ERC Opinions Yield Mixed Results For Essential Businesses

June 2, 2026 - 07:14

Two recent decisions from the U.S. Court of Appeals for the Federal Circuit have left employers and tax professionals uncertain about how to prove eligibility for the Employee Retention Credit. On May 28, 2026, the court issued opinions in two separate cases that applied different standards for the "causation" requirement, a key hurdle for businesses claiming the credit.

In one case, the judges ruled that a business must show a direct link between government orders and a decline in revenue. The other case allowed a looser standard, where a business only needed to demonstrate that operations were partially suspended due to a government mandate, even if the financial impact was indirect. The conflicting rulings mean that essential businesses, such as grocery stores and healthcare providers, may face different outcomes depending on the specific facts of their claim.

Tax experts warn that the lack of a uniform standard could lead to more litigation and delays in processing refunds. The ERC was created during the pandemic to help businesses keep employees on payroll, but the IRS has been aggressive in auditing claims. Until the Federal Circuit clarifies its position or the Supreme Court steps in, businesses should carefully document how government orders directly affected their operations. The rulings highlight the ongoing complexity of claiming pandemic-era tax relief.