), but only to the extent that the amounts are excluded
from the gross income of employees by reason of section 106(a) of the Code. Amounts
treated as wages under section 2301(c)(5)(B) of the CARES Act are treated as paid
with respect to any employee (and with respect to any period) to the extent the amounts
are properly allocable to the employee (and to the period), and, except as otherwise
provided by the Secretary, the allocation will be treated as proper if made on the basis
of being pro rata among periods of coverage. See Q/As 41 and 42. Qualified wages do
not include qualified sick leave wages and qualified family leave wages taken into
account under sections 7001 and 7003 of the FFCRA.
The specific circumstances in which wage payments by an eligible employer will
be considered qualified wages depend, in part, on the average number of full-time
employees the eligible employer employed during 2019. For a large eligible employer
(more than 100 employees), qualified wages are the wages paid to an employee for
time that the employee is not providing services due to either (1) a full or partial
suspension of the employer's business operations due to a governmental order, or (2)
the business experiencing a significant decline in gross receipts. For a small eligible
15 As noted above, this notice does not provide guidance with respect to the extension of the
credit for qualified wages paid after December 31, 2020, and before July 1, 2021.
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employer (100 or fewer employees), qualified wages are the wages paid with respect to
an employee during any period in the calendar quarter in which the business operations
are fully or partially suspended due to a governmental order or during any calendar
quarter in which the business is experiencing a significant decline in gross receipts.
Example: Employer A is a small eligible employer that has had a partial
suspension of its business operations due to a governmental order. Employer A offers
its employees various benefits that provide for pre-tax salary reduction contributions,
including a qualified section 401(k) plan, a fully-insured group health plan, a dependent
care assistance program satisfying the requirements of section 129 of the Code, and
qualified transportation benefits satisfying the requirements of section 132(f) of the
Code. Employer A also makes matching and nonelective contributions to the qualified
section 401(k) plan and pays the portion of the cost of maintaining the group health plan
remaining after the employees’ share. None of these amounts are wages taken into
account for purposes of the credits claimed under sections 7001 and 7003 of the
FFCRA.
Employer A may treat as qualified wages the amounts its employees contribute
as pre-tax salary reduction contributions to the qualified section 401(k) plan with respect
to the period of the partial suspension of operations because those amounts are wages
within the meaning of section 3121(a).
Employer A may also treat all amounts paid toward maintaining the group health
plan (including any employee pre-tax salary reduction contribution) with respect to the
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period of the partial suspension of operations as qualified health plan expenses and
thus as qualified wages.
Employer A may not treat as qualified wages the amounts Employer A
contributes as matching or nonelective contributions to the qualified section 401(k) plan,
nor may it treat as qualified wages any employee pre-tax salary reduction contributions
toward the dependent care assistance program or qualified transportation benefits.
These amounts do not constitute wages within the meaning of section 3121(a) and
therefore are not qualified wages for purposes of the employee retention credit.
Question 31: How does an eligible employer identify the average number of full-
time employees employed during 2019?
Answer 31: The term “full-time employee” means an employee who, with respect
to any calendar month in 2019, had an average of at least 30 hours of service per week
or 130 hours of service in the month (130 hours of service in a month is treated as the
monthly equivalent of at least 30 hours of service per week), as determined in
accordance with section 4980H of the Code. An employer that operated its business for
the entire 2019 calendar year determines the number of its full-time employees by
taking the sum of the number of full-time employees in each calendar month in 2019
and dividing that number by 12.
An employer that started its business operations during 2019 determines the
number of its full-time employees by taking the sum of the number of full-time
employees in each full calendar month in 2019 in which the employer operated its
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business and dividing that sum by the number of full calendar months in 2019 in which
the employer operated its business.
An employer that started its business operations during 2020 determines the
number of its full-time employees by taking the sum of the number of full-time
employees in each full calendar month in 2020 in which the employer operated its
business and dividing by that number of months, consistent with the approach
described above for employers that began business operations during 2019.
Question 32: For members of an aggregated group, is the average number of
full-time employees determined based on the entire group?
Answer 32: Yes. All entities that are treated as a single employer under the
aggregation rules are treated as a single employer for purposes of determining the
employer’s average number of employees.
Example: Employers B and C each averaged 75 full-time employees in 2019.
Employers B and C are treated as a single employer under the aggregation rules and
therefore are treated as a single employer for purposes of determining the employee
retention credit; they are an eligible employer. Employers B and C together averaged
150 full-time employees in 2019. Because Employers B and C are a large eligible
employer, each employer is eligible for the employee retention credit only for wages
paid to an employee that is not providing services due to either (1) a full or partial
suspension of operations by governmental order, or (2) a significant decline in gross
receipts.
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Question 33: What wages may a small eligible employer treat as qualified
wages?
Answer 33: Small eligible employers may treat all wages (other than any wages
taken into account under sections 7001 and 7003 of the FFCRA) paid after March 12,
2020, and before January 1, 2021, with respect to their employees during any period in
the calendar quarter in which the employer’s business operations are fully or partially
suspended due to a governmental order or during a calendar quarter in which the
employer experiences a significant decline in gross receipts as qualified wages. Only
$10,000 of qualified wages may be taken into account for the employee retention credit
per employee for all calendar quarters.
Question 34: What wages may a large eligible employer treat as qualified
wages?
Answer 34: Large eligible employers may treat wages (other than any wages
taken into account under sections 7001 and 7003 of the FFCRA) paid to employees
after March 12, 2020, and before January 1, 2021, only for the time they are not
providing services during the period in the calendar quarter in which the employer’s
business operations are fully or partially suspended due to a governmental order or
during a calendar quarter in which the employer experiences a significant decline in
gross receipts as qualified wages. Large eligible employers may not treat wages as
qualified wages if they were paid to employees for the time that they provide services to
the employer. Also, only $10,000 of qualified wages may be taken into account for the
employee retention credit per employee for all calendar quarters.
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Example 1: Employer D, a large eligible employer operating a local chain of full
service restaurants in State X, is subject to a governmental order for restaurants to
discontinue sit-down service to customers inside the restaurant, but may continue food
or beverage sales to the public on a carry-out, drive-through, or delivery basis.
Employer D continues to pay wages to kitchen staff and certain waitstaff needed to
facilitate fulfillment of carry-out orders. Wages paid to these employees for the time that
they provide carry-out service are not qualified wages.
Example 2: Employer E is a large eligible employer and was forced to suspend
operations at the end of the first calendar quarter in 2020. Its employees performed
services during the first part of the calendar quarter but then stopped due to the
suspension of operations; however, Employer E continued to pay the employees’
normal wages for the entire quarter, including the period during which they were not
providing services. None of the wages were taken into account under sections 7001
and 7003 of the FFCRA. The wages paid during the period when employees were not
providing services are qualified wages.
Question 35: May a large eligible employer claim an employee retention credit
for an increase in the amount of wages it paid its employees during the time that
employees are not providing services?
Answer 35: No. For large eligible employers, qualified wages paid to an
employee may not exceed what the employee would have been paid for working an
equivalent duration during the 30 days immediately preceding the commencement of
the full or partial suspension of the operation of the trade or business or the first day of
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the calendar quarter in which the employer experienced a significant decline in gross
receipts. For a variable hour employee, the amount paid for working an equivalent
duration during that 30-day period may be determined using any reasonable method.
The method(s) that the Department of Labor has prescribed to determine the amount to
pay an employee with an irregular schedule who is eligible for paid sick leave under the
FFCRA would be considered reasonable for this purpose.
Example: Employer F, a large eligible employer operating a grocery store chain,
is subject to a governmental order limiting store hours. In response, Employer F has
reduced the hours its employees work, but increases the rate of pay for those
employees who continue to provide services by $2 an hour. Only the amounts paid to
employees for time they are not providing services, and at the rate of pay in effect prior
to the increase, would be considered qualified wages.
Question 36: May a large eligible employer treat the wages paid to hourly and
non-exempt salaried employees for hours for which they are not providing services as
qualified wages for purposes of the employee retention credit?
Answer 36: Yes, assuming the wages otherwise satisfy the requirements to be
qualified wages. For a large eligible employer, wages paid to hourly and non-exempt
salaried employees for hours that the employees were not providing services may be
considered qualified wages for purposes of the employee retention credit. For an
employee who does not have a fixed schedule of work, the hours for which the
employee is not providing services may be determined using any reasonable method.
The method that the large eligible employer would use to determine the employee’s
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entitlement to leave under the Family and Medical Leave Act would be a reasonable
method for this purpose. Similarly, the method(s) that the Department of Labor has
prescribed to determine the number of hours for which an employee with an irregular
schedule is eligible for paid sick leave under the FFCRA would be considered
reasonable for this purpose.
It is not reasonable for the employer to treat an employee’s hours as having been
reduced based on an assessment of the employee’s productivity levels during the hours
the employee is working.
Wages paid by a large eligible employer to its employees for hours for which they
provided services are not considered qualified wages for purposes of the employee
retention credit.
Example 1: Employer G, a large eligible employer operating a manufacturing
business, has several locations the operations of which are fully suspended during the
second quarter of 2020 due to a governmental order. Employer G continues to pay
hourly employees who are not providing services at the closed locations 50 percent of
their normal hourly wage rates. Employer G also reduced headquarters’ administrative
staff hours by 40 percent, but continues to pay them at 100 percent of their normal
hourly wage rates. Employer G does not take the wages into account under sections
7001 and 7003 of the FFCRA. For employees who are not providing services due to
the closure of their location, but are receiving 50 percent of their normal hourly wage
rates, Employer G may treat the wages paid as qualified wages for purposes of the
employee retention credit. For the administrative staff whose hours were reduced by 40
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percent, but who are paid for 100 percent of the normal wage rate, Employer G may
treat the 40 percent of wages paid for time that these employees are not providing
services as qualified wages for purposes of the employee retention credit. The 60
percent of wages that Employer G pays the administrative staff for hours during which
the employees are actually providing services is not considered qualified wages for
purposes of the employee retention credit.
Example 2: Employer H is a large eligible employer in the business of staging
homes that are for sale. Employer H’s non-exempt salaried employees cannot perform
their usual services of delivering and installing furniture to be used in staging houses
because open houses are prohibited in its service area during the second quarter of
2020. However, the employees are required to provide Employer H with periodic status
updates about furniture that has been leased out and other administrative matters.
Employer H continues to pay wages to employees as if they continued to work their
typical work hours even though the employees cannot provide their normal services.
Using a reasonable method, Employer H has determined that its employees are working
20 percent of their typical work hours. Employer H does not take the wages into
account under sections 7001 and 7003 of the FFCRA. Employer H may treat 80
percent of the wages paid as qualified wages for purposes of the employee retention
credit.
Question 37: May a large eligible employer treat wages paid to exempt salaried
employees for time for which they are not providing services as qualified wages for
purposes of the employee retention credit?
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Answer 37: Yes, provided the wages paid to the exempt salaried employees are
for the time that they are not providing services due to either a full or partial suspension
of operations (due to a governmental order) or a significant decline in gross receipts.
An eligible employer may use any reasonable method to determine the number of hours
that a salaried employee is not providing services, but for which the employee receives
wages either at the employee’s normal wage rate or at a reduced wage rate.
Reasonable methods include the method (or methods) the employer uses to measure
exempt employees’ entitlement to leave on an intermittent or reduced leave schedule
under the Family and Medical Leave Act, or the method the employer uses to measure
exempt employees’ entitlement to and usage of paid leave under the employer’s usual
practices. It is not reasonable for the employer to treat an employee’s hours as having
been reduced based on an assessment of the employee’s productivity levels during the
hours the employee is working.
Example 1: Employer I, a large eligible employer operating a fitness club
business, closed all of its locations in City B due to a governmental order issued by City
B’s mayor. Employer I continues to pay its exempt managerial employees their regular
salaries. While the clubs are closed and there is not sufficient administrative work to
occupy the managerial employees full-time, they continue to perform some accounting
and similar administrative functions. Employer I has determined, based on the time
records maintained by employees, that they are providing services for 10 percent of
their typical work hours. Employer I does not take the wages into account under
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sections 7001 and 7003 of the FFCRA. In this case, 90 percent of wages paid to these
employees during the period the clubs were closed are qualified wages.
Example 2: Employer J, a large eligible employer operating a consulting firm,
closed its offices due to various governmental orders and required all employees to
telework. Although Employer J believes that some of its employees may not be as
productive while working remotely, employees are working their normal business hours.
Because employees’ work hours have not changed, no portion of the wages paid to the
employees by Employer J are qualified wages.
Question 38: May an eligible employer treat wages paid to employees pursuant
to a pre-existing vacation, sick and other personal leave policy as qualified wages for
purposes of the employee retention credit?
Answer 38: A large eligible employer may not treat as qualified wages amounts
paid to employees for paid time off for vacations, holidays, sick days and other days off.
These wages are paid pursuant to existing leave policies that represent benefits
accrued during a prior period in which the employees provided services and are not
wages paid for time in which the employees are not providing services.
However, a small eligible employer may treat all wages paid with respect to
employees during the period of the full or partial suspension of operations or a calendar
quarter in which it has a significant decline in gross receipts, even if under a pre-existing
vacation, sick and other leave policy, as qualified wages for purposes of the employee
retention credit, assuming the wages are not taken into account under sections 7001
and 7003 of the FFCRA.
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Question 39: May an eligible employer treat payments made to former
employees who have terminated employment as qualified wages for purposes of the
employee retention credit?
Answer 39: Payments, including severance payments or other post-termination
payments, made to a former employee following termination of employment are not
considered qualified wages for purposes of the employee retention credit. Payments
may be considered qualified wages only if the payments are made to an employee while
employed by the eligible employer. Payments made in connection with a former
employee’s termination of employment are not qualified wages because they are
payments for the past employment relationship and thus are not payments made with
respect to an employee during the time for which the employee retention credit may be
claimed. Whether an employee has terminated employment is based on all of the facts
and circumstances, including whether the employer has treated the employment
relationship as terminated for purposes other than the continuation of wage payments.
H. Allocable Qualified Health Plan Expenses
Question 40: Do qualified health plan expenses include both the portion of the
cost paid by the eligible employer and the portion of the cost paid by the employee?
Answer 40: Yes. However, amounts that the employee paid for with after-tax
contributions are not considered qualified health plan expenses. The amount of
qualified health plan expenses taken into account in determining the amount of qualified
wages generally includes both the portion of the cost paid by the eligible employer and
the portion of the cost paid by the employee with pre-tax salary reduction contributions.
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Question 41: May a small eligible employer treat its health plan expenses as
qualified wages for purposes of the employee retention credit?
Answer 41: A small eligible employer may treat its health plan expenses paid or
incurred, after March 12, 2020, and before January 1, 2021, with respect to any
employee during any period in a calendar quarter in which the employer’s business
operations are fully or partially suspended due to a governmental order or during a
calendar quarter in which the employer experiences a significant decline in gross
receipts as qualified wages, although only $10,000 per employee for all calendar
quarters can be taken into account for the employee retention credit. Small eligible
employers may treat health plan expenses allocable to the applicable periods as
qualified wages even if the employees are not working and the eligible employer does
not pay the employees any wages for the time they are not working.
Example 1: Employer A is a small eligible employer subject to a governmental
order that partially suspends the operation of its trade or business. In response to the
governmental order, Employer A reduces all employees’ hours by 50 percent. It pays
wages to the employees only for the time the employees are providing services, but
Employer A continues to provide the employees with full health care coverage.
Employer A’s health plan expenses allocable to wages paid during the period its
operations were partially suspended may be treated as qualified wages for purposes of
the employee retention credit.
Example 2: Employer B is a small eligible employer subject to a governmental
order that suspends the operation of its trade or business. In response to the
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governmental order, Employer B lays off or furloughs all of its employees (but does not
treat these employees as terminated for employment tax purposes). It does not pay
wages to its employees for the time they are laid off or furloughed and not working, but
it continues the employees’ health care coverage. Employer B’s health plan expenses
allocable to the period its operations were partially suspended may be treated as
qualified wages for purposes of the employee retention credit.
Question 42: May a large eligible employer treat its health plan expenses as
qualified wages for purposes of the employee retention credit if the expenses are
allocable to the time that employees were not providing services?
Answer 42: A large eligible employer may treat as qualified wages health plan
expenses paid or incurred, after March 12, 2020, and before January 1, 2021, allocable
to the time that the employees are not providing services during any period in a
calendar quarter in which the employer’s business operations are fully or partially
suspended due to a governmental order or a calendar quarter in which the employer
experiences a significant decline in gross receipts, although only $10,000 per employee
for all calendar quarters can be taken into account for the employee retention credit.
However, a large eligible employer may not treat as qualified wages health plan
expenses allocable to the time the employees are providing services.
Example 1: Employer C is a large eligible employer subject to a governmental
order that partially suspends the operation of its trade or business. In response to the
governmental order, Employer C reduces all employees’ hours by 50 percent and pays
wages to its employees only for the time that the employees are providing services, but
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Employer C continues to provide the employees with full health care coverage. The 50
percent of Employer C’s health plan expenses allocable to the time that employees are
not providing services may be treated as qualified wages. Employer C may not treat the
other 50 percent of health plan expenses allocable to the time the employees are
providing services as qualified wages.
Example 2: Employer D is a large eligible employer subject to a governmental
order that partially suspends the operations of its trade or business. In response to the
governmental order, Employer D reduces its employees’ hours by 50 percent, but it
reduces its employees’ wages by only 40 percent, so that the employees receive 60
percent of their wages for 50 percent of their normal hours. Employer D continues to
cover 100 percent of the employees’ health plan expenses. Employer D may treat as
qualified wages: (i) the 10 percent of the wages that it pays employees for time the
employees are not providing services, plus (ii) 50 percent of the health plan expenses,
because these health plan expenses are allocable to the time that employees were not
providing services.
Example 3: Employer E is a large eligible employer subject to a governmental
order that fully suspends the operations of its trade or business. Employer E lays off or
furloughs its employees (but does not treat these employees as terminated for
employment tax purposes) and does not pay wages to the employees, but does
continue to cover 100 percent of the employees’ health plan expenses. Employer E
may treat as qualified wages the health plan expenses that are allocable to the time that
the employees are not providing services.
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Question 43: For an eligible employer that sponsors more than one plan for its
employees (for example, both a group health plan and a health flexible spending
arrangement (health FSA)), or more than one plan covering different employees, how
are the qualified health plan expenses for each employee determined?
Answer 43: The qualified health plan expenses are determined separately for
each plan. For each plan, those expenses are allocated to the employees who
participate in that plan. In the case of an employee who participates in more than one
plan, the allocated expenses of each plan in which the employee participates are
aggregated for that employee.
Question 44: For an eligible employer that sponsors a fully-insured group health
plan, how are the qualified health plan expenses of that plan allocated on a pro rata
basis?
Answer 44: An eligible employer who sponsors a fully-insured group health plan
may use any reasonable method to determine and allocate the plan expenses, including
(1) the COBRA applicable premium for the employee typically available from the
insurer, (2) one average premium rate for all employees, or (3) a substantially similar
method that takes into account the average premium rate determined separately for
employees with self-only and other than self-only coverage.
If an eligible employer chooses to use one average premium rate for all
employees, the allocable amount for each day an employee covered by the insured
group health plan is entitled to qualified wages could be determined using the following
steps:
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(1) The eligible employer’s overall annual premium for the employees covered by the
policy is divided by the number of employees covered by the policy to determine the
average annual premium per employee.
(2) The average annual premium per employee is divided by the average number of
work days during the year for all covered employees (treating days of paid leave as
a work day and a work day as including any day on which work is performed) to
determine the average daily premium per employee. For example, a full-year
employee working five days per week may be treated as working 52 weeks x 5 days
or 260 days. Calculations for part-time and seasonal employees who participate in
the plan should be adjusted as appropriate. Eligible employers may use any
reasonable method for calculating work days for part-time and seasonal employees.
(3) The resulting premium should be adjusted to reflect any portion that employees
contribute after-tax.
(4) The resulting amount is the amount allocated to each day of qualified wages.
Example: Employer F sponsors an insured group health plan that covers 400
employees, some with self-only coverage and some with family coverage. Each
employee is expected to have 260 work days a year (i.e., five days a week for 52
weeks). The employees contribute a portion of their premium by pre-tax salary
reduction, with different amounts for self-only and family coverage. The total annual
premium for the 400 employees is $5.2 million (this includes both the amount paid by
the eligible employer and the amounts paid by employees through salary reduction).
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For an eligible employer using one average premium rate for all employees, the
average annual premium rate is $5.2 million divided by 400, or $13,000. For each
employee expected to have 260 work days a year, this results in a daily average
premium rate equal to $13,000 divided by 260, or $50. This $50 is the amount of
qualified health plan expenses allocated to each day of qualified wages per employee.
Question 45: For an eligible employer that sponsors a self-insured group health
plan, how are the qualified health plan expenses of that plan allocated on a pro rata
basis?
Answer 45: An eligible employer who sponsors a self-insured group health plan
may use any reasonable method to determine and allocate the qualified health plan
expenses, including (1) the COBRA applicable premium for the employee typically
available from the administrator, or (2) any reasonable actuarial method to determine
the estimated annual expenses of the plan.
If the eligible employer uses a reasonable actuarial method to determine the
estimated annual expenses of the plan, then rules similar to the rules for insured plans
are used to determine the amount of qualified health plan expenses allocated to an
employee. That is, the estimated annual expense is divided by the number of
employees covered by the plan, and that amount is divided by the average number of
work days during the year for all covered employees (treating days of paid leave as
work days and any day on which an employee performs any work as a work day). The
resulting premium should then be adjusted to reflect any portion that employees
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contribute after-tax. The resulting amount is the amount allocated to each day of
qualified wages.
Question 46: For an eligible employer who contributes to a health savings
account (HSA), or Archer Medical Saving Account (Archer MSA) and sponsors a high
deductible health plan (HDHP), are contributions to the HSA or Archer MSA included in
the qualified health plan expenses?
Answer 46: The amount of qualified health plan expenses does not include an
eligible employer’s contributions to an HSA or Archer MSA. An eligible employer who
sponsors an HDHP should calculate the amount of qualified health plan expenses in the
same manner as an insured group health plan, or a self-insured plan, as applicable.
Question 47: For an eligible employer who sponsors a health reimbursement
arrangement (HRA), a health flexible spending arrangement (health FSA), or a qualified
small employer health reimbursement arrangement (QSEHRA), are contributions to the
HRA, health FSA, or QSEHRA included in the qualified health plan expenses?
Answer 47: The amount of qualified health plan expenses may include
contributions to an HRA (including an individual coverage HRA), or a health FSA, but
not contributions to a QSEHRA. To allocate contributions to an HRA or a health FSA,
eligible employers should use the amount of contributions made by or on behalf of the
particular employee.
Question 48: Are health plan expenses that are allocable to qualified sick leave
wages and qualified family leave wages for purposes of credits available under sections
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7001 and 7003 of the FFCRA excluded from the definition of qualified wages for
purposes of the employee retention credit?
Answer 48: Yes. Wages for which an eligible employer may claim the employee
retention credit do not include the qualified sick leave wages and qualified family leave
wages for which it claims credits under sections 7001 and 7003 of the FFCRA. This
exclusion also applies to the health plan expenses that are allocable to these qualified
sick leave wages and qualified family leave wages paid under sections 7001 and 7003
the FFCRA.
I. Interaction with Paycheck Protection Program (PPP) Loans
Question 49: May an employer that received a PPP loan be eligible for the
employee retention credit?
Answer 49: Yes. An employer that received a PPP loan may claim the
employee retention credit for any qualified wages paid to employees if the employer is
an eligible employer that meets the requirements for the credit.16 However, qualified
wages for which the employer claims the employee retention credit are excluded from
payroll costs paid during the covered period (payroll costs) that qualify for forgiveness
16 Section 206(c)(2)(B)(i) of the Relief Act struck section 2301(j) of the CARES Act, effective
retroactive to March 27, 2020, the date of enactment of the CARES Act. As originally enacted, section
2301(j) of the CARES Act provided that an employer that received a PPP loan would not be eligible for
the employee retention credit. With the elimination of this provision, an eligible employer is no longer
prohibited from both claiming the employee retention credit and receiving a PPP loan.
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under the PPP. See section 7A(a)(12) of the Small Business Act, as amended by
section 206(c)(1) of the Relief Act.
Section 2301(g)(1) of the CARES Act, as amended by the Relief Act, permits an
eligible employer to elect not to take into account certain qualified wages for purposes
of the employee retention credit. An eligible employer generally makes the election by
not claiming the employee retention credit for those qualified wages on its federal
employment tax return. However, an eligible employer that received a PPP loan is
deemed to have made the election under section 2301(g)(1) of the CARES Act for those
qualified wages included in the amount reported as payroll costs on a Paycheck
Protection Program Loan Forgiveness Application (PPP Loan Forgiveness Application).
Specifically, the amount for which the eligible employer is deemed to have made the
election is the amount of qualified wages included in the payroll costs reported on the
PPP Loan Forgiveness Application up to (but not exceeding) the minimum amount of
payroll costs, together with any other eligible expenses reported on the PPP Loan
Forgiveness Application, sufficient to support the amount of the PPP loan that is
forgiven. The employee retention credit does not apply to the qualified wages for which
the election or deemed election is made. An eligible employer is not deemed to have
made an election for any qualified wages paid by the eligible employer that are not
included in the payroll costs reported on the PPP Loan Forgiveness Application.
Notwithstanding a deemed election, if an eligible employer reports any qualified wages
as payroll costs on a PPP Loan Forgiveness Application to obtain forgiveness of the
PPP loan amount, but the loan amount is not forgiven by reason of a decision under
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section 7A(g) of the Small Business Act, those qualified wages may subsequently be
treated as subject to section 2301 of the CARES Act and may be taken into account for
purposes of the employee retention credit. If an eligible employer obtains forgiveness of
only a portion of the PPP loan amount, then the employer is deemed to have made an
election for the minimum amount of qualified wages included in the payroll costs
reported on the PPP Loan Forgiveness Application necessary to obtain the forgiveness
of that amount of the PPP loan.
Example 1: Employer A received a PPP loan of $100,000. Employer A is an
eligible employer and paid $100,000 in qualified wages that would qualify for the
employee retention credit during the second and third quarters of 2020. In order to
receive forgiveness of the PPP loan in its entirety, Employer A was required, under the
Small Business Administration (SBA) rules, to report a total of $100,000 of payroll costs
and other eligible expenses (and a minimum of $60,000 of payroll costs). Employer A
submitted a PPP Loan Forgiveness Application and reported the $100,000 of qualified
wages as payroll costs in support of forgiveness of the entire PPP loan. Employer A
received a decision under section 7A(g) of the Small Business Act in the first quarter of
2021 for forgiveness of the entire PPP loan amount of $100,000.
Employer A is deemed to have made an election not to take into account
$100,000 of the qualified wages for purposes of the employee retention credit, which
was the amount of qualified wages included in the payroll costs reported on the PPP
Loan Forgiveness Application up to (but not exceeding) the minimum amount of payroll
costs, together with any other eligible expenses reported on the PPP Loan Forgiveness
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Application, sufficient to support the amount of the PPP loan that is forgiven. It may not
treat that amount as qualified wages for purposes of the employee retention credit.
Example 2: Employer B received a PPP loan of $200,000. Employer B is an
eligible employer and paid $250,000 of qualified wages that would qualify for the
employee retention credit during the second and third quarters of 2020. In order to
receive forgiveness of the PPP loan in its entirety, Employer B was required, under the
SBA rules, to report a total of $200,000 of payroll costs and other eligible expenses (and
a minimum of $120,000 of payroll costs). Employer B submitted a PPP Loan
Forgiveness Application and reported the $250,000 of qualified wages as payroll costs
in support of forgiveness of the entire PPP loan. Employer B received a decision under
section 7A(g) of the Small Business Act in the first quarter of 2021 for forgiveness of the
entire PPP loan amount of $200,000.
Employer B is deemed to have made an election not to take into account
$200,000 of the qualified wages for purposes of the employee retention credit, which
was the amount of qualified wages included in the payroll costs reported on the PPP
Loan Forgiveness Application up to (but not exceeding) the minimum amount of payroll
costs, together with any other eligible expenses reported on the PPP Loan Forgiveness
Application, sufficient to support the amount of the PPP loan that is forgiven. It may not
treat that amount as qualified wages for purposes of the employee retention credit.
Employer B is not treated as making a deemed election with respect to $50,000 of the
qualified wages ($250,000 reported on the PPP Loan Forgiveness Application, minus
$200,000 reported on the PPP Loan Forgiveness Application up to the amount of the
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loan that is forgiven), and it may treat that amount as qualified wages for purposes of
the employee retention credit.
Example 3: Employer C received a PPP loan of $200,000. Employer C is an
eligible employer and paid $200,000 of qualified wages that would qualify for the
employee retention credit during the second and third quarters of 2020. Employer C
also paid other eligible expenses of $70,000. In order to receive forgiveness of the PPP
loan in its entirety, Employer C was required, under the SBA rules, to report a total of
$200,000 of payroll costs and other eligible expenses (and a minimum of $120,000 of
payroll costs). Employer C submitted a PPP Loan Forgiveness Application and
reported the $200,000 of qualified wages as payroll costs in support of forgiveness of
the entire PPP loan, but did not report the other eligible expenses of $70,000. Employer
C received a decision under section 7A(g) of the Small Business Act in the first quarter
of 2021 for forgiveness of the entire PPP loan amount of $200,000.
Employer C is deemed to have made an election not to take into account
$200,000 of qualified wages for purposes of the employee retention credit, which was
the amount of qualified wages included in the payroll costs reported on the PPP Loan
Forgiveness Application up to (but not exceeding) the minimum amount of payroll costs,
together with any other eligible expenses reported on the PPP Loan Forgiveness
Application, sufficient to support the amount of the PPP loan that is forgiven. Although
Employer C could have reported $70,000 of eligible expenses (other than payroll costs)
and $130,000 of payroll costs, Employer C reported $200,000 of qualified wages as
payroll costs on the PPP Loan Forgiveness Application. As a result, no portion of those
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qualified wages reported as payroll costs may be treated as qualified wages for
purposes of the employee retention credit. Employer C cannot reduce the deemed
election by the amount of the other eligible expenses that it could have reported on its
PPP Loan Forgiveness Application.
Example 4: Same facts as Example 3, except Employer C submitted a PPP Loan
Forgiveness Application and reported the $200,000 of qualified wages as payroll costs,
as well as the $70,000 of other eligible expenses, in support of forgiveness of the PPP
loan. Employer C received a decision under section 7A(g) of the Small Business Act in
the first quarter of 2021 for forgiveness of the entire PPP loan amount of $200,000. In
this case, Employer C is deemed to have made an election not to take into account
$130,000 of qualified wages for purposes of the employee retention credit, which was
the amount of qualified wages included in the payroll costs reported on the PPP Loan
Forgiveness Application up to (but not exceeding) the minimum amount of payroll costs,
together with the $70,000 of other eligible expenses reported on the PPP Loan
Forgiveness Application, sufficient to support the amount of the PPP loan that was
forgiven. As a result, $70,000 of the qualified wages reported as payroll costs may be
treated as qualified wages for purposes of the employee retention credit.
Example 5: Same facts as Example 4, except Employer C paid $90,000 of other
eligible expenses, and reported the $200,000 of qualified wages as payroll costs, as
well as the $90,000 of other eligible expenses, in support of forgiveness of the entire
PPP loan. In this case, Employer C is deemed to have made an election not to take
into account $120,000 of qualified wages for purposes of the employee retention credit,
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which was the amount of qualified wages included in the payroll costs reported on the
PPP Loan Forgiveness Application up to (but not exceeding) the minimum amount of
payroll costs, together with the $90,000 of other eligible expenses reported on the PPP
Loan Forgiveness Application, sufficient to support the amount of the PPP loan that was
forgiven. As a result, $80,000 of the qualified wages reported as payroll costs may be
treated as qualified wages for purposes of the employee retention credit.
Example 6: Employer D received a PPP loan of $200,000. Employer D is an
eligible employer and paid $150,000 of qualified wages that would qualify for the
employee retention credit during the second and third quarters of 2020. In addition to
the qualified wages, Employer D had $100,000 of other payroll costs that are not
qualified wages and $70,000 of other eligible expenses.17 In order to receive
forgiveness of the PPP loan in its entirety, Employer D was required, under the SBA
rules, to report $200,000 of payroll costs and other eligible expenses (and a minimum of
$120,000 of payroll costs).
Employer D submitted a PPP Loan Forgiveness Application and reported
$130,000 of payroll costs and $70,000 of other eligible expenses, in support of
forgiveness of the entire PPP loan. Employer D can demonstrate that the payroll costs
reported on the PPP Loan Forgiveness Application consist of $100,000 of payroll costs
17 Employer D may have payroll costs that are not qualified wages for various reasons. For
example, Employer D may be a large eligible employer that paid wages to employees who continued to
provide services during the period of a partial suspension of business operations.
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that are not qualified wages and $30,000 of payroll costs that are qualified wages.
Employer D received a decision under section 7A(g) of the Small Business Act in the
first quarter of 2021 for forgiveness of the entire PPP loan amount of $200,000.
Employer D is deemed to have made an election not to take into account
$30,000 of qualified wages for purposes of the employee retention credit, which was the
amount of qualified wages included in the payroll costs reported on the PPP Loan
Forgiveness Application up to (but not exceeding) the minimum amount of payroll costs,
together with any other eligible expenses reported on the PPP Loan Forgiveness
Application, sufficient to support the amount of the PPP loan that is forgiven. It may not
treat that amount as qualified wages for purposes of the employee retention credit.
Employer D is not deemed to have made an election with respect to the $120,000 of
qualified wages that are not included in the payroll costs reported on the PPP Loan
Forgiveness Application. Accordingly, Employer D may take into account the $120,000
of qualified wages ($150,000 of qualified wages paid minus $30,000 of qualified wages
included in the payroll costs reported on the PPP Loan Forgiveness Application) for
purposes of the employee retention credit.
Example 7: Same facts as Example 6 except Employer D’s PPP loan is not
forgiven by reason of a decision under section 7A(g) of the Small Business Act.
Employer D may treat the full $150,000 as qualified wages (the $30,000 of qualified
wages included in the payroll costs reported on the PPP Loan Forgiveness Application,
plus the additional $120,000 of qualified wages not included in the payroll costs) as
qualified wages for purposes of the employee retention credit.
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J. Claiming the Employee Retention Credit
Question 50: How does an eligible employer claim the employee retention credit
for qualified wages?
Answer 50: An eligible employer claims the employee retention credit for
qualified wages by reporting its qualified wages and the amount of the credit to which it
is entitled on the designated lines of its federal employment tax return(s). Employers
also report any qualified sick leave wages and qualified family leave wages and claim
the credit under sections 7001 or 7003 of the FFCRA on the designated lines on their
federal employment tax returns. For most employers, Form 941 is used to report
income and social security and Medicare taxes withheld by the employer from employee
wages, as well as the employer's share of social security and Medicare tax.
In anticipation of receiving the employee retention credit, eligible employers can
(1) reduce their deposits of federal employment taxes, including withheld taxes, that
would otherwise be required up to the amount of the anticipated credit, and (2) request
an advance of the amount of the anticipated credit that exceeds the reduced federal
employment tax deposits by filing Form 7200.
Example: Employer A paid $10,000 in qualified wages (including allocable
qualified health plan expenses), among other wages. After deferral of the employer's
share of social security tax under section 2302 of the CARES Act, Employer A is
otherwise required to deposit $8,000 in federal employment taxes for all of its
employees for all wage payments made during the same quarter as the $10,000 in
qualified wages. Employer A did not choose to use the relief under Notice 2020-65 to
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defer the employee’s share of social security tax. Employer A has no credits under
sections 7001 and 7003 of the FFCRA. Employer A is not a tax-exempt organization
eligible for the credit under section 303(d) of the Relief Act. In anticipation of the
employee retention credit, Employer A may keep up to $5,000 of the $8,000 of taxes
Employer A was otherwise required to deposit, and it will not owe a failure to deposit
penalty for keeping the $5,000. Employer A will later account for the $5,000 it retained
when it files Form 941 for the quarter.
Question 51: Can an eligible employer receive an advance payment of the
employee retention credit if the eligible employer does not have sufficient federal
employment taxes set aside for deposit to cover the amount of the anticipated credit?
Answer 51: Yes. If an eligible employer does not have sufficient federal
employment taxes set aside for deposit to cover the amount of the anticipated credit,
the eligible employer may request an advance payment of the credit. The amount of the
advance payment will depend on the application of other relief provisions to the
employer. For example, eligible employers are permitted to defer the deposit and
payment of the employer's share of social security tax under section 2302 of the
CARES Act and the employee’s share of social security tax under Notice 2020-65 and
may do so prior to reducing any deposits in anticipation of the credit. Therefore,
assuming an employer defers deposit of social security tax under section 2302 of the
CARES Act and Notice 2020-65, the employer should take into account any permitted
reduction in employment tax deposits due to (1) deferral under section 2302 of the
CARES Act, (2) deferral under Notice 2020-65, (3) any anticipated credits under
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sections 7001 and 7003 of the FFCRA related to qualified sick leave wages and
qualified family leave wages that the employer paid, and (4) for any tax-exempt
organization employer, any credit under section 303(d) of the Relief Act, before
determining the amount that it should request as an advance payment of the employee
retention credit. If the remaining employment tax deposits set aside are less than the
anticipated credit for the qualified wages, the eligible employer can file a Form 7200 to
request an advance payment of the credit for the remaining amount of the anticipated
credit.
If an eligible employer fully reduces its required deposits of federal employment
taxes otherwise due on wages paid in anticipation of receiving the credit, and that
reduction covers the full amount of the anticipated credit, it should not file a Form 7200.
Example: Employer B paid $20,000 in qualified wages to two employees (each
employee was paid $10,000 in qualified wages) and is therefore entitled to a credit of
$10,000. Employer B is otherwise required to deposit $8,000 in federal employment
taxes on all wages paid to all employees, after deferring its employer's share of social
security tax under section 2302 of the CARES Act. Employer B did not choose to use
the relief under Notice 2020-65 to defer the employee’s share of social security tax.
Employer B has no credits under sections 7001 and 7003 of the FFCRA. Employer B is
not a tax-exempt organization eligible for the credit under section 303(d) of the Relief
Act. Employer B can keep the entire $8,000 of taxes that Employer B was otherwise
required to deposit without penalty as a portion of the credit it is otherwise entitled to
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claim on the Form 941. Employer B may make a request for an advance payment of
the credit for the remaining $2,000 by submitting Form 7200.
Question 52: Is there a minimum advance amount that can be claimed on a
Form 7200?
Answer 52: After July 2, 2020, the minimum advance amount that can be
claimed on a Form 7200 is $25. A Form 7200 requesting an advance of less than $25
will not be processed. Taxpayers can claim credits of less than $25 on their federal
employment tax returns.
Question 53: What is the last day eligible employers may submit a Form 7200
requesting an advance payment of the employee retention credit for qualified wages
paid in 2020?
Answer 53: Eligible employers that filed quarterly federal employment tax returns
for 2020 had the ability to submit a Form 7200 to request an advance for each calendar
quarter before the earlier of (1) the date the employer filed the Form 941 for the relevant
quarter or (2) the due date for filing the quarterly employment tax return, as provided
below:
• For the second quarter of 2020: July 31, 2020;
• For the third quarter of 2020: November 2, 2020;
• For the fourth quarter of 2020: February 1, 2021.
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At the date of publication of this notice, the due dates for the quarterly federal
employment tax returns for 2020 have passed, and Forms 7200 submitted after the due
dates for credits claimed in the relevant quarters in 2020 will not be processed.
Eligible employers filing a Form 943 or Form 944 for 2020 had the ability to
submit a Form 7200 up to the earlier of February 1, 2021 or the date they filed the
applicable employment tax return for 2020. At the date of publication of this notice, the
due date for Form 943 and Form 944 for 2020 has passed, and Forms 7200 submitted
after February 1, 2021 for credits claimed in 2020 will not be processed.
Eligible employers filing a Form CT-1 for 2020 may submit a Form 7200 up to the
earlier of March 1, 2021 or the date they file the Form CT-1, Employer’s Annual
Railroad Retirement Tax Return for 2020.
Question 54: Who can sign a Form 7200? Should a taxpayer submit additional
documents to confirm that a person is authorized to sign a Form 7200?
Answer 54: For corporations, the president, vice president, or other principal
officer who is duly authorized may sign a Form 7200. For partnerships (including an
LLC treated as a partnership) or unincorporated organizations, a responsible and duly
authorized partner, member, or officer having knowledge of the entity’s affairs may sign
a Form 7200. For a single-member LLC treated as a disregarded entity for federal
income tax purposes, the instructions provide that the owner or a principal officer who is
duly authorized may sign the Form. For trusts or estates, the fiduciary may sign the
Form 7200. Additionally, a Form 7200 may be signed by a duly authorized agent of the
taxpayer if a valid power of attorney has been filed.
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In many circumstances, whether the person signing the Form 7200 is duly
authorized or has knowledge of the partnership’s or unincorporated organization’s
affairs is not apparent on the Form 7200. To help expedite and ensure proper
processing of Forms 7200, if a taxpayer has duly authorized an officer, partner, or
member to sign Form 7200 (and that person is not otherwise explicitly permitted to sign
the Form 7200 by nature of their job title), the taxpayer should submit a copy of the
Form 2848, Power of Attorney and Declaration of Representative, authorizing the
person to sign the Form 7200 with the Form 7200.
Question 55: For eligible employers that include multiple entities treated as a
single employer for purposes of the employee retention credit under the aggregation
rules, will the individual entities separately report their credit on their federal
employment tax returns?
Answer 55: Yes. Each eligible employer will report its employee retention credit
on its federal employment tax return (or on its third-party payer's federal employment
tax return) without regard to its aggregation with other entities as a single employer for
purposes of the credit. Each eligible employer's credit will be the amount of the credit
apportioned among the members of the aggregated group on the basis of each
member's proportionate share of the qualified wages giving rise to the credit per the
return period for which the credit is claimed.
Question 56: May an eligible employer elect to not take into account qualified
wages for purposes of the employee retention credit?
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Answer 56: Yes. Any eligible employer may elect to not take certain qualified
wages into account for purposes of the employee retention credit by not claiming the
credit for those qualified wages on its federal employment tax return. In addition, an
eligible employer that received a PPP loan is deemed to have made an election to not
take qualified wages into account for purposes of the employee retention credit if those
qualified wages are included in the payroll costs reported on a PPP Loan Forgiveness
Application, up to (but not exceeding) the minimum amount of payroll costs, together
with any other eligible expenses reported on the PPP Loan Forgiveness Application,
sufficient to support the amount of the PPP loan that is forgiven. See Q/A–49.
Example: Employer C paid $10,000 of wages in the second quarter of 2020. The
wages are not paid pursuant to a pre-existing vacation, sick and other personal leave
policy. The wages may be treated as either qualified sick leave wages under section
7001 of the FFCRA or as qualified wages for purposes of the employee retention credit.
Employer C may elect to not take into account any amount of the $10,000 of wages as
qualified wages for purposes of the employee retention credit.
Question 57: May an eligible employer that files quarterly federal employment
tax returns take into account qualified wages paid in a past calendar quarter in which
the eligible employer may have been entitled to claim the credit, but elected not to do
so?
Answer 57: Yes. An eligible employer may file a claim for refund or make an
interest-free adjustment by filing Form 941-X, Adjusted Employer’s Quarterly Federal
Tax Return or Claim for Refund, for a past calendar quarter to claim the employee
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retention credit to which it was entitled on qualified wages paid in that past calendar
quarter, following the rules and procedures for making those claims or adjustments.
An eligible employer that received a PPP loan and did not claim the employee
retention credit may file a Form 941-X for the relevant calendar quarters in which the
employer paid qualified wages, but only for qualified wages for which no deemed
election was made. See Q/A–49.
A special fourth quarter rule, provided by section 206(e)(2) of the Relief Act, is
also available for any qualified wages paid in the second or third quarters of 2020 that
were reported as payroll costs on a PPP Loan Forgiveness Application if the loan
amount was not forgiven by reason of a decision under section 7A(g) of the Small
Business Act.
Example 1: Employer D is an eligible employer and paid qualified wages during
the second quarter of 2020 but did not claim an employee retention credit on its second
quarter 2020 Form 941. Employer D did not receive a PPP loan. If Employer D
subsequently decides to claim the credit to which it is entitled for the second quarter of
2020, Employer D should file a Form 941-X for the previously filed second quarter 2020
Form 941 within the appropriate timeframe to make an interest-free adjustment or claim
a refund. Employer D should not use a subsequent Form 941 to claim an employee
retention credit for qualified wages paid in the second quarter of 2020.
Example 2: Employer E received a PPP loan of $200,000. Employer E is an
eligible employer and paid $250,000 of qualified wages that would qualify for the
employee retention credit during the second quarter of 2020. Employer E submitted a
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PPP Loan Forgiveness Application and reported the $250,000 of qualified wages as
payroll costs in support of forgiveness of the entire PPP loan. Employer E received a
decision under section 7A(g) of the Small Business Act in the first quarter of 2021 for
forgiveness of the entire PPP loan amount of $200,000.
Employer E is not deemed to have made an election with respect to the excess
$50,000 of qualified wages that are included in the payroll costs reported on the PPP
Loan Forgiveness Application. Accordingly, Employer E may take into account the
$50,000 of qualified wages for purposes of the employee retention credit. If Employer E
decides to take the $50,000 into account to claim the credit to which it is entitled for
2020, Employer E should file a Form 941-X for the previously filed second quarter 2020
Form 941 within the appropriate timeframe to make an interest-free adjustment or claim
a refund for the second quarter, as appropriate. Under these facts, Employer E should
not use a subsequent Form 941 to claim an employee retention credit for qualified
wages paid in the second quarter of 2020.
Example 3: Same facts as Example 2, except that Employer E’s PPP loan is not
forgiven by reason of a decision under section 7A(g) of the Small Business Act. If
Employer E decides to claim the credit to which it is entitled for 2020 with regard to the
$250,000 of qualified wages, Employer E may file a Form 941-X for the previously filed
second quarter Form 941 within the appropriate timeframe to make an interest-free
adjustment or claim a refund for the second quarter in 2020. Alternatively, Employer E
may use the special fourth quarter rule with respect to the $200,000 of qualified wages
included in the payroll costs reported on the PPP Loan Forgiveness Application since
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the PPP loan was not forgiven, but not with respect to the excess $50,000 of qualified
wages even though those amounts were included in the payroll costs reported on the
PPP Loan Forgiveness Application.
Question 58: How does an eligible employer use the special fourth quarter rule
in section 206(e)(2) of the Relief Act?
Answer 58: If an eligible employer received a PPP loan, and reported qualified
wages paid in the second and/or third quarter of 2020 as payroll costs on its PPP Loan
Forgiveness Application, but the loan was not forgiven by reason of a decision under
section 7A(g) of the Small Business Act, then the eligible employer may take the
qualified wages reported as payroll costs on its PPP Loan Forgiveness Application into
account for purposes of the employee retention credit and claim the employee retention
credit on those qualified wages on the fourth quarter Form 941. An eligible employer
may also claim the employee retention credit on the fourth quarter Form 941 with
respect to any qualified health plan expenses paid in the second and/or third quarter of
2020, for which the employer had not claimed the employee retention credit.
If an eligible employer elects to use this special fourth quarter rule, the eligible
employer should add the employee retention credit attributable to the second and/or
third quarter qualified wages and qualified health plan expenses on line 11c or line 13d
(as relevant) of the original fourth quarter Form 941 (along with any other employee
retention credit for qualified wages paid in the fourth quarter). The eligible employer
should also:
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• Include the amount of these qualified wages paid during the second and/or third
quarter (excluding qualified health plan expenses) on line 21 of the original fourth
quarter Form 941 (along with any qualified wages paid in the fourth quarter);
• Enter the same amount on Worksheet 1, Step 3, line 3a;
• Include the amount of these qualified health plan expenses from the second
and/or third quarter on line 22 of the fourth quarter Form 941 (along with any
qualified health plan expenses for the fourth quarter);
• Enter the same amount on Worksheet 1, Step 3, line 3b.
Eligible employers are not required to use this special fourth quarter rule. Eligible
employers may instead choose the regular process of making an interest-free
adjustment or filing a claim for refund for the appropriate quarter to which the additional
employee retention credit relates using Form 941-X for the previously filed Form 941.
K. Special Issues for Employees: Income and Deduction
Question 59: Are qualified wages excluded from gross income as “qualified
disaster relief payments”?
Answer 59: No. Section 139 of the Code excludes from a taxpayer’s gross
income certain payments to individuals to reimburse or pay for expenses incurred as a
result of a qualified disaster (qualified disaster relief payments). Although the COVID-
19 pandemic is a “qualified disaster” for purposes of section 139, qualified wages are
not excludible qualified disaster relief payments, because qualified wages are what an
individual would otherwise earn as compensation, rather than payment or
reimbursement of expenses incurred as a result of a qualified disaster. Therefore,
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qualified disaster relief payments do not include qualified wages paid by an employer,
including those that are paid when an employee is not providing services.
L. Special Issues for Employers: Income and Deduction
Question 60: Does the employee retention credit reduce the expenses that an
eligible employer could otherwise deduct on its federal income tax return?
Answer 60: Yes. Section 2301(e) of the CARES Act provides that rules similar
to section 280C(a) of the Code shall apply for purposes of applying the employee
retention credit. Section 280C(a) generally disallows a deduction for the portion of
wages or salaries paid or incurred equal to the sum of certain credits determined for the
taxable year. Accordingly, a similar deduction disallowance applies under section
2301(e) of the CARES Act with regard to the employee retention credit, such that an
employer's deduction for qualified wages, including qualified health plan expenses, is
reduced by the amount of the employee retention credit. (An employer does not,
however, reduce its deduction for the employer’s share of social security and Medicare
taxes by any portion of the credit).
Question 61: Does an eligible employer receiving an employee retention credit
for qualified wages need to include any portion of the credit in income?
Answer 61: No. An employer receiving a tax credit for qualified wages, including
allocable qualified health plan expenses, does not include the credit in gross income for
federal income tax purposes. Neither the portion of the credit that reduces the
employer's applicable employment taxes, nor the refundable portion of the credit, is
included in the employer's gross income.
92
Exhibit 9
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M. Special Issues for Employers: Use of Third-Party Payers
Question 62: Can an eligible common law employer that uses a third-party to
report and pay employment taxes to the IRS get the employee retention credit?
Answer 62: Yes. If a common law employer is otherwise eligible to receive the
employee retention credit, it is entitled to the credit, regardless of whether it uses a
third-party payer (such as a reporting agent, payroll service provider, PEO, CPEO, or
3504 agent) to report and pay its federal employment taxes. The third-party payer is not
entitled to the employee retention credit with respect to the wages it remits on the
common law employer's behalf (regardless of whether the third-party is considered an
"employer" for other purposes of the Code). If a common law employer uses a third-
party to file, report, and pay employment taxes, different rules will apply depending on
the type of third-party payer the common law employer uses for claiming/reporting the
employee retention credit.
If an eligible common law employer uses a reporting agent to file its federal
employment tax returns, the reporting agent will need to reflect the employee retention
credit on the federal employment tax returns it files on the common law employer's
behalf.
If an eligible common law employer uses a CPEO or a 3504 agent that received
its designation as an agent by submitting Form 2678, Employer/Payer Appointment of
Agent, to report its federal employment taxes on an aggregate Form 941, the CPEO or
3504 agent will report the employee retention credit on its aggregate Form 941 and
Schedule R, Allocation Schedule for Aggregate Form 941 Filers, that it already files. An
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eligible common law employer can submit its own Form 7200 to claim the advance
payment of the credit. The eligible common law employer will need to provide a copy of
the Form 7200 to the CPEO or 3504 agent so the CPEO or 3504 agent can properly
report the employee retention credit on the Form 941.
If an eligible common law employer uses a non-certified PEO or other third-party
payer (other than a CPEO or section 3504 agent that submitted Form 2678) that reports
and pays the common law employer client’s federal employment taxes under the third-
party’s Employer Identification Number (EIN), the PEO or other third-party payer will
need to report the employee retention credit on an aggregate Form 941 and separately
report the employee retention credit allocable to the common law employers for which it
is filing the aggregate Form 941 on an accompanying Schedule R. The PEO or other
third-party payer does not have to complete Schedule R with respect to any common
law employer for which it is not claiming an employee retention credit. The eligible
common law employer will need to provide a copy of any Form 7200 that it submitted for
an advance payment of the credit to the PEO or other third-party payer so the PEO or
other third-party payer can properly report the employee retention credit on the Form
941. These rules are similar to the rules that apply with respect to the payroll tax
election available under section 41(h) of the Code for the credit for certain research and
development expenses.
Question 63: May a payroll reporting agent sign and submit Form 7200 on
behalf of a client employer?
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Answer 63: Yes. A payroll reporting agent may sign Form 7200 for a client
employer for which it has the authority, via Form 8655, Reporting Agent Authorization,
to sign and file the federal employment tax return. The signatory must be the Principal
or Responsible Official listed on the Reporting Agent's e-file application. The signatory
may sign with ink on paper or may use the alternative signature method (rubber stamp,
mechanical device, or computer software program; for details and required
documentation, see Rev. Proc. 2005-39, 2005-28 I.R.B. 82). Consistent with Rev. Proc.
2005-39, an alternative signature must be in the form of a facsimile signature.
The reporting agent must obtain written authorization from the client employer
(paper, fax, or e-mail) to perform these actions regarding the Form 7200. The reporting
agent need not submit that authorization to the IRS, but should retain it in its files so that
the reporting agent can furnish it to the IRS upon request. In the case of a client
employer for which a third-party payer does not have a Reporting Agent
Authorization, the third-party payer may complete and print the form, or it may provide
the client employer a means to complete and print the form, but the client employer will
have to sign it.
The signatory for the reporting agent must sign, date, and print his or her name in
the relevant boxes on Form 7200. In the box “Printed Title,” the signatory must include
the reporting agent company name or name of business as it appeared on line 9 of the
Form 8655. If the reporting agent company name or name of business from the Form
8655 is missing, the Form 7200 cannot be processed.
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Question 64: When should the name and EIN of a third-party payer be included
on Form 7200?
Answer 64: Common law employers who file Form 7200 to claim an advance
payment of credits are required to include on the form the name and EIN of the third-
party payer they use to file their federal employment tax returns (such as the Form 941)
if the third-party payer uses its own EIN on the federal employment tax returns. This will
ensure advance payment of the credits received by the common law employer is
properly reconciled to the federal employment tax return filed by the third-party payer for
the calendar quarter for which the advance payment of the credits is received.
To help expedite and ensure proper processing of Form 7200 and reconciliation
of advance payment of the credits to the federal employment tax return for the calendar
quarter, only those third-party payers who will file a federal employment tax return on
behalf of a common law employer using the third-party payer’s name and EIN should be
listed on the Form 7200. Typically, CPEOs, PEOs, and other 3504 agents fall into this
category of third-party payers.
If a third-party payer will file the federal employment tax return on a common law
employer’s behalf using the common law employer’s name and EIN and not the name
and EIN of the third-party payer, the common law employer should not include the name
and EIN of the third-party payer on the Form 7200. Typically, reporting agents and
payroll service providers fall into this category of third-party payers.
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Question 65: If a common law employer uses a third-party payer for only a
portion of their workforce, should the employer list the third-party payer on the Form
7200?
Answer 65: In some cases, a common law employer may use the services of a
third-party payer (such as a CPEO, PEO, or other section 3504 agent) to pay wages for
only a portion of its workforce. In those circumstances, the third-party payer files a
federal employment tax return for the wages it paid to the common law employer’s
employees under its name and EIN , and the common law employer files a federal
employment tax return for wages it paid directly to employees under its own name and
EIN.
If the common law employer is claiming advance payments of credits for both
wages paid directly to employees that will be reported on its own federal employment
tax return and wages paid to other employees by a third-party payer that will be
reported on the third-party payer’s federal employment tax return, two separate Forms
7200 should be filed: one for the wages paid by the common law employer with the
name and EIN of the common law employer, and one for the wages paid by the third-
party payer with the name and EIN of both the common law employer and the third-
party payer.
To help expedite and ensure proper processing of Form 7200 and reconciliation
of advance payment of the credits to the federal employment tax return when a common
law employer uses a third-party payer such as a CPEO, PEO, or other section 3504
agent for only a portion of its workforce, a common law employer should include the
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name and EIN of the third-party payer only on the Form 7200 for advance payment of
the credits for wages paid by the third-party payer and reported on the third-party
payer’s federal employment tax return. The common law employer should not include
the name and EIN of the third-party payer on the Form 7200 for advance payments of
the credits claimed for wages paid by the common law employer and reported on the
common law employer’s federal employment tax return.
Question 66: What information must third-party payers obtain from their client
employers to claim the employee retention credit on their client employer's behalf?
Answer 66: If a third-party payer (such as a CPEO, PEO, or other section 3504
agent) is claiming the employee retention credit on behalf of the client employer, it must
collect from the client employer any information necessary to accurately claim the
employee retention credit on its client employer's behalf. This includes obtaining
information with respect to the client employer's claims for credits under sections 7001
and 7003 of the FFCRA and under section 45S of the Code, as well as whether the
client employer has received a Paycheck Protection Program loan authorized under the
CARES Act.
Question 67: May third-party payers rely on client employer information
regarding the employee retention credit?
Answer 67: Yes. If a third-party payer (such as a CPEO, PEO, or other section
3504 agent) is claiming the employee retention credit on behalf of the client employer,
the third-party payer may rely on the client employer's information regarding the client
employer's eligibility to claim the employee retention credit.
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Either the third-party payer or the client employer may maintain all records which
substantiate the client employer's eligibility for the employee retention credit. However,
if the client employer maintains the records, upon request by the IRS, the third-party
payer must obtain from the client employer and provide to the IRS records that
substantiate the client employer's eligibility for the employee retention credit. The client
employer and the third-party payer will each be liable for employment taxes that are due
as a result of any improper claim of the employee retention credit amounts that are
improperly claimed in accordance with their liability under the Code and applicable
regulations for the employment taxes reported on the federal employment tax return
filed by the third-party payer on which the credit was claimed.
Question 68: Upon request by the IRS, what records must third-party payers
obtain from their client employers to substantiate the client employer's eligibility for the
employee retention credit?
Answer 68: If a third-party payer is claiming the employee retention credit on
behalf of the client employer, it must, at the IRS's request, be able to obtain from the
client employer and provide to the IRS records that substantiate client employer's
eligibility for the employee retention credit.
Question 69: Are client employers responsible for avoiding a "double benefit"
with respect to the employee retention credit and the credit under section 45S of the
Code?
Answer 69: Yes. The client employer is responsible for avoiding a “double
benefit” with respect to the employee retention credit and the credit under section 45S
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of the Code. The client employer cannot use wages that were used to claim the
employee retention credit and reported by the third-party payer on the client employer’s
behalf to claim the section 45S credit on its income tax return.
N. Substantiation Requirements
Question 70: What records should an eligible employer maintain to substantiate
eligibility for the employee retention credit?
Answer 70: An eligible employer will adequately substantiate eligibility for the
employee retention credit if the employer creates and maintains records that include the
following information:
• Documentation to show how the employer determined it was an eligible
employer that paid qualified wages, including:
o any governmental order to suspend the employer’s business operations;
o any records the employer relied upon to determine whether more than a
nominal portion of its operations were suspended due to a governmental
order or whether a governmental order had more than a nominal effect on
its business operations;
o any records the employer used to determine it had experienced a
significant decline in gross receipts;
o any records of which employees received qualified wages and in what
amounts; and
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o in the case of a large eligible employer, work records and documentation
showing that wages were paid for time an employee was not providing
services.
• Documentation to show how the employer determined the amount of
allocable qualified health plan expenses.
• Documentation related to the determination of whether the employer is a
member of an aggregated group treated as a single employer for purposes of
the employee retention credit and, if so, how the aggregation affects the
determination and allocation of the credit.
• Copies of any completed Forms 7200 that the employer submitted to the IRS.
• Copies of the completed federal employment tax returns that the employer
submitted to the IRS (or, for employers that use third-party payers to meet
their employment tax obligations, records of information provided to the third-
party payer regarding the employer’s entitlement to the credit claimed on the
federal employment tax return).
Question 71: How long should an eligible employer maintain records to
substantiate eligibility for the employee retention credit?
Answer 71: An eligible employer should keep all records of employment taxes
for at least 4 years after the date the tax becomes due or is paid, whichever comes
later. These should be available for IRS review.
IV. PAPERWORK REDUCTION ACT
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Any collection of information associated with this notice has been submitted to
the Office of Management and Budget for review under OMB control number 1545-0029
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). An
agency may not conduct or sponsor and a person is not required to respond to a
collection of information unless it displays a valid OMB control number.
V. DRAFTING INFORMATION
The principal authors of this notice are Dixie Pond and Danchai
Mekadenaumporn, Office of the Associate Chief Counsel (Employee Benefits, Exempt
Organizations, and Employment Taxes), although other Treasury and IRS officials
participated in its development. For further information on the provisions of this notice,
please contact Ms. Pond or Mr. Mekadenaumporn at 202-317-6798 (not a toll-free call).
102
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October 14th, 2025
Mr. Jerry Tung
Department of the Treasury
Internal Revenue Service
CC:
Barrett Business Services Inc.
8100 NE Parkway Drive, Suite 200
Vancouver, WA 98662
Holland and Knight LLP
Daniel Strickland
800 17th Street N.W. Suite 1100
1011 2nd St, Suite 100 Washington, District of Columbia 20006
Santa Rosa, CA 95404
(800) 241-9876 Re: BBSI & Daniel Strickland – IRS Rejection Response LTR 937
Reference: LTR 937
Notice date: 07/01/2025 – Shared via Barrett Business Services Inc (BBSI)
10/14/2025
Agent: Mr. Jerry Tung
Taxpayer Name: JOHNSON POOLS INC – Represented through Barrett
Business Services Inc (BBSI)
Taxpayer (BBSI) EIN: 68-0173856
Tax Periods: June 30th, 2020 (2020 Q2) | September 30th, 2020 (2020 Q3) |
December 31st, 2020 (2020 Q4) | March 31st, 2021 (2021 Q1) | June 30th, 2021
(2021 Q2) - (Actual Qualification March 13th, 2020 – June 15th, 2021)
Type of Tax: Employment Tax
Dear Respected Agent Tung,
In reference to the above Letter (“Letter”), JOHNSON POOLS INC (the
“Company”) – represented by Barrett Business Services Inc. (the “Professional
Services Organization” aka “PEO”) is supplying additional details related to their
Employee Retention Tax Credit (“ERC”) claim. The Company formally wishes to
appeal the findings. The Company firmly believes that it was eligible for a period
of March 13th, 2020 – June 15th 2021.
Exhibit 10
Page 1 of 4
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The Company wishes to formally appeal the rejection reason of “Disallowed
Evidence does not show a shut down or Decrease in Gross Receipts (c,d).”
Also, the Company would like to call out that the taxpayer reason section is
incorrect. The Company never claimed eligibility past June 15th, 2021 which
clearly is before 2021 Q3. The fact that the below two sentences is the only
response received, and that the “Taxpayer Reason” section is clearly incorrect,
shows that this case deserves a more detailed review.
1011 2nd St, Suite 100 Responding to the “allow/Disallow section, the Company never claimed to have
Santa Rosa, CA 95404 qualified through gross receipts. Rather, the Company believes that the threshold
set by IRS Notices 2021-20, 2021-23, and 2021-49 for partial suspension of a
(800) 241-9876 “material” portion of business operations impacted was met and exceeded for the
period of March 13th, 2020 – June 15th, 2021. Thus qualifying the Company for
the below periods:
• Period ending June 30th, 2020
• Period ending September 30th, 2020
• Period ending December 31st 2020
• Period ending March 31st, 2021
• Period ending June 30th, 2021*
*With eligibility ending June 15th, 2021. The Company only used eligible wages
up to June 15th, 2021 to calculate and claim the ERC.
Below is a list of the orders the Company believes qualifies them from March
13th, 2020 – June 15th, 2021
• C19-01 — Moratorium on Large Gatherings
• C19-03 — Shelter‑in‑Place
• Executive Order N‑33‑20 — Statewide Stay‑at‑Home
• C19-04 — Order Closing Parks
Exhibit 10
Page 2 of 4
Case 3:26-cv-02208-AN Document 1 Filed 10/08/26 Page 210 of 211
• C19-05 — SIP Extended; Social Distancing Protocol (Appendix A)
• C19-09 — SIP Extended with Limited Additions (Superseding)
• C19-14 — “Stay Well Sonoma County” (Protocols Required)
• C19-15 — Updated Stay‑Well Order
• Blueprint for a Safer Economy — Color‑Tier Framework
• Beyond the Blueprint — Retirement of Color Tiers
County 8-Dec 15-Dec 22-Dec 29-Dec 4-Jan 11-Jan 19-Jan 25-Jan 2-Feb 9-Feb 16-Feb 23-Feb 2-Mar 9-Mar 13-Mar
Contra Costa Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple red
1011 2nd St, Suite 100 Marin Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Red Red Red Red
Napa Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple red red Red
Santa Rosa, CA 95404 Sacramento Purple
San Francisco Purple
Purple
Purple
Purple
Purple
Purple
Purple
Purple
Purple
Purple
Purple
Purple
Purple
Purple
Purple
Purple
Purple
Purple
Purple
Purple
Purple
Purple
Purple
Purple
Red
Purple
Red
Purple
Red
Santa Clara Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Red Red Red
Solano Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Red Red
(800) 241-9876 Sonoma Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Purple Red
County 16-Mar 23-Mar 30-Mar 6-Apr 13-Apr 20-Apr 27-Apr 4-May 11-May 18-May 25-May 1-Jun 8-Jun 15-Jun
Contra Costa Red Red Red Orange Orange Orange Orange Orange Orange Orange Orange orange orange orange
Marin Red Orange Orange orange orange orange orange Orange Orange Orange Orange yellow yellow yellow
Napa Red Red Orange Orange Orange Orange Orange Orange Orange Orange Orange orange yellow yellow
Sacramento Red Red Red Red Red Red Red Red Red Red Red orange orange orange
San Francisco Red Orange Orange Orange Orange Orange Orange Yellow Yellow Yellow Yellow yellow yellow yellow
Santa Clara Red Orange Orange Orange Orange Orange Orange Orange Orange Yellow Yellow yellow yellow yellow
Solano Red Red Red Red Red Red Red Red Red Red Red orange orange orange
Sonoma Red Red Red Orange Orange Orange Orange Orange orange Orange Orange Orange Orange Orange
Above is a visual timeline of the color impacting Sonoma County and thus the
level of restrictions. Sonoma can be found at the bottom of each picture.
The Company is enclosing a detailed summary with links of the orders that
materially impacted the Company’s operations during this time. The Form Letter
937 sites that evidence for general submissions site OSHA and other loose
masking orders. Given this is the same document and language shared with all
of BBSI’s clients, it seems that this is simply a blanket review and not reflective of
an honest Company specific claim review. We would like to formally emphasize
that this is not the evidence being supplied by the Company, and we fear that
through the PEO, and more specifically, the BBSI process, the Company is being
unjustly reviewed through blanket analysis and processing.
Exhibit 10
Page 3 of 4
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The Company welcomes the opportunity to discuss their specific case as it
relates to eligibility and qualification of the ERC for tax periods impacted. Should
this be a challenge under the current workload, then the Company formally
requests a different agent be assigned to directly work through the case and
appeal process. If at all possible to remove BBSI from the process and allow the
Company to directly interact with the IRS, the Company would also like to
formally request this.
We sincerely appreciate your assistance with this matter and look forward to the
next step in the appeals process.
I as the submitter am including that “Under penalties of perjury, I declare that I
submitted the protest and accompanying documents, and to the best of my
1011 2nd St, Suite 100 personal knowledge and belief, the information stated in the protest and
Santa Rosa, CA 95404 accompanying documents is true, correct, and complete.”
(800) 241-9876 Yours Sincerely,
Duncan Kelm
Authorized Person
Arrow Point Tax Services
1011 2nd St, Ste 100
Santa Rosa, CA 95404
Day time phone: (800) 241-9876
Email: Duncan@arrowpointtaxes.com
PTIN: P02259619
Enclosure:
Copy of LTR 937
List of Government Orders Impacting the Company
Exhibit 10
Page 4 of 4File and source
- File
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- 3a0d696412c5b5f307f972c128ef3fd0a8c64d517949b656b3cd99597cafb822
- Original
- storage.courtlistener.com