By Mary Lundstedt, Esq.
Senior Associate
Frost Law
“Many law firms still believe that a pandemic-related decline in revenue is the only way to ERC relief. Fortunately, there’s another way. Law firms still have time to qualify for the ERC based on experiencing partially suspended business operations. And it’s incredibly rewarding as an attorney at Frost Law to see our efforts to obtain such relief align with the Congressional intent driving the ERC, which is to ensure that those law firms who kept employees on payroll during tough times are rewarded.” –Mary Lundstedt, Esq.
Even law firms that never experienced a pandemic-related decline in revenue may be eligible for relief from ERC if they experienced partially suspended business operations as a result of court closures (civil, criminal, immigration, etc.), moratoriums on collections/foreclosures, and more. Importantly, pandemic-related governmental orders creating qualifying partial shutdowns were more common than many employers may realize—particularly for those law firms with practices relying on: (1) fully open, staffed, and operational courthouses, and (2) a broad range of in-person interactions, especially the ability to conduct in-person jury trials, all of which lack comparable virtual substitutes. And such practices further suffered from the resulting docket backlog created by those government orders impacting courts and other areas of the legal world.
Similarly, there’s still time for law firms to qualify by demonstrating that they suffered a reduction in gross receipts as follows:
- Tax Year 2021 (Quarters 1, 2, and 3):
Employer is eligible if business’s gross receipts are more than 20% down from the gross receipts in the same calendar quarter of 2019.
- Tax Year 2020 (Quarters 1 through 4)
Employer is eligible if business’s gross receipts are more than 50% down from the gross receipts in the same calendar quarter of 2019.
Launched in March 2020, the ERC remains one of the biggest relief opportunities—up to $26,000 per employee during 2020 and 2021—available to law firms that have been impacted by the COVID-19 pandemic. And even for those law firms already beginning to recover, employers can retroactively claim the ERC based on hardships experienced during 2020 and the first three quarters of 2021.
- shuttered courts
- limitations on jury trials
- prohibited in-person depositions
- prohibited in-person meetings with incarcerated clients
- reduction in services offered to your clients
Example:
Family Law Firm, a firm of litigators located in State A, can show that the firm’s litigators spent 50% of their working hours in courtrooms in 2019. Near the end of the first quarter of tax year 2020, State A courts responded to the pandemic by shuttering courts—suspending in person trials, hearings, etc. Family Law Firm litigators were prevented from practicing in the courts. There were no comparable remote options for litigators to utilize. Family Law Firm experienced partially suspended business operations, because it was (1) limited by pandemic-related governmental orders, and (2) unable to perform comparable operations remotely.
Example:
Foreclosure Law Firm, located in State B, represents clients in the areas of collections & creditor’s rights. In 2019, the Foreclosure Law Firm attorneys spent 50% of their time working on foreclosure matters. During the COVID-19 pandemic, State B Supreme Court ordered the extension of statutory deadlines, effective for the duration of 2 quarters in 2020. The order included extensions for those individuals with deadlines to reply to Petitions in Foreclosure. The effect of the order paused Foreclosure Law Firms’ foreclosure work. Foreclosure Law Firm experienced partially suspended business operations because it was (1) limited by pandemic-related governmental orders and (2) unable to perform comparable operations remotely.
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Frost Law has devoted significant time and resources to understanding the ERC and working with employers who need this relief. You can contact Frost Law at (410) 497-5947.