We do not believe that the Employee Retention Credit is available to an essential business (such as a bank) on the basis of a voluntary suspension of the business or reduction of hours — although such a business may qualify for the credit on the basis of a modification of its operations in response to a governmental order.

Under the CARES Act, employers must satisfy one of two conditions to qualify for the Employee Retention Credit: (1) the employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter, or (2) the employer’s gross receipts for a calendar quarter in 2020 are below 50% of its gross receipts for the comparable quarter in 2019.

We believe it is unlikely that an Illinois bank that voluntarily closed its lobby would qualify under the first category, since the Illinois Governor’s stay-at-home Executive Order provided that banks are “essential businesses” that are “encouraged to remain open.” The IRS has released FAQs confirming that “an employer that voluntarily suspends operation of a trade or business or reduces hours and is not subject to any governmental orders that restrict its operations is not eligible for the Employee Retention Credit on the basis of a full or partial suspension of its operations due to a governmental order.” This is true even if a governmental order causes the customers of an essential business to stay at home. Consequently, a bank that voluntarily closed its lobbies in response to the COVID-19 pandemic likely would not qualify for the Employee Retention Credit on this basis.

However, a bank that kept its lobby open but limited the number of customers allowed to enter the lobby in compliance with a governmental order restricting occupancy may qualify — provided the modification had more than a “nominal effect” on the bank’s business operations under the facts and circumstances. It appears that showing a more than nominal effect would be a high bar for a bank or similar establishment; the IRS’s FAQs provide an example of a retail store that was open but due to a governmental order could admit only a specified number of customers based on the store’s square footage. In this example, the store’s customers had to wait in line for a short period before entering the store, which the IRS did not consider to have had more than a nominal effect on the business’s operations.     

For banks in Illinois, the April 30 stay-at-home Executive Order provided that retail stores designated as essential businesses should “to the greatest extent possible . . . cap occupancy at 50 percent of store capacity, or, alternatively, at the occupancy limits based on store square footage set by the Department of Commerce and Economic Opportunity.” Since the IDFPR’s Division of Banking has advised that banks should follow the same guidelines as retail stores, we believe that a bank that capped the occupancy of its lobbies in compliance with this or subsequent Executive Orders may qualify for the Employee Retention Credit on the basis of a partial suspension of business operations — provided this modification had more than a nominal effect on the bank’s operations.

Additionally, a bank still may qualify for the Employee Retention Credit if its gross receipts for a calendar quarter in 2020 fell below 50% of its gross receipts for the comparable quarter in 2019.

For resources related to our guidance, please see:

• IRS, Employee Retention Credit available for many businesses financially impacted by COVID-19 (March 31, 2020) (“The credit is available to all employers regardless of size, including tax-exempt organizations. There are only two exceptions: State and local governments and their instrumentalities and small businesses who take small business loans. Qualifying employers must fall into one of two categories: 1. The employer's business is fully or partially suspended by government order due to COVID-19 during the calendar quarter. 2. The employer's gross receipts are below 50% of the comparable quarter in 2019. Once the employer's gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter. These measures are calculated each calendar quarter.”)

• CARES Act, Section 2301(c)(2)(A) (“The term ‘eligible employer’ means any employer—

(i) which was carrying on a trade or business during calendar year 2020, and

(ii) with respect to any calendar quarter, for which—

• (I) the operation of the trade or business described in clause (i) is fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to the coronavirus disease 2019 (COVID–19), or
• (II) such calendar quarter is within the period described in subparagraph (B).”)

• CARES Act, Section 2301(c)(2)(B) (“The period described in this subparagraph is the period—

(i) beginning with the first calendar quarter beginning after December 31, 2019, for which gross receipts (within the meaning of section 448(c) of the Internal Revenue Code of 1986) for the calendar quarter are less than 50 percent of gross receipts for the same calendar quarter in the prior year, and

(ii) ending with the calendar quarter following the first calendar quarter beginning after a calendar quarter described in clause (i) for which gross receipts of such employer are greater than 80 percent of gross receipts for the same calendar quarter in the prior year.”)

• Illinois Executive Order 2020-10 (March 20, 2020) (“All businesses and operations in the State, except Essential Businesses and Operations as defined below, are required to cease all activities within the State except Minimum Basic Operations, as defined below. . . . All Essential Businesses and Operations are encouraged to remain open. . . . For the purposes of this Executive Order, Essential Businesses and Operations means . . . the following: . . . banks . . .”)

• Illinois Executive Order 2020-10 (March 20, 2020) (“Essential Businesses and Operations and businesses engaged in Minimum Basic Operations must take proactive measures to ensure compliance with Social Distancing Requirements, including where possible:

i. Designate six-foot distances. Designating with signage, tape, or by other means six-foot spacing for employees and customers in line to maintain appropriate distance;

ii. Hand sanitizer and sanitizing products. Having hand sanitizer and sanitizing products readily available for employees and customers;

iii. Separate operating hours for vulnerable populations. Implementing separate operating hours for elderly and vulnerable customers; and

iv. Online and remote access. Posting online whether a facility is open and how best to reach the facility and continue services by phone or remotely.”)

• Illinois Executive Order 2020-18 (April 1, 2020) (“Executive Order 2020-10 is continued and extended in its entirety for the duration of the Gubernatorial Disaster Proclamations, which currently extends through April 30, 2020.”)

• Illinois Executive Order 2020-32 (April 30, 2020) (“All businesses and operations in the State, except Essential Businesses and Operations as defined below, are required to cease all activities within the State except Minimum Basic Operations, as defined below. . . . All Essential Businesses and Operations may remain open consistent with the express provisions of this Order . . . For the purposes of this Executive Order, Essential Businesses and Operations means . . . the following: . . . banks . . .”)

• IRS, FAQs: Employee Retention Credit under the CARES Act (“29. If an employer voluntarily suspends operation of a trade or business or reduces hours due to COVID-19, even though that is not required by a governmental order, is the employer eligible to receive the Employee Retention Credit? An employer that voluntarily suspends operation of a trade or business or reduces hours and is not subject to any governmental orders that restrict its operations is not eligible for the Employee Retention Credit on the basis of a full or partial suspension of its operations due to a governmental order. However, an employer that voluntarily suspends operations due to COVID-19 may be eligible for the Employee Retention Credit if it experiences a significant decline in gross receipts.”)

• IRS, FAQs: Employee Retention Credit under the CARES Act (“32. If a governmental order causes the customers of an essential business to stay at home is the essential business considered to have a suspension of operations? No.  An employer that operates an essential business that is not required to close its physical locations or otherwise suspend its operations is not considered to have a full or partial suspension of its operations for the sole reason that its customers are subject to a government order requiring them to stay at home. The employer may be considered an Eligible Employer and may be eligible for the Employee Retention Credit if it experiences a significant decline in gross receipts.”)

• IRS, FAQs: Employee Retention Credit under the CARES Act (34. If a governmental order requires an employer to close its workplace for certain purposes, but the workplace may remain operational for limited purposes, is the employer considered to have a suspension of operations? (updated June 19, 2020) Yes. If an employer’s workplace is closed by a governmental order for certain purposes, but the employer’s workplace may remain open for other purposes or the employer is able to continue certain operations remotely, the employer’s operations would be considered to be partially suspended. However, if all of an employer’s business operations may continue, even if subject to modification (for example, to satisfy distancing requirements), such a modification of operations is not considered to be a partial suspension of business operations due to a governmental order, unless the modification required by the governmental order has more than a nominal effect on the business operations under the facts and circumstances.”)

• IRS, FAQs: Employee Retention Credit under the CARES Act (“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. 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 location 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 because the governmental order requiring enforcement of social distancing guidelines does not have more than a nominal effect on its operations.”)

• Illinois Executive Order 2020-32 (April 30, 2020) (“Retail stores (including, but not limited to, stores that sell groceries and medicine, hardware stores, and greenhouses, garden centers, and nurseries) designated as Essential Businesses and Operations under this Order shall to the greatest extent possible: . . . cap occupancy at 50 percent of store capacity, or, alternatively, at the occupancy limits based on store square footage set by the Department of Commerce and Economic Opportunity . . .”)