The Service's positions, answered
The Service's letters and examination reports rest on fourteen grounds. Each is answered below from the statute's text, from Tri-State, from the instruments with their exhibit identifiers, and from the United States' own representations. None survives the public record, and for this industry several of them describe a business that does not exist: one that earns its revenue on its own premises.
1. No orders in effect
There were no government orders related to COVID-19 in effect during the quarter which could have fully or partially suspended your trade or business.
For every quarter, the quarters section lists the orders in force on the quarter's first and last day, by issuer, date and terms, with exhibit identifiers. For the third quarter of 2021 alone the list runs to the OSHA Healthcare ETS, whose definition of "healthcare support services" names "housekeeping services"; the federal contractor orders of July 29 and September 9, 2021; the conveyance, entry, border and nursing-home orders; the FY2021 H-2B rule; the vaccination and testing mandates of New York, New Jersey, Illinois, California, Washington, Oregon, New Mexico, Connecticut, Massachusetts, Maryland, Rhode Island, Maine, Delaware, Colorado and the District, whose definitions reach contract staff, contractors and providers of custodial services, several of them by those words; the workplace standards of five States; the face-covering orders of eight States and more than thirty metros, airborne-transmission controls on every indoor customer site and call floor; the school orders of the 2021-22 year; and New York City's order that no covered entity admit a "contractor" without proof of vaccination.182 A form sentence that no orders were in effect is not the "case-by-case" determination the United States described to the District Court.183
That is done on a case-by-case basis.Doc. 44 at 30 n.7
The sentence describes a quarter that did not occur, and the Service's records, whatever they contain, do not contain the Federal Register.
2. The essential business that remained open
The employer operated an essential business and remained open.
The word "essential" is not in the statute. For this industry the "essential" designation was a classification of the customer, not of the employer: Maryland admitted "Staffing and/or payroll services" only as "Supporting Firms" to critical-infrastructure businesses; Pennsylvania marked "Employment Services No" and "Business Support Services No" while marking the plants, hospitals and warehouses those services staffed "Yes" or "No" line by line; the CISA lists named "janitorial/cleaning personnel" and "Security staff" as continuity support at the sites the orders allowed to run.184 A cleaner permitted to enter an emptied building, a guard permitted to hold the door of a closed mall and a placed worker permitted to enter a plant running at half its shifts under a written plan were working under orders that fixed how open the customer could be, and the designation exempted none of them from the telework mandates, capacity caps, screening rules, workplace standards, face-covering orders or, in 2021, the vaccination mandates that named them.185 The Notice itself provides that an employer so designated "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," and the United States told the District Court the same:186
an employer could be considered to have a partial suspension due to the governmental order if it was required to suspend certain operations for certain purposesDoc. 44 at 15
The FAQ posted April 29, 2020 answered the question whether an essential employer was excluded with a flat "No"; the sentence the Service now applies against essential employers was added on June 19, 2020, and the ten percent rule that accompanies it on March 1, 2021.187 The designation was a permission to operate under the orders, not an exemption from them, and in this industry it was the customer's permission, not the employer's. An employer that "remained open" to supply labor to sites the orders had closed remained open to nothing.
3. Orders directed to the public
Stay-at-home orders directed to the public are not considered; only orders directed at business operations count.
The statute says nothing of the source or addressee of the order; it asks whether the order limited "commerce, travel, or group meetings." The Notice's own list of qualifying orders includes "A State's emergency proclamation that residents must shelter in place" and "An order from a local official imposing a curfew on residents," both addressed to the public, and the United States described that list to the District Court as "[c]onsistent with the language in the statute" and told the Ninth Circuit that a business "may be suspended 'due to' a government order addressing a third party."188 The orders that reached this industry were, moreover, directed at business operations in terms, and often at this industry's operations by name: "All call centers situated in New Mexico are directed to reduce their in-person workforce by 100%"; "Employment Services No"; "customer service call centers and telemarketing operations" closed; "lawn care, pest control, and landscaping operations, subject to the enhanced social-distancing rules"; "all commercial landscaping work is prohibited"; "must accommodate their workforce, wherever practicable, for telework"; "shall not permit a ... contractor to enter a covered premises without displaying proof of vaccination."189 The position rewrites the statute and misdescribes the orders.
4. Comparable operations through telework
The employer could have continued comparable operations through telework.
"Comparable operations" and "telework" are not in the statute; Tri-State defines a partial suspension as a temporary delay, interruption or termination of a portion of the business, and a placement, a cleaning contract, a guard post and a landscaping crew are not performed from anyone's home.190 The Notice's own words say the same. Q&A-15 provides that where "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," and its Example 3 treats a research company's laboratory operations, which "cannot continue in a comparable manner," as partially suspended although its modeling staff teleworked; Q&A-16 provides that where the physical work space is so critical that central tasks cannot be performed remotely "this factor alone indicates that the employer is not able to continue comparable operations," and that a delay "beyond 2 weeks" in moving to telework is itself a partial suspension; Q&A-17 provides that a compelled modification with more than a nominal effect is a partial suspension.191 The physical work space of this industry is the customer's plant, building, venue, grounds and call floor, and it is the whole of the operation. Where the industry's own recruiters and account managers teleworked, telework was the modification the orders compelled ("must be performed remotely"; "[u]nless impossible, all businesses must conduct their operations remotely"), and a compelled modification of a more than nominal portion is a partial suspension, which is what Q&A-17 also says.192 The comparable-operations sentence with which Q&A-15 opens is not in the statute, has no force of law by the United States' own account, and is not applied here. The four factors of Q&A-16 first appeared in the Notice released March 1, 2021; the FAQ posted April 29, 2020 stated the telework rule without them, and the revision of June 19, 2020 added the "certain purposes, but not others" paragraph that finds a partial suspension wherever any purpose was closed.193 The position substitutes a word Congress did not write for the one it did, and applies it to an industry whose product cannot be delivered by telephone.
5. The orders affected customers, not the employer
The orders affected the employer's customers, not the employer (Q&A-13).
Q&A-13 addresses an employer that "responds to the lack of demand by suspending some or all of its operations" because its customers were told to stay home; it is not the statute, and it does not describe this industry. A stay-at-home order on the customer base is an order limiting commerce, and the commerce it limited was this industry's; the statute does not ask on whose door the order was posted. The exclusion the Service now applies is, moreover, not the one the FAQs stated while the 2020 quarters were open: on April 29, 2020 it reached only "an essential business that is not required to close its physical locations" and a suspension claimed "for the sole reason" of the customers' stay-at-home order; the Notice extended it to every employer and to any "reduction in demand" on March 1, 2021.194 This analysis, moreover, does not rest on demand. It rests on orders that closed the plants, buildings, venues, schools and hospitals on which the industry's placements, contracts, posts and crews are performed; orders that classified the industry's own functions; orders that barred landscaping by name; orders that ordered call floors to zero; orders that closed the fingerprint sites, licensing offices and consulates through which it hires; and, in 2021, orders that named the contract worker, the contractor and the custodial service as the persons who could not enter a covered premises without vaccination, testing or a face covering.195 Those are orders limiting commerce, travel and group meetings under the statute's text, Q&A-12's logic and the United States' admission that a third-party order counts. Where Q&A-13 would exclude an order confining or closing the customer, it adds to the statute words the United States has represented have no force of law; and for an industry whose commerce is the customer's premises, an order on the customer's premises is an order on the industry's commerce by definition. Q&A-13 does not describe an employer whose workplaces were closed by orders addressed to the owners of those workplaces, and the Service's invocation of it against this industry misdescribes both the orders and the industry.
6. Voluntary measures
The employer's measures were voluntary (Q&A-14).
A COVID-19 plan adopted because 29 C.F.R. § 1910.502(c) required it, a vaccination-or-testing policy adopted because Executive Order 252 required it, a call floor emptied because a public health order required its in-person workforce reduced by one hundred percent, a landscaping crew idled because an executive order barred the work, and a guard who refused entry because Emergency Executive Order 225 required proof of vaccination are not voluntary. Q&A-14 describes an employer that closes without any order; every modification described here is traced to an order with an exhibit identifier.196 Where a national staffing, security or janitorial company adopted a company-wide policy to comply with the orders of the jurisdictions that bound its customer sites, Q&A-20 makes it eligible "with respect to all of its operations in all locations."197 A modification traced to an order with an exhibit identifier is not voluntary, and the position that it was describes an employer this analysis does not describe.
Q&A-14 reaches, by its own terms, only a suspension "not due to a governmental order," and the District Court has defined the excluded employer as one "not being ordered to do so," and the United States as one that "could nonetheless, with telework, 'continue operations comparable to its operations prior to the closure' but chooses not to."198 No employer in this industry answered that description in any quarter. The reopening orders permitted operation only on conditions with the force of law, from Texas's occupancy commands under the section 418.173 offense and California's "necessary modifications" under the section 8665 misdemeanor to New York's fifty-percent workforce command under Public Health Law sections 12 and 12-b and Arizona's "shall develop, establish and implement policies" under the section 26-317 misdemeanor.199 The standing statutes commanded the same conduct independently: Texas Health and Safety Code section 81.002 ("Each person shall act responsibly to prevent and control communicable disease") and its offenses, Labor Code section 411.103, the safe-workplace statutes of the other principal States and, in all of them, the general duty clause, 29 U.S.C. § 654(a)(1), enforced by citation from September 2020.200 Texas and Florida then fixed the standard of care as compliance with governmental standards and guidance, and Arizona as the adoption of "reasonable policies related to the public health pandemic," each retroactively, and California presumed negligence from the violation of any order or standard.201 The safe-workplace statute had no COVID-19 content until the health authorities said what a safe workplace required; the measures were taken because those directives defined the duty and would not have been taken without them. "Due to" is but-for causation, and the causation here runs from the command to the measure without an intervening choice; Tri-State held that the hospital "was required to make these changes to ensure compliance with the Proclamation," and the Notice's own words say the same: a modification "required by a governmental order as a condition of reopening" is a partial suspension due to the order.202 A statute that commands conduct is an order from an appropriate governmental authority, and the Suspension Clause asks for nothing more; the Service's premise under Q&A-14 fails wherever a command reached the employer, and on this public record a command reached every employer in every quarter.203
7. The ten percent figure applied as a floor
The portion of the business affected was not more than nominal (the 10 percent figure applied as a floor).
The ten percent figure is, in the United States' words, "not determinative," "[e]ffectively ... a safe harbor," "not an eligibility requirement," "a quintessential safe harbor," "a safe harbor rather than a hard floor"; the District Court held it "is not an exclusionary cut-off point"; and Tri-State held that the Notice "provides a method for the test to be met not as a requirement to meet the test" and that reading it as a requirement "would read requirements into the statute that do not exist."204
Effectively, this is a safe harbor ... Properly understood, it isn't an eligibility requirement.Doc. 44 at 14
the ten percent standard is not an exclusionary cut-off point, but rather a safe harbor above which the IRS will consider there to have been a more-than-nominal disruption to businessDoc. 49 at 26
The Service administers the figure otherwise. Its FAQ page tells every taxpayer that "[t]he IRS considers 'more than nominal' to be at least 10% of your business," and Chief Counsel's memorandum AM 2023-007 tells examiners that an employer "needs to substantiate ... a reduction ... of not less than 10 percent to fall within the provisions of Notice 2021-20," in the same period in which the United States told the District Court that the figure "isn't an eligibility requirement" and the Ninth Circuit that it is "a safe harbor rather than a hard floor."205 The deeming rules that carry the figure did not exist when the four 2020 quarters closed: the FAQs posted April 29, 2020 contained no "nominal" test and no percentage; the words "more than a nominal" first appeared on June 19, 2020, still without a percentage; and the two ten percent rules first appeared in the Notice released March 1, 2021.206 The United States cannot describe the figure as an optional safe harbor when the Notice is challenged and administer it as a floor when a claim is examined. The showing for this industry exceeds the safe harbor many times over: the public payroll series alone records the loss of a third of temporary-help employment in two months, and every function of the industry was performed on premises the orders closed, capped or conditioned.207 The position applies as a floor a figure the United States has told two federal courts is not one.
8. Modifications with only a nominal effect
The required modifications (masks, gloves, spacing, screening) had only a nominal effect (Q&A-18).
The modifications described here are the closure and capping of customer sites, the classification of the industry's functions, the barring of landscaping by name, the emptying of call floors, the closure of the credential and visa channels, the written plans, screening, distancing, barriers, paid removal and vaccination leave of the Healthcare ETS, and the vaccination, testing and proof-of-vaccination conditions on the contract worker's entry; the face-covering orders of July through September 2021 are described as what they were: workplace infection-prevention and exposure-control requirements imposed by orders of appropriate governmental authorities, enforced by fine, that conditioned every customer site and call floor in the States and metros that issued them. Q&A-18 itself provides that 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," and the United States told the District Court that face-covering requirements are not a nullity:208
employees having to wear face masks may impact business operationsDoc. 44 at 30
The categorical sentence that mask requirements "will not result in more than a nominal effect" appeared for the first time in the Notice released March 1, 2021, after the four 2020 quarters to which the Service applies it had closed; it states a factual conclusion as a rule, on no record, and it contradicts Q&A-18's own first paragraph, which lists face-covering requirements among the modifications "required by a governmental order as a condition of reopening."209 Tri-State held that "the required protocols and procedures to comply with the Proclamation" were suspensions the order caused and refused the argument that they were nominal.210 A contract worker who cannot enter the hospital without a first dose by September 27, the school without weekly testing, the federal site without attestation or the covered premises without proof of vaccination is not a worker whose employer's operation was modified nominally; the worker's entry, which is the whole of the service, was conditioned by order.
9. A declaration of emergency is not an order
A declaration of emergency is not an order (Q&A-10).
This analysis relies on no bare declaration as a suspending order. Each instrument in the layers and quarters sections limited commerce, travel or group meetings in terms. Where an emergency declaration is cited, it is cited as the instrument under which those orders were issued and continued, or as proof of a period, which the Notice's own text allows.211 The ground answers an argument this analysis does not make.
10. Supply-chain effects too attenuated
The supplier was not itself closed by order; supply-chain effects are too attenuated (AM 2023-005).
Chief Counsel memoranda "may not be used or cited as precedent," by their own legend, which Tri-State quoted in declining to rely on the Chief Counsel advice the United States offered there.212 The suppliers of this industry are the customer sites at which its product is delivered and the consulates, fingerprint sites and licensing offices through which it hires, and each was closed or conditioned by an order with a date and an exhibit identifier; nothing here is attenuated. The United States told the Ninth Circuit that the supplier rule "never even mentions a 'physical[ ] clos[ure]' order against the supplier," and told the District Court that an employer is eligible where its operations are suspended "because of the supplier's inability to deliver."213
that same employer may still be eligible for the ERC if, under the facts and circumstances, its business operations are fully or partially suspended because of the supplier's inability to deliver (FAQ 12)Doc. 44 at 13 n.3
Causation is but-for on the United States' own agreed definition: absent the order closing the plant, no law kept the placed worker off the floor; absent the proclamation suspending H-2B entry, no law kept the crew abroad.214 AM 2023-005's own scenarios stipulate their conclusions (a jurisdiction that "lifted all orders related to COVID in May 2020"; an employer "not subject to any governmental orders ... at any time"), and no State in the Library fits them.215 The position describes an attenuated chain this analysis does not rely on; a plant closed by executive order is not a supply-chain effect on the agency that staffs it, and a Chief Counsel memorandum that cannot be cited as precedent is not the statute.
11. Lingering effects of lifted orders
The orders had lifted before the quarter began; any effect was a lingering effect.
For the third quarter of 2021 the orders had not lifted: the quarters section lists, with dates, the orders in force on July 1 and September 30, 2021, most of them issued inside the quarter and several written to reach this industry's people by name, and the paragraph that follows the finding names the expired instruments on which the proof does not rest. Where the position means that a suspension compelled by an order that expired on June 30 ended at midnight, it misreads the clause, which asks whether the operation "is fully or partially suspended during the calendar quarter," and it contradicts Tri-State's definition of a suspension as a "delay," Q&A-22's whole-quarter rule and Q&A-16's transition rule.216 A placement terminated by a closure order was restored when the customer rehired, not when the order lapsed; a crew barred from entry for nine months was not on the job the day the proclamation expired. The position mistakes the date an order lapsed for the date the suspension it compelled ended; the clause asks about the second.
12. No decline in gross receipts
The employer did not experience the required decline in gross receipts.
The gross-receipts prong is not relied on. The statute makes an employer eligible on either prong, and the United States admitted in Tri-State that the gross-receipts test is "another method to qualify," on which the court held "the fact an employer can be eligible and affected without partial or full suspension is reasonable."217 The suspension prong asks about operations, not revenue, and it is satisfied in every quarter. The ground answers a prong this analysis does not invoke; Congress joined the two prongs with "or."
13. Guidance, not orders
The instruments relied on are guidance, recommendations or best practices, not orders.
Every instrument this analysis relies on as a suspending order is an order, proclamation, rule, regulation, directive, ordinance, statute or administrative order with the force of law, issued under a recited statutory or constitutional power and enforced by penalty, license, citation, contempt or contract.218 Where a State made the CISA guidance binding by incorporating it into an order, the binding instrument is the order, and it is the order that is cited; the CISA lists themselves are cited only for the words the incorporating orders adopted.219 The payroll and claims series and OSHA's National Emphasis Program are cited as facts and posture, never as orders, and this analysis says so where it cites them.220 The Notice itself provides that whether an instrument is a governmental order "is determined without regard to the level of enforcement," and the United States' own Chief Counsel excluded the OSHA Healthcare ETS from its conclusion about OSHA "communications" and admitted that an employer "may be eligible" where "an executive order from a Governor" made workplace protocols mandatory.221 An instrument enforced by fine, license, citation, contempt or contract clause is not a recommendation, and the position that it is misdescribes every instrument this analysis names.
14. The ordinary meaning of "order"
"Order" must be given its ordinary meaning.
Agreed. An "order" is "a command, direction, or instruction" and "a rule or regulation made by a competent authority"; the Service's own Chief Counsel defines it as "a command or mandate delivered by a government official"; and the United States agreed in Tri-State that the clause is read by "plain meaning."222 Every instrument in the finding for each quarter is a command from a competent authority to do or refrain from doing something on pain of sanction: to reduce a call center's in-person workforce by one hundred percent; to cease landscaping; to close a place of business that is not life-sustaining; to adopt a COVID-19 plan; to exclude the unvaccinated contract worker; to refuse entry to the contractor without proof of vaccination. That is the ordinary meaning, and it is satisfied.
The Service is free to disagree about the weight of these instruments. It is not free to say they did not exist.