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Update: Supply Chain Disruption and the Employee Retention Tax Credit

July 28, 2023

The IRS Office of Chief Counsel has issued a memorandum to clarify the potential applicability of the Employee Retention Tax Credit (ERTC) to businesses that navigated supply chain disruptions. To ensure more accurate and substantiated claims, the memorandum analyzes five different scenarios with supply chain challenges and how those scenarios align with the statutory provisions of COVID-19-related ERTCs. Supply chain disruptions were not included in the statutory language of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act); rather, they were first addressed in Question 12 of Notice 2021-20. The memorandum outlines specific circumstances in which a supply chain disruption could potentially qualify an employer for the ERTC. A supply chain disruption must result in a full or partial suspension of the employer's business to meet the eligibility criteria for the credit. A mere disruption is insufficient to qualify for the ERTC. AM 2023-05.


To read about the 5 different scenarios and the law as it pertains to this issue, please read the official memo given by the IRS.




This material is generic in nature. Before relying on the material in any important matter, users should note date of publication and carefully evaluate its accuracy, currency, completeness, and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.

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