In plain terms: this page sets out the legal standards that decide an Employee Retention Credit dispute once it leaves the Service's letters and reaches a court, and it measures an orders-based claim against each of them. If you sue for your refund, the court starts over and decides your entire liability on the evidence before it. You win by showing that your position is more likely right than wrong, which is the lowest standard the law uses. Fraud is the Government's burden, and the Government must prove it by clear and convincing evidence. The penalty rules ask whether your position had "substantial authority" or a "reasonable basis," and whether you acted with reasonable cause and in good faith. A claim built on the governmental orders that were in force, read against the words Congress wrote, meets every one of these standards. The orders themselves are public records that a court takes notice of without further proof.
Every finding, under the standard that governs it
Every finding in this analysis is established under the standard that governs it. The refund forum redetermines the entire liability de novo on the evidence before the court; the employer's burden is a preponderance; fraud is the Government's burden by clear and convincing evidence, and nothing in a claim founded on the public record supports it; the positions this analysis takes have substantial authority many times over and a reasonable basis by any measure; a taxpayer who assembled the orders that governed its industry and applied the statute's words to them acted with reasonable cause and in good faith; the erroneous-claim penalty does not reach such a claim; and a position that applies the words Congress wrote to the Federal Register and the State registers is not frivolous. The orders themselves are public records subject to judicial notice. The positions were correct when taken and are correct now.1
| Standard | What it requires | Authority |
|---|
| The refund suit | The court redetermines the entire liability de novo; the taxpayer proves the overpayment and its amount | Lewis v. Reynolds, 284 U.S. 281, 283 (1932) (Ex. LAW-020); United States v. Janis, 428 U.S. 433, 440 (1976) (Ex. LAW-042) |
| Eligibility and amount | Preponderance of the evidence | Welch v. Helvering, 290 U.S. 111, 115 (1933) (Ex. LAW-021); Delaney v. Commissioner, 743 F.2d 670, 671 (9th Cir. 1984) (Ex. LAW-070) |
| Fraud | The Secretary's burden, by clear and convincing evidence | 26 U.S.C. § 7454(a) (Ex. LAW-038); Tax Ct. R. 142(b) |
| Substantial authority | An objective standard; a well-reasoned construction of the statute can suffice | Treas. Reg. § 1.6662-4(d)(2)-(3) (Ex. LAW-036) |
| Reasonable basis | "Significantly higher than not frivolous"; a position reasonably based on a listed authority | Treas. Reg. § 1.6662-3(b)(3) (Ex. LAW-035) |
| Reasonable cause and good faith | No accuracy-related or fraud penalty on any portion so shown | 26 U.S.C. § 6664(c)(1) (Ex. LAW-039) |
| Erroneous claim | A claim "made for an excessive amount," unless due to reasonable cause | 26 U.S.C. § 6676(a), as amended by Pub. L. 119-21, § 70605(f) (Ex. LAW-040) |
| Frivolous submission | A return without the information needed to judge its correctness, or a position listed in Notice 2010-33 | 26 U.S.C. § 6702(a) (Ex. LAW-041); Notice 2010-33, 2010-17 I.R.B. 609 (Ex. LAW-026) |
| Judicial notice | Facts "accurately and readily determined from sources whose accuracy cannot reasonably be questioned" | Fed. R. Evid. 201(b), (c)(2), (d) (Ex. LAW-024) |
| Party admissions | The United States' statements in its briefs and in open court, offered against it | Fed. R. Evid. 801(d)(2) (Ex. LAW-024); United States v. Kattar, 840 F.2d 118, 130-31 (1st Cir. 1988) (Ex. LAW-061) |
The refund forum
"An overpayment must appear before refund is authorized," and the court redetermines "the entire tax liability"; "[i]n a refund suit the taxpayer bears the burden of proving the amount he is entitled to recover," and "[i]t is not enough for him to demonstrate that the assessment of the tax for which refund is sought was erroneous in some respects."2 The court decides the overpayment on the evidence before it, not on the Service's administrative reasoning.3 The United States describes the forum the same way. In its cross-motion for summary judgment in Stenson Tamaddon, LLC v. IRS (Doc. 44) it wrote that refund suits are the Code's "specific procedures for de novo judicial review of the merits," and it wrote this:
[A]ny taxpayer that brings a refund suit can argue that the IRS incorrectly interpreted the provisions of the ERC.
Doc. 44 at 22-23
Whether Notice 2021-20 exists or not, the statute will control whether a refund is warranted.
Doc. 44 at 24
In open court, counsel for the United States told the same court that 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" and that "[t]he United States does not disagree that once a refund has been determined to be appropriate, the IRS must pay it out."4 The Service's form letter on the suspension prong states the ground on which it decides claims:
Our records indicate there were no government orders related to COVID-19 in effect during the quarter(s) you claimed ERC which could have fully or partially suspended your trade or business.
Preponderance
In a refund suit the taxpayer proves the overpayment by a preponderance of the evidence, and "a shift in the burden of preponderance has real significance only in the rare event of an evidentiary tie."6 There is no evidentiary tie here. On one side stand the orders, published by the authorities that issued them, identified by number, date, operative clause and enforcement provision, more than ten thousand of them indexed in the Library; on the other stands a sentence that says they did not exist. A preponderance is the lowest standard the law knows, and the record clears it by the widest margin the law can measure.
Fraud
"In any proceeding involving the issue whether the petitioner has been guilty of fraud with intent to evade tax, the burden of proof in respect of such issue shall be upon the Secretary," to be carried by clear and convincing evidence.7 A claim that identifies the governmental orders that governed the employer's industry in each quarter, applies to them the words Congress enacted and the definitions the United States agreed to in Tri-State, and states the resulting position on a Form 941-X is the opposite of a fraudulent claim.8 Preponderance is the only standard for a refundable credit, and it is the standard this analysis meets.
Substantial authority
Treas. Reg. § 1.6662-4(d)(2)-(3) states an "objective standard"; "[t]here may be substantial authority for more than one position with respect to the same item"; "a taxpayer may have substantial authority for a position that is supported only by a well-reasoned construction of the applicable statutory provision"; and the authorities include the Code, court cases and "notices, announcements and other administrative pronouncements published by the Service in the Internal Revenue Bulletin."9
The positions this analysis takes rest on the statutory text of four enactments; on the Supreme Court's canons of construction and its causation cases (Burrage, Gross, Nassar, Bostock, Abercrombie); on Tri-State's holdings, made on the United States' agreed definitions, that a partial suspension is "a temporary delay, interruption, or termination of a portion an employer's business," that "more than nominal" does not mean "significant," that the ten percent figure is "a method for the test to be met not as a requirement to meet the test" and that "due to" is but-for causation; on the District Court's holdings in Stenson Tamaddon that the Notice "carries no force of law" and that the figure "is not an exclusionary cut-off point"; on the United States' representations to two federal courts, collected on the Government's own words; and on the Notice's own favorable Q&As (Q&A-10's list of orders, Q&A-12's supplier rule, Q&A-15, Q&A-17's examples, Q&A-19's hours rule, Q&A-22), published in the Internal Revenue Bulletin and binding on the Service by its own directive.10 That is substantial authority many times over, and it was substantial authority at the time any claim for the six quarters was prepared: the statute, the canons and the causation cases predate every such claim, and the Notice's favorable Q&As have stood in the Bulletin since March 15, 2021.
The United States' own account of the figure the Service's letters apply as a floor belongs in this list, because it is an authority in the regulation's sense and because a court accepted it:
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. ... The 10 percent is not determinative for whether an employer has been partially suspended. ... Effectively, this is a safe harbor ... Properly understood, it isn't an eligibility requirement.
Doc. 44 at 14
The District Court wrote of that characterization, "This Court agrees," and held the figure "not an exclusionary cut-off point, but rather a safe harbor."11
Reasonable basis
The reasonable-basis standard is "significantly higher than not frivolous or not patently improper" and is generally satisfied by a position "reasonably based on one or more of the authorities set forth in sec. 1.6662-4(d)(3)(iii)."12 A position with substantial authority has, by definition, a reasonable basis. The positions stated at the end of this page have both.
Reasonable cause and good faith
No penalty under sections 6662 or 6663 applies to any portion of an underpayment shown to rest on reasonable cause and good faith.13 The method this analysis applies is to identify the governmental orders that governed an employer's industry and jurisdiction in each quarter, to map them to the employer's operations function by function, and to apply the statute's words to the result. That is the method the Notice's own Q&A-70 describes when it lists among the records an eligible employer should keep "any governmental order to suspend the employer's business operations" and "any records the employer relied upon to determine whether more than a nominal portion of its operations were suspended due to a governmental order," and the United States has represented that even that substantiation guidance is optional.14 Of Q&A-70 and Q&A-71 the United States wrote to the Ninth Circuit that the guidance
is not mandatory. It identifies what is sufficient—without dictating what is necessary. ... IRS employees can still exercise their discretion to conclude that a taxpayer has substantiated its eligibility for the ERC using other documentation.
Br. for Appellees at 44-45
A taxpayer who did what the Service's own guidance describes, on the authorities set out above, acted with reasonable cause and in good faith.
The erroneous-claim penalty
Section 6676(a), as amended by Pub. L. 119-21, § 70605(f), for claims made after July 4, 2025, applies to "a claim for refund or credit with respect to income or employment tax ... made for an excessive amount, unless it is shown that the claim for such excessive amount is due to reasonable cause."15 A claim is not made for an excessive amount where the employer was eligible, and an employer whose operation the orders inventoried on this site reached was eligible in every quarter those orders were in force. The reasonable-cause showing of the preceding section stands as an independent ground under the same subsection. The penalty does not reach a claim founded on the public record and the statute's words.
Frivolous positions
Section 6702(a) penalizes a purported return that "does not contain information on which the substantial correctness of the self-assessment may be judged" or that rests on a position the Secretary has identified as frivolous; Notice 2010-33 lists those positions, and none concerns the Employee Retention Credit or the meaning of a governmental order.16 A Form 941-X supported by the orders in the Library and the statute is the opposite of a frivolous submission: it contains the information on which its correctness can be judged, instrument by instrument, and it rests on the words Congress wrote.
Judicial notice
Governmental orders are public records. A court "may judicially notice a fact that is not subject to reasonable dispute because it ... can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned"; it "must take judicial notice if a party requests it and the court is supplied with the necessary information"; and notice is available "at any stage of the proceeding."17 The Ninth Circuit notices government documents "publicly available on the Washington government website" where "neither party disputes the authenticity of the website nor the accuracy of the information," and it noticed California's COVID-19 State and county orders in South Bay and Brach; the Third Circuit wrote of New Jersey's COVID-19 executive orders that "[a]lthough not every executive order discussed herein was entered into the record below, we may take judicial notice of their content"; and the Court of Federal Claims treated California's executive and county orders as governmental orders on the pleadings.18 Every instrument in the Library is an order, regulation, statute or court order published by the issuing authority, retrieved from that authority's own site or from the Internet Archive's capture of it, and recorded with its source URL, retrieval method, hash and grade; the Library supplies "the necessary information," and the methodology page describes how.
Admissions and estoppel
The United States' statements in Doc. 44, in its answering brief to the Ninth Circuit, at the preliminary-injunction hearing and in Tri-State are statements of a party-opponent under Rule 801(d)(2), admissible against it in any refund suit; judicial estoppel is available against it where, as here, a court accepted the position; and the Service is bound by its own directive to the Notice's favorable text "to the same extent as a revenue ruling."19
A Government brief filed in one federal court "establish[es] the position of the United States and not merely the views of its agents who participate therein," and "[t]he government cannot indicate to one federal court that certain statements are trustworthy and accurate, and then argue to a jury in another federal court that those same assertions are hearsay"; a publication of "the relevant and competent section of the government" is "an admissible party admission"; and "statements of fact contained in a brief may be considered admissions of the party in the discretion of the district court."20 Doc. 44, the answering brief and counsel's statements at the hearing are statements of the United States made by the Department of Justice in its representative capacity.
Judicial estoppel asks whether "a party's later position [is] 'clearly inconsistent' with its earlier position," whether "the party has succeeded in persuading a court to accept that party's earlier position," and whether the party "would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped"; the Ninth Circuit applies the doctrine where the earlier court "relied on, or 'accepted,' the party's previous inconsistent position," holds it "appropriate to bar litigants from making incompatible statements in two different cases," and applies it to the United States.21 The District Court's acceptance is written on the face of its order: "This Court agrees"; "As the Government puts it"; "not an exclusionary cut-off point"; "no force of law and is entitled to no deference."22 A briefed, repeated position accepted by a court is the opposite of inadvertence.
The Service's own directive provides that "all notices and announcements issued by the Service and published in the IRB are considered authority and the Service is bound by the substantive or procedural guidance provided in a notice or announcement to the same extent as a revenue ruling or revenue procedure," and that its counsel "may not rely on case law to take a position that is less favorable to a taxpayer in a particular case than the position set forth in a publication"; the Tax Court has refused to let the Commissioner's counsel "argue the legal principles of those opinions against the principles and public guidance articulated in the Commissioner's currently outstanding revenue rulings"; and the Bulletin is "the authoritative instrument of the Commissioner of Internal Revenue for the publication of official rulings and procedures," on which taxpayers "may rely."23 The Notice was published in that Bulletin. The Notice page sets out the doctrines and the Government's own words collects the statements. This analysis holds the United States to them.
The positions, stated
The positions this analysis takes are these, and each is correct.
- The statute controls, and the Notice is a non-binding safe harbor held to in both directions.
- The Suspension Clause reaches an order from any appropriate authority, whatever its source or addressee, that limited commerce, travel or group meetings; "appropriate" means the authority with power over the subject.
- A partial suspension is a temporary delay, interruption or termination of any portion of the operation.
- "Due to" is but-for causation.
- "Essential," "comparable operations," "telework," "customers," "voluntary," "nominal" and "10 percent" are not in the statute.
- Orders on suppliers, customers, workforces, venues, courts and borders are orders.
- The compelled dismantling of an operation continues the suspension until the orders permit its restoration.
- Congress re-enacted the identical clause on March 11, 2021 for the third quarter of 2021 and left it in place when it terminated the fourth.
On those positions, the operation of the trade or business of employers in each of the twenty-seven industries was partially suspended in each of the six quarters due to orders from appropriate governmental authorities limiting commerce, travel and group meetings due to COVID-19.24
Each of those positions was correct when taken and is correct now; the standards this page sets out are met on the record the Library assembles; and the Service's letters, measured against that record and those standards, describe a period that did not occur.