What the United States told two federal courts

But Notice 2021-20 is merely guidance issued so that the public can have the benefit of knowing how the IRS is interpreting the relevant ERC statutory provisions. The Notice, as explained in Part __ below, lacks the force of law. The Notice itself does not require [the plaintiff] or its clients to do anything or prevent them from doing anything. If a taxpayer's ERC claim is denied because the IRS determined the client is ineligible under the IRS's interpretation of the statute, that denial flows from the statute.

Doc. 44 at 19 · United States (DOJ Tax Division)

What the court adopted. Doc. 49 at 6-7 (quoting the passage; 'if it is the case that the Notice does not carry the force of law, then the Government's argument here would ultimately be correct'); Doc. 49 at 22 ('a practical binding effect is not equivalent to a legally binding effect'); Doc. 49 at 27 ('the Notice carries no force of law and is entitled to no deference').

The Service's practice, by contrast. Letters and Form 886-A explanations that list the Notices under 'Law' and decide the claim on Notice categories (Opening Br. at 11-12, 43-44; Compl. ¶¶ 69-73).

If Notice 2021-20 did not exist, the IRS would still have a duty to approve or deny a claim for refund under I.R.C. § 3134 using its own interpretation of its terms and, in any refund suit, the courts would still determine whether the IRS's interpretation was correct or not. Notice 2021-20 simply provides the IRS's interpretation of the terms "governmental order" and "partially suspended" to the public. But Notice 2021-20 does not suggest that these definitions are binding on taxpayers when seeking judicial review of any denied refunds--it does not suggest its interpretations carry the "force of law." Whether Notice 2021-20 exists or not, the statute will control whether a refund is warranted.

Doc. 44 at 24 · United States (DOJ Tax Division)

What the court adopted. Doc. 49 at 20 ('given that the interpretive statements carry no binding effect, if a party disagrees with the IRS's interpretation as applied to their case, they retain an adequate remedy to challenge it--a tax refund suit'); Doc. 49 at 25 ('the IRS had an adequate legislative basis for each of its interpretive decisions based on the plain text of the ERC statute').

The Service's practice, by contrast. Explanations that apply Q&A-10 through Q&A-18 as the definitions of 'order' and 'partial suspension' that decide entitlement.

Again, the United States is not arguing that the IRS interpretation has the force of law or is entitled to deference.8 And even if the I.R.C. § 3134 did not provide the required congressional authority, there is ample other authority for the IRS's issuance of non-binding interpretive guidance. [n.8:] Because the United States is not asking the Court to afford deference to its interpretation, the Supreme Court's recent decision in Loper Bright (Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244 (2024)), related to the level of deference to be afforded agency interpretations, is not relevant here.

Doc. 44 at 31 & n.8; also stated at Br. for Appellees at 58: 'There is no question of deference here.' · United States (DOJ Tax Division)

What the court adopted. Doc. 49 at 27 (quoting n.8; 'the Notice carries no force of law and is entitled to no deference').

The Service's practice, by contrast. Explanations that accord the Notices controlling weight as the guidance that determines entitlement.

Through the entirety of the Notice, the IRS consistently refers to the information provided as guidance. [n.5:] In fact, the IRS does refer to the Notice's "guidance" several times in a long list of sources under the sub-heading "Law" in an IRS memorandum. This is unremarkable because the Notice provides the IRS's interpretation of the operative law.

Doc. 44 at 25 & n.5 · United States (DOJ Tax Division)

What the court adopted. Doc. 49 at 22 (quoting 'Through the entirety of the Notice, the IRS consistently refers to the information provided as guidance' and holding the IRS never invoked legislative authority).

The Service's practice, by contrast. The 'Law' heading of Service memoranda and Form 886-A explanations (Compl. ¶ 69; Opening Br. at 44).

Notice 2021-20 does not have the force of law and thus is not a legislative rule subject to notice-and-comment rulemaking. Rather, Notice 2021-20 is a valid interpretive rule properly excluded from the requirements of notice-and-comment rulemaking.

Doc. 44 at 27; also stated at Doc. 44 at 9 ('the Notice is an interpretive rule excepted from notice-and-comment requirements'); Doc. 44 at 8 (the Notice is 'the only publicly available guidance on how the IRS interprets the many congressional actions that have resulted in the Employee Retention Credit'); Doc. 44 at 9 ('an IRS publication intended to assist and educate the public through a collection of frequently asked questions'; vacatur 'would not change how the IRS interprets and applies the ERC statute') · United States (DOJ Tax Division)

What the court adopted. Doc. 49 at 22 ('[the plaintiff] has not met its burden to show that the Notice carried the force of law and was therefore a legislative, rather than interpretive, rule').

The Service's practice, by contrast. Explanations that treat Notice categories as dispositive rules.

The challenged provisions merely republish FAQs about the ERC that the IRS had earlier posted on its website. And as the District Court correctly held, they are interpretative rules, not legislative rules, and therefore exempt from the time-consuming notice-and-comment procedures of the APA. Indeed, [the plaintiff's] argument, at bottom, is that the APA prohibited the IRS from promptly giving the public even nonbinding guidance about a new and immediately available tax credit providing emergency pandemic relief.

Br. for Appellees at 26; also stated at Br. for Appellees at 1: 'an IRS publication, Notice 2021-20, that provided guidance to taxpayers about a pandemic-era tax credit'; Br. for Appellees at 6: Section III 'contains guidance in the form of seventy-one questions-and-answers (Q & A's) about claiming the credit' · United States (DOJ, Tax Litigation Branch)

What the court adopted. Consistent with Doc. 49 at 22; Ninth Circuit pending (argument calendared October 26, 2026).

The Service's practice, by contrast. Explanations that apply Notice categories ('only subject to modification'; 'recommendations') as binding.

But where, as here, an agency has not manifested an intention to create a legally binding rule, this Court applies a framework set forth by the D.C. Circuit... The District Court correctly held that the Notice does not have the force of law in this respect (or any other)--and that the challenged Notice provisions are therefore interpretive rules exempt from notice-and-comment procedures--because the ERC statute provides the necessary "adequate legislative basis."

Br. for Appellees at 29-30; also stated at Br. for Appellees at 49 n.9: 'no party contends that the Notice is binding in this stronger sense' (binding on tribunals outside the agency) · United States (DOJ, Tax Litigation Branch)

What the court adopted. Doc. 49 at 22, 27 (force-of-law holding).

The Service's practice, by contrast. The ten-percent 'will be deemed' sentence applied as a legally binding floor (Opening Br. at 11, 43).

The Notice provisions that [the plaintiff] challenges merely construe statutory language in 26 U.S.C. § 3134 that limits eligibility for the ERC to employers whose business is "partially or fully suspended," whose suspension is "due to orders from an appropriate governmental authority," and so on. Thus, the provisions are derived from, and do nothing but more crisply delineate, pre-existing eligibility requirements found in the ERC statute.

Br. for Appellees at 12-13; also stated at Br. for Appellees at 33-34: 'the ERC statute from which they are derived provides an "independent legislative basis" for the IRS's decisions on ERC claims'; Br. for Appellees at 33: an interpretive rule's derived proposition 'must flow fairly from the substance of the existing document' (quoting Catholic Health Initiatives); Br. for Appellees at 37: 'the IRS was merely advising the public how it interprets the underlying statutory language'; Br. for Appellees at 27: the IRS 'did taxpayers the "favor" of promptly announcing its understanding of the statute's requirements'; Br. for Appellees at 32: 'the crucial question is whether, absent the Notice, the IRS would have an "adequate legislative basis" in the ERC statute to deny an ERC claim based on the same considerations that are articulated in the Notice' · United States (DOJ, Tax Litigation Branch)

What the court adopted. Doc. 49 at 19 ('the IRS does not appear to be making additions to the statute, but simply trying to parse the precise meaning of the specific statutory language that Congress itself has chosen'); Doc. 49 at 21 ('So long as the agency's clarification does not impose new rights and duties, it is more interpretive than legislative').

The Service's practice, by contrast. The ten-percent deeming rule and the 'more than a nominal portion' sentence applied as tests stricter than 'partially suspended'.

To be sure, the Notice explains the IRS's understanding of which businesses impacted by the pandemic fit within the definition of "eligible employer" because of governmental orders and partial suspensions--terms that might otherwise have been too vague to alert businesses to whether they were eligible for the credit. But the mere fact that an agency has issued interpretations of expansive terms does not transform the resulting guidance into a legislative rule.

Doc. 44 at 26 · United States (DOJ Tax Division)

What the court adopted. Doc. 49 at 21 (the Notice's purpose is to 'supply crisper and more detailed lines' for employers to determine whether they 'will likely qualify').

The Service's practice, by contrast. Explanations that narrow 'order' by a dictionary definition and a 'mandatory obligations on employers' gloss.

The Fifth Circuit case that [the plaintiff] cites is drawing the line between rules (which are "binding" on the agency, though they can be either interpretive or legislative) and policy statements (which are not even "binding" on the agency).

Br. for Appellees at 47; also stated at Br. for Appellees at 48: the Ninth Circuit 'concluded that the agency document would be an interpretive rule, because it would be binding on the agency' (Animal Legal Def. Fund); Br. for Appellees at 50: showing the provisions 'are binding on the IRS... would establish only that the provisions are not policy statements' · United States (DOJ, Tax Litigation Branch)

What the court adopted. Not decided in Doc. 49 (the Court held the Notice interpretive without deciding whether it binds the IRS).

The Service's practice, by contrast. Explanations that apply the Notice's exclusions (Q&A-13, -14, -18 masks) but not its affirmative pathways (Q&A-10's list including stay-at-home orders; Q&A-11; Q&A-12; Q&A-15's 'certain operations for certain purposes'; Q&A-17; Q&A-22).

But [the plaintiff] is misreading the IRS's explanation and misunderstands the import of the 10 percent. Rather than setting a threshold or a requirement, what the IRS has explained is that in its interpretation, partial suspension means something between a full suspension and no suspension. To give taxpayer's guidance then on how it will evaluate claims for refund, what the IRS has done is establish a framework that taxpayers can rely on. The 10 percent is not determinative for whether an employer has been partially suspended.

Doc. 44 at 14 · United States (DOJ Tax Division)

What the court adopted. Doc. 49 at 15 ('This Court agrees: [the plaintiff's] addition of the word "only" to the text of the answer... makes it seem like an exclusionary rule, whereas the text itself provides a baseline for business operations that will always be deemed to constitute a more-than-nominal impact on an employer's business or hours, but it still contemplates the IRS exercising discretion in determining if other employers might nonetheless qualify based on additional "facts and circumstances."').

The Service's practice, by contrast. Form 886-A sentences finding no 'more than a nominal portion' without any facts-and-circumstances evaluation (Opening Br. at 11-12, 43).

Instead, if an employer's business has been partially suspended by a governmental order that has impacted more than 10 percent of its gross receipts or employee hours, the IRS will deem that employer eligible for the ERC (FAQs 11, 17, 18). (SOF ¶ 15: AR 0971-72, 0978-84.) Effectively, this is a safe harbor; taxpayers whose gross receipts or hours have been impacted at that level can rely on the IRS not denying their ERC claim on that basis. Properly understood, it isn't an eligibility requirement. Even if a taxpayer cannot demonstrate that at least 10 percent of its business has been impacted, it can still be eligible for the ERC if under the "facts and circumstances" the business was partially suspended. (Id.) The IRS's interpretation leaves open the real possibility that a business's operations could have been partially suspended, under the facts and circumstances, even if only suffering, say, a six percent reduction in gross receipts. Properly understood, the IRS's interpretation of the statute provides taxpayers with the benefits of a safe harbor--it does not impose a threshold or place a limitation on receiving the credit.

Doc. 44 at 14 · United States (DOJ Tax Division)

What the court adopted. Doc. 49 at 15 (quoting the parallel statement in Doc. 48 at 13: '"if" an employer's business has been partially suspended by a governmental order that has impacted more than 10 percent of its gross receipts or employee hours, the IRS will deem that employer eligible for the ERC'; 'It therefore characterizes this ten-percent provision as a "safe harbor." (Id.). This Court agrees'); Doc. 49 at 26 ('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 business').

The Service's practice, by contrast. The Form 886-A sentence applying 'not less than 10 percent' as a requirement the employer 'did not substantiate' (Opening Br. at 11, quoting 3-ER-396); AM 2023-007 at 12 (Ex. GOV-004); the FAQ webpage (Ex. GOV-003).

The IRS's selection of 10 percent is based on its interpretation of what Congress meant by a partial suspension--that no less than a nominal portion (10%) of the employer's business was suspended. And unlike the USDA's 8-foot fence requirement in Hoctor, the IRS did not say that a taxpayer cannot qualify for the ERC if they have been impacted less than 10 percent. Instead, the IRS provided that number as a safe harbor while still allowing the possibility for eligibility for those whose percentage might be less under the facts and circumstances (supra pp. 6-7).

Doc. 44 at 28 · United States (DOJ Tax Division)

What the court adopted. Doc. 49 at 17 (quoting the passage verbatim and holding 'the ten-percent threshold is "subject to rebuttal"').

The Service's practice, by contrast. Explanations that treat the absence of a ten-percent showing as dispositive.

The IRS's interpretation of that term, to mean a nominal amount falling somewhere between 0 and 100, and its resulting decision to deem employers eligible if they suffered 10 percent or greater impact to their business, reflect reasoned analysis (supra pp. 6-8).... And the 10 percent line isn't the limit or threshold that [the plaintiff] makes it out to be. Rather, it exists only as a safe harbor; taxpayers can still establish eligibility if, under the facts and circumstances, they demonstrate their business was partially suspended even if it was to a lesser degree.

Doc. 44 at 29-30 · United States (DOJ Tax Division)

What the court adopted. Doc. 49 at 26 (citing Doc. 44 at 29; 'not an exclusionary cut-off point, but rather a safe harbor'; any percentage line 'is necessarily somewhat arbitrary' but not arbitrary and capricious).

The Service's practice, by contrast. The 'has not established that more than a nominal portion' sentence pattern.

Furthermore, as the District Court correctly concluded, the "10 percent" provision simply establishes a "safe harbor." (1-ER-15-16.) The language of the Notice speaks of sufficient--though not necessary--conditions in which it "will be deemed" that more than a nominal portion of a business's operations have been suspended.... Thus, if a business satisfies the 10 percent provision, then it will be deemed to have suffered a "more than nominal"--and thus at least "partial"--suspension. (1-ER-15-16.) That is a quintessential safe harbor. In reading the 10 percent provision otherwise, [the plaintiff] erroneously swaps an "if" with an "only if," as the District Court correctly explained, (1-ER-15-16.). And as a safe harbor, the 10 percent provision is conclusively an interpretive rather than legislative rule because it merely provides ERC claimants with a guideline to ensure they will meet the pre-existing eligibility requirement that their trade or business be "fully or partially suspended."

Br. for Appellees at 37-38; also stated at Br. for Appellees at 37: a safe harbor is a 'nonexclusive objective test' (quoting Betts, 492 U.S. at 172); Br. for Appellees at 50: 'That a rule establishes a safe harbor is sufficient, but not necessary, to make it an interpretive rule.' · United States (DOJ, Tax Litigation Branch)

What the court adopted. Doc. 49 at 15-16 (as the brief itself cites: 1-ER-15-16), 17, 26.

The Service's practice, by contrast. Any explanation that applies the ten-percent sentence as an 'only if'.

[the plaintiff] also disputes that the "10 percent" provision establishes a safe harbor, but as we have explained, [the plaintiff] is wrong: the District Court correctly held that it is a safe harbor rather than a hard floor. (1-ER-15-17.)

Br. for Appellees at 49 · United States (DOJ, Tax Litigation Branch)

What the court adopted. Doc. 49 at 15-17, 26.

The Service's practice, by contrast. Explanations that function as a floor (no percentage finding; no facts-and-circumstances finding).

The view that even a partial suspension must be more than a "nominal" or de minimis suspension is readily derived from the statute's use of the phrase "fully or partially suspended" (as opposed, to say, the phrase "suspended to any degree").

Br. for Appellees at 35 · United States (DOJ, Tax Litigation Branch)

What the court adopted. Doc. 49 at 15-17 (nominal as the floor below the safe harbor); Tri-State at 10-11 ('more than nominal' is not 'significant').

The Service's practice, by contrast. Explanations that make no finding that the compelled changes were de minimis.

Rather, in this case, as the District Court correctly observed, "no facts or data" are needed to reasonably interpret a statutory phrase like "fully or partially suspended." (See 1-ER-25-26.)... But that sort of arbitrariness inheres in drawing any lines based on a percentage or amount (after all, one could always ask: why not one percentage point more, or less).

Br. for Appellees at 54, 56; also stated at Br. for Appellees at 53: 'Data and factual findings are simply inapposite to the "reasonableness" of this particular interpretive endeavor.' · United States (DOJ, Tax Litigation Branch)

What the court adopted. Doc. 49 at 24 (quoting Doc. 48 at 17-18 n.8: 'No facts or data are required--or would even be relevant--for that analysis'); Doc. 49 at 25 ('no identifiable factual evidence to consider--just the text of the statute'); Doc. 49 at 26 (percentage line 'necessarily somewhat arbitrary' but upheld because it 'is not an exclusionary cut-off point').

The Service's practice, by contrast. Explanations that apply the ten percent figure as a fixed measure of what is 'nominal' for an industry the Service never studied.

Indeed, many of the Notice's interpretations are taxpayer friendly, including some of those that [the plaintiff] complains about (interpreting a supply chain exception, providing a safe harbor for partial suspension).

Doc. 44 at 33 · United States (DOJ Tax Division)

What the court adopted. Doc. 49 at 27 (guidance appropriate given the pressure to issue it).

There, the IRS explained that an employer "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 governmental order." (SOF ¶ 15: AR 0971-72.)

Doc. 44 at 13 · United States (DOJ Tax Division)

What the court adopted. Doc. 49 at 14 (quoting Doc. 48 at 12: the guidance 'reflects a safe harbor and allows for a facts and circumstances eligibility determination'; quoting the Q&A-11 text); Doc. 49 at 15 ('the IRS will consider the "facts and circumstances"' (quoting Doc. 48 at 13); 'This Court agrees'); Tri-State at 9-10 (the United States itself used Q&A-11 as the interpretive aid and the court adopted its 'more than nominal' formulation).

The Service's practice, by contrast. The 'was an essential business' sentence pattern, offered as if the designation answered the claim.

[the plaintiff] objects that the Notice does not allow for a case-by-case determination of compliance with the statute's partial suspension requirement. (MSJ, 17:19-23.) This is incorrect. An employer can demonstrate eligibility if it can show, under the facts and circumstances, it was partially suspended (supra p. 7). That is done on a case-by-case basis.

Doc. 44 at 30 n.7 · United States (DOJ Tax Division)

What the court adopted. Doc. 49 at 15-16 (the Notice 'still contemplates the IRS exercising discretion'; 'So long as the agency ultimately retains its discretion with respect to application of this "nominal effects" test').

The Service's practice, by contrast. The form Letter 105C sentence ('Our records indicate there were no government orders... in effect'), which reflects no case-specific analysis of any employer's orders or operations.

[the plaintiff] points out that the IRS has relied on a failure to comply with Notice 2021-20 in denying some ERC claims. (MSJ,14:26-27, 15:24-25.) Because the Notice explains how the IRS interprets the law in evaluating claims, this isn't surprising. Even more, one would hope that the IRS is indeed evaluating ERC claims consistent with the explanations it has offered the public. Still, the reasons offered in the letters [the plaintiff] identified don't change the legal analysis and cannot give anything the force of law.

Doc. 44 at 24 n.4 · United States (DOJ Tax Division)

What the court adopted. Doc. 49 at 16 (quoting the sentence and relying on it: 'So long as the agency ultimately retains its discretion with respect to application of this "nominal effects" test, this weighs against a finding that it constitutes a legislative rule.').

The Service's practice, by contrast. Letters applying the Notice as a threshold rather than 'consistent with the explanations it has offered the public' (safe harbor; facts and circumstances; case by case).

Still, the answer to [the plaintiff's] question lies first in the statute, which provides that employers who suffered a cumulative burden were eligible to claim the ERC if it resulted in a significant decline in gross receipts. Or, second, as explained in the Notice, if under the facts and circumstances, the employer also can show a partial suspension.

Doc. 44 at 30 · United States (DOJ Tax Division)

What the court adopted. Consistent with Doc. 49 at 15-17; not specifically addressed.

The Service's practice, by contrast. Explanations that evaluate each order or modification in isolation.

The plain text of Notice 2021-20 confirms that the Notice neither adds to, nor alters in any way, taxpayers' obligations to maintain records to substantiate its entitlement to ERCs under the relevant statute and regulations--it simply reiterates the statutory requirement to do so. The Notice merely provides that a taxpayer "will adequately substantiate" its eligibility for the ERC if it maintains certain records. Nowhere does the Notice state that a taxpayer must maintain those specific records, much less that it is subject to penalties if it fails to do so.

Doc. 44 at 16 · United States (DOJ Tax Division)

What the court adopted. Doc. 49 at 18-19 (quoting Doc. 44 at 15-16; 'FAQs 70 and 71 merely "clarify," but do not create anew, an existing and underlying statutory duty').

The Service's practice, by contrast. Explanations that exclude categories of evidence ('Assumptions, vague statements, and news articles are insufficient') or demand a three-part documentary showing under Q&A-70.

Second, the guidance in the Notice is not mandatory. It identifies what is sufficient--without dictating what is necessary--by specifying what kinds of documentation "will adequately substantiate eligibility" for the ERC. (3-ER-343.)... And because IRS employees can still exercise their discretion to conclude that a taxpayer has substantiated its eligibility for the ERC using other documentation, the provision is not even "binding" on employees in the narrow way [the plaintiff] (mistakenly) focuses on.

Br. for Appellees at 44-45; also stated at Br. for Appellees at 43-44: 'An ERC claimant need not submit this documentation with its credit claim; rather, the documentation must be maintained by the taxpayer and made available to the IRS in case it seeks substantiation of the claim.'; Br. for Appellees at 44: 'The Notice does no more than describe what will constitute "a complete and detailed record" for an ERC claim, specifically.' · United States (DOJ, Tax Litigation Branch)

What the court adopted. Doc. 49 at 18-19 (Q&A-70 interpretive); Doc. 49 at 15-16 (discretion retained).

The Service's practice, by contrast. Explanations that record no exercise of discretion on the employer's evidence.

MS. MATCHISON: I think they're -- they're doing more follow-up, Your Honor, with the taxpayers about the amount of gross receipts; what sort of state, local, or government orders they're relying upon in claiming the ERC. They're requiring more information about the number of employees they had on their payroll to make sure that they qualified. Things like that, Your Honor. THE COURT: So they're doing what they should have been doing all along? MS. MATCHISON: Yes, Your Honor.

Tr. 51:1-10 · Amy T. Matchison, Esq., U.S. Department of Justice, counsel for the United States; the Court

What the court adopted. Not addressed in Doc. 49 (moratorium counts dismissed by stipulation, Doc. 49 at 5).

The Service's practice, by contrast. Form Letter 105C sentences issued without any request to the employer for the orders it relied upon.

the IRS is now taking a closer look at every single claim.... I do believe they are taking -- I know they are; they have said this publicly -- a harder look at every single claim to make sure --... It's not that it's not doing it; it's just that processing and examining these claims is taking a long time.

Tr. 16:9-10; 50:15-18; 43:21-23; also stated at Tr. 43:15-17: 'the IRS is attempting to perform its function diligently'; Tr. 35:2-4: THE COURT: 'So is it your position that all claims filed will be processed at some point?' MS. MATCHISON: 'Yes, Your Honor.'; Tr. 16:11-15: claims processed 'on a first-in, first-out basis' · Amy T. Matchison, Esq., counsel for the United States

What the court adopted. Not addressed in Doc. 49.

The Service's practice, by contrast. The form recital 'Our records indicate' set against the United States' own description of a claim-by-claim examination.

So in the most recent press release, the IRS made clear that they analyzed data from more than a million ERC claims, which represented about $86 billion in claims. And what they found is that 10 to 20 percent of those claims were high risk, meaning they showed clear signs of being erroneous claims; 60 to 70 percent of those claims kind of fell in this unacceptable risk category; while only 10 to 20 percent of claims were low risk. And so I think that what you see is that the IRS is taking a look at this, and they're trying to figure out the best way forward given the fact that a large number of these claims may not be eligible.

Tr. 37:19-38:5; also stated at Tr. 37:4-9: 'review the data from about a million claims. They digitized and took a look at --'; Tr. 49:12-16: the moratorium 'allowed them the time to digitize those 1 million claims and take a look at what they were doing so they can come up with an approach --' · Amy T. Matchison, Esq., counsel for the United States

What the court adopted. Not addressed in Doc. 49.

The Service's practice, by contrast. Letters generated from analytics rather than from the orders in force in the quarter.

On that list were "orders, proclamations, or decrees from the Federal government or any State or local government" if they limited "commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to the coronavirus disease."... The IRS stated that "[w]hether the operations of a trade or business are considered essential or non-essential will often vary from jurisdiction to jurisdiction," and that employers should determine whether they are operating essential or non-essential business by looking to the governmental order affecting is operations.

Doc. 44 at 12 · United States (DOJ Tax Division)

What the court adopted. Doc. 49 at 13-14 (Q&A-10 'provides a natural interpretation of the plain meaning of the statutory text').

The Service's practice, by contrast. The 'was considered an essential business under a governmental order' sentence pattern that identifies no order.

First, the IRS's interpretation of "governmental orders" did not set eligibility requirements or narrow the ERC program. Congress, not the IRS, determined, for example, that a governmental order had to suspend an eligible employer's business operations and that a voluntary suspension of business operations also wouldn't qualify.... The IRS has not added eligibility requirements or narrowed the ERC program in its interpretation of the statute's use of governmental orders.

Doc. 44 at 13 · United States (DOJ Tax Division)

What the court adopted. Doc. 49 at 13-14, 19.

The Service's practice, by contrast. Explanations that add a 'mandatory obligations on employers' gloss to the word 'orders'.

The statute focuses ERC eligibility on business operations and not on customer behavior. So, for instance, employees having to wear face masks may impact business operations, but requirements that customers wear masks are not considered. Those positions are not contradictory and are consistent with the statute's language. Similarly, orders that were otherwise directed at business operations (operational hours, space, etc.) would also be considered but not stay-at-home orders to the public.

Doc. 44 at 30 · United States (DOJ Tax Division)

What the court adopted. Not addressed as such. Doc. 49 at 25-26 holds only that the IRS considered the issue. The statement is the United States' position, not a holding.

The Service's practice, by contrast. Explanations that dismiss employee mask, screening, distancing and capacity requirements categorically as 'modifications' that 'do not rise to the level of a partial suspension'.

Even still, the IRS qualified this response, acknowledging that 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 purposes. Id. This interpretation again makes sense and is consistent with the limitation in the statute.

Doc. 44 at 15 · United States (DOJ Tax Division)

What the court adopted. Doc. 49 at 17-18 (partial-suspension Q&As 'comport with the plain text of the statute').

The Service's practice, by contrast. The 'business operations were able to continue and were only subject to modification' sentence pattern.

For example, the Notice explains that a business may be suspended "due to" a government order addressing a third party (such as an order that suspends the operations of a supplier of the business). (3-ER-271.) [n.5:] But the rule never even mentions a "physical clos[ure]" order against the supplier.

Br. for Appellees at 41 & n.5 · United States (DOJ, Tax Litigation Branch)

What the court adopted. Not specifically addressed; Doc. 49 at 13-14 upholds Q&A-10's jurisdiction reading, and Doc. 49 at 18 holds the partial-suspension Q&As interpretive.

The Service's practice, by contrast. Explanations stating that 'no governmental order applies to the employer's operations' where the operative orders bound suppliers, customers, venues, carriers or regulators.

The limits of the phrase "due to," or what is often called "traceability," are hardly self-evident.

Br. for Appellees at 42 · United States (DOJ, Tax Litigation Branch)

What the court adopted. Doc. 49 at 17-18; superseded on the meaning of 'due to' by Tri-State at 17-19 (the United States agreed 'due to' means 'because of'; but-for causation).

The Service's practice, by contrast. Explanations that apply causation categorically ('does not constitute'; 'does not rise to the level') without analyzing the orders in force.

And finally, the Notice also interprets the "due to" requirement to exclude circumstances where even though an employer's workplace is closed due to a government order, the employer could nonetheless, with telework, "continue operations comparable to its operations prior to the closure" but chooses not to. (See 3-ER-273-76.)

Br. for Appellees at 41-42; also stated at Br. for Appellees at 54-55: the JCT accounting-firm example 'appears to presuppose that the firm requires employees who can work from home to work from home'; the IRS 'may even have been more generous than Congress at times' (the brief cites 'Q & A no. 12' for the comparable-operations rule; the rule is Q&A-15 and -16) · United States (DOJ, Tax Litigation Branch)

What the court adopted. Doc. 49 at 18 ('if a business has the capability to continue its operations in a modified manner but chooses not to, it is voluntarily suspending its own operations, not being ordered to do so').

The Service's practice, by contrast. Explanations that recite the Q&A-15/16 factors without applying them, or apply them to hands-on work that cannot be performed remotely.

The tax credit was designed to encourage employers impacted by the COVID-19 pandemic to keep employees on their payroll.... In general, entitlement to the ERC turns on whether an employer's business (1) is of an eligible type and (2) either (A) was at least partially suspended due to government orders addressing the pandemic and limiting commerce, travel or group meetings, or (B) faced a marked decline in gross receipts compared to the same time of year in 2019.

Br. for Appellees at 3, 4-5 · United States (DOJ, Tax Litigation Branch)

What the court adopted. Doc. 49 at 2 (undisputed: the credit 'provides a tax credit to employers whose business operations were adversely affected by COVID-19, but who still paid qualified wages').

The Service's practice, by contrast. Explanations that describe the credit as available only 'during periods when the employer's trade or business was partially shutdown' -- a gloss narrower than the statute and than the United States' own formulation.

But under the IRS's interpretation, 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) or if the suspension of its supplier's business caused a significant decline in its business under the gross receipts test.... Likewise, in FAQ 12 the IRS explains that "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."

Doc. 44 at 13 n.3, 15 · United States (DOJ Tax Division)

What the court adopted. Doc. 49 at 17-18 (the partial-suspension Q&As 'comport with the plain text'); Br. for Appellees at 41 & n.5 (a business 'may be suspended "due to" a government order addressing a third party'; no 'physical closure' of the supplier required).

And for disputes like this one, about the conditions of eligibility for a tax credit, the APA gives way to the specialized judicial review provisions of the Tax Code, which provide the exclusive mechanism for obtaining judicial review of the Notice--namely, a refund suit brought by a taxpayer whose ERC claim was denied. Indeed, the District Court agreed that a taxpayer claiming the ERC--and taking issue with the same provisions of the Notice with which [the plaintiff] takes issue--could challenge those provisions only by filing a tax refund suit as prescribed by the Tax Code.... [the plaintiff] is free to assist its clients whose ERC claims have been disallowed to bring such refund suits challenging the Notice.

Br. for Appellees at 11, 16 · United States (DOJ, Tax Litigation Branch)

What the court adopted. Doc. 49 at 9, 20; the United States appeals only the holding that [the plaintiff] itself may proceed under the APA.

The Service's practice, by contrast. Explanations that treat Q&A-11 through -18 as settled; the United States told the Ninth Circuit those provisions remain open to challenge by every taxpayer in a refund suit.

The United States does not disagree that once a refund has been determined to be appropriate, the IRS must pay it out. But that is not a statutory command that the IRS process ERC claims for refund on a certain timeline.... [the plaintiff] argued in its reply that under 6402, the IRS has a statutory duty to issue refunds, and the United States does not disagree with that statement of the statute. But what needs to be made clear is that the statutory duty comes into play only after the IRS has determined a taxpayer is entitled to a refund.

Tr. 40:9-12; 66:3-8; also stated at Tr. 40:1-5: section 6402(a) 'absolutely imposes a duty upon the IRS to pay out a refund once it's been determined a taxpayer is entitled to a refund'; Tr. 65:25-66:1: 'The IRS has not stopped issuing refunds under Section 6402(a)' · Amy T. Matchison, Esq., counsel for the United States

What the court adopted. Not reached in Doc. 49.

The Service's practice, by contrast. None directly; frames the consequence of a determination in the employer's favor.

Your Honor, I don't believe there is that authority, but I don't believe that's what's happening here.... There is -- I think this is one of the fundamental misunderstandings from plaintiff's side, is that there is -- there has been no cancellation. There has been no suspension of a tax program here.... I think what the IRS is trying to do is to grapple with its responsibilities here in trying to both protect small business owners that do have meritorious claims and making sure they get paid at the same time as protecting the public fisc. And so as the IRS is balancing those things, it's trying to figure out the best way to move forward to make sure the folks that are entitled to the money get the money and that U.S. taxpayers aren't sending out money to folks that aren't entitled to it.

Tr. 42:17-43:1; 36:14-22; also stated at Tr. 36:10-13: 'the IRS is not looking to chill anyone's rights or have anyone's meritorious claim not be brought or submitted to the IRS' · Amy T. Matchison, Esq., counsel for the United States

What the court adopted. Not reached in Doc. 49.

The Service's practice, by contrast. Form letters issued without the follow-up the United States described (Tr. 51:1-7).

It's the IRS's position that special statutory rules for the ERC work in a way similar to having a right or reasonable expectation of reimbursement for qualified wage expenses. Therefore, an employer should take into account the previously disallowed wage expense in the tax year during which it is finally determined that it is not entitled to the ERC. An employer should not file an amended income tax return to claim a refund for the tax year in which the qualified wages were paid or incurred; and an employer should not file a protective claim for refund for the tax year in which the qualified wages were paid or incurred, because under the substantive law, no refund is allowable for that year.

Tr. 67:7-18 · Amy T. Matchison, Esq., counsel for the United States

What the court adopted. Not addressed in Doc. 49.

The Service's practice, by contrast. Any letter observation about amended income tax returns.

Because once a taxpayer submits a claim, if it's found to be ineligible, penalties and interest can accrue to them. And so there's a very real cost to them of filing this.

Tr. 61:20-23 · Amy T. Matchison, Esq., counsel for the United States

What the court adopted. Not addressed in Doc. 49.

The Service's practice, by contrast. None; these analyses's penalty Part (: substantial authority; reasonable cause; § 6676 as amended; § 6702) is affirmative.

Both Plaintiff and Defendant agree that the plain meaning of "due to" is "because of." ECF Nos. 28 at 15; 32 at 19-21. The meaning is plain and unambiguous.... Defendant's interpretation improperly adds words into the statute. It asks us to add words to the law to produce what is thought to be a desirable result.... Accordingly, the Court recognizes that "due to" requires "but-for" causation.

Tri-State at 17, 19 (reciting ECF No. 28 at 15) · District Court (Rice, J.), reciting the United States' agreed position and rejecting its gloss

What the court adopted. Tri-State at 17-19 (holding).

The Service's practice, by contrast. Explanations that require an order 'directed at' the employer or that treat an order's effect through customers, suppliers or workforce as too remote.

However, only the definition of "suspension" as "[t]he act of temporarily delaying, interrupting, or terminating something," or "[t]he state of such delay, interruption, or termination" is clearly agreed upon. ECF Nos. 28 at 8; 32 at 9 (quoting Suspension, Black's Law Dictionary (12th ed. 2024).... Additionally, Defendant continues that "[a] `full suspension' is thus a temporary but entire cessation of business operations" and "[a] `partial suspension' signifies a temporary cessation of a portion of operations." Id. Based on the parties agreed upon definitions, the plain text of the statute, and the ordinary dictionary definitions, a "partial suspension" is a temporary delay, interruption, or termination of a portion an employer's business. The language is plain

Tri-State at 8-9 (reciting ECF No. 28 at 8) · District Court (Rice, J.), reciting the United States' position

What the court adopted. Tri-State at 9-10 (holding; the 'more than nominal' gloss from Q&A-11 adopted as persuasive because it 'does not contradict the agreed-upon definitions').

The Service's practice, by contrast. Explanations equating 'suspension' with 'shutdown' or 'closure'.

Defendant states that because the statute does not define "partially suspended", it should be interpreted using the plain meaning, statutory context, and administrative guidance. ECF No. 28 at 7; 26 U.S.C. § 3134. Defendant contends that Plaintiff "does not allege cessation of a significant portion of its operations." ECF No. 28 at 10. Neither party claims that any part of the statute is ambiguous.

Tri-State at 8 (reciting ECF No. 28 at 7, 10) · District Court (Rice, J.), reciting the United States' position

What the court adopted. Tri-State at 9 ('The language is plain'); 11 ('Until the language is deemed ambiguous, the Court does not look to legislative history').

The Service's practice, by contrast. Explanations that rest on the JCT explanation, the section title or a GLAM.

For example, Defendant used IRS Notice 2021-20, where the IRS provided additional information regarding the ERC.... The IRS clarified, "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." Id. This guidance clearly provides insight into how the ERC should be interpreted and considered. Accordingly, the Court recognizes its persuasiveness to this issue. The Court will adopt this interpretation because it does not contradict the agreed-upon definitions of the parties.... Defendant attempts to conflate "more than nominal" to suggest that it means "significant" and must "surpass basic economic impact that all employers faced during the pandemic." ECF No. 28 at 8-10. However, the plain language and ordinary meaning of partial and nominal do not suggest either of those interpretations.

Tri-State at 9-11 (reciting ECF No. 28 at 8-10) · District Court (Rice, J.), reciting the United States' position and ruling

What the court adopted. Tri-State at 10-11 (holding).

The Service's practice, by contrast. Explanations requiring a 'significant' suspension or an effect beyond what 'all employers' faced.

However, even Defendant's own argument is contradictory. "Under the Gross Receipts Test, an employer who did not experience even a partial suspension of operations but had a certain reduction in gross receipts during the pandemic would qualify for the same amount of ERC as if a government order had suspended the employer's operations." ECF No. at 3.... Considering the Gross Receipts Test is by Defendant's admission, another method to qualify under for the credit, the fact an employer can be eligible and affected without partial or full suspension is reasonable. This does not make the Gross Receipts Test superfluous with the plain language interpretation of "partial suspension" but instead logical within the scope of the act.

Tri-State at 13 (reciting the United States' motion at 3; docket number omitted in the order) · District Court (Rice, J.), reciting the United States' position and ruling

What the court adopted. Tri-State at 12-13 (holding).

The Service's practice, by contrast. Letters that treat a gross-receipts sentence as if it answered a suspension claim.

Additionally, this interpretation is supported by [the plaintiff] v. United States Internal Revenue Serv., 2025 WL 1725942, at *8 (D. Ariz. June 20, 2025) which both parties used for support.... As a result, Plaintiff's failure to allege facts that meets this threshold does not result in a failure to state a claim. If the court were to do this, it would read requirements into the statute that do not exist. Instead, the IRS Notice provides a method for the test to be met not as a requirement to meet the test.

Tri-State at 16 (reciting ECF No. 28 at 10 and ECF No. 32 at 13-14) · District Court (Rice, J.), reciting both parties' reliance and ruling

What the court adopted. Tri-State at 15-16 (holding).

The Service's practice, by contrast. The Form 886-A ten-percent sentence applied as a requirement (Opening Br. at 11, 43).

Defendant states that COVID-19 was the cause and not the government orders. ECF No. 28 at 18-19.... This is partially true. Some of the interruptions and diversions were caused by COVID-19 illness, however, the required protocols and procedures to comply with the Proclamation were not. The Proclamation provided the guidance and procedures that the businesses were required to adhere to and follow to be compliant with the order. Sick patients and employees alone did not require additional protocols. Based on this argument, there are not many businesses or any business that would be eligible under the ERC at all. Therefore, this argument fails.

Tri-State at 20-21 (reciting ECF No. 28 at 18-19 and ECF No. 37 at 8-9) · District Court (Rice, J.), reciting the United States' position and ruling

What the court adopted. Tri-State at 20-21 (holding).

The Service's practice, by contrast. Explanations attributing every operational change to 'the pandemic' or to 'recommendations' rather than to the orders that compelled it.

But, as noted above, the IRS issued the notice to comply with the statutory mandate that it issue "such forms, instructions, regulations, and other guidance as are necessary... to prevent the avoidance of the purposes of the limitations under this section." I.R.C. § 3134(m)(3) (emphasis added).... That the IRS followed a statutory mandate for providing guidance does not convert the guidance to a legislative rule.

Doc. 44 at 31; also stated at Br. for Appellees at 5: 'This authority included "prevent[ing] the avoidance of the purposes of the limitations" on eligibility set forth in the ERC statute.' · United States (DOJ Tax Division)

What the court adopted. Doc. 49 at 26-27 (not beyond statutory authority because the Notice is interpretive and 'carries no force of law').

The Service's practice, by contrast. Explanations that treat the Notice as the source of eligibility conditions.