Tapestry Senior Housing Management, LLC v. United States of America

CourtDistrict Court, D. Minnesota
DecidedJune 25, 2026
Docket0:25-cv-03419
StatusUnknown

This text of Tapestry Senior Housing Management, LLC v. United States of America (Tapestry Senior Housing Management, LLC v. United States of America) is published on Counsel Stack Legal Research, covering District Court, D. Minnesota primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Tapestry Senior Housing Management, LLC v. United States of America, (mnd 2026).

Opinion

UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA

TAPESTRY SENIOR HOUSING Case No. 25-cv-3419 (LMP/EMB) MANAGEMENT, LLC,

Plaintiff,

v. ORDER GRANTING MOTION TO DISMISS UNITED STATES OF AMERICA,

Defendant.

Kathleen E. Pfutzenreuter, Wagner Tax Law, Minneapolis, MN; Nathaniel S. Pollock, Paul E. Harold, and Tiernan B. Kane, SouthBank Legal, South Bend, IN; and Peter Haukebo, Frost & Associates, LLC, Annapolis, MD, for Plaintiff.

LaQuita Taylor-Phillips, U.S. Department of Justice, Tax Division, Washington, D.C., for Defendant.

Tapestry Senior Housing Management, LLC brought this action alleging that the United States of America has wrongfully refused to grant it an employee retention tax credit authorized by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), Pub. L. No. 116-136, 134 Stat. 281 (2020). ECF No. 1. The United States moves to dismiss under Federal Rule of Civil Procedure 12(b)(6). ECF No. 16. Because Tapestry fails to state a plausible claim for relief, the Court grants the United States’ motion and dismisses the complaint. BACKGROUND I. The CARES Act and the Employee Retention Credit

In response to the COVID-19 pandemic, Congress passed the CARES Act. See generally CARES Act, Pub. L. No. 116-136, 134 Stat. 281 (2020). The CARES Act “contained several emergency economic relief provisions to aid small businesses,” including the Employee Retention Credit (“ERC”). JPM Rest., LLC v. United States, No. 1:24-cv-357, 2026 WL 561147, at *1 (E.D. Tenn. Feb. 27, 2026). The ERC was eventually codified at 26 U.S.C. § 3134.

The ERC generally was Congress’s attempt to provide specific and limited financial aid to businesses who experienced significant revenue declines or were forced to fully or partially suspend operations and to encourage businesses to avoid layoffs and furloughs because of COVID-19-related government orders. See generally COVID-19-Related Employee Retention Credits: Overview, Internal Revenue Serv., https://www.irs.gov/

newsroom/covid-19-related-employee-retention-credits-overview [https://perma.cc/8SVJ- EWG6]. The ERC operates as a tax credit and allows an eligible employer to seek “as a credit against applicable employment taxes for each calendar quarter an amount equal to 70 percent of the qualified wages with respect to each employee.” 26 U.S.C. § 3134(a). An eligible employer is one who “was carrying on a trade or business during the calendar

quarter for which the credit is” sought, id. § 3134(c)(2)(A)(i), and either: (1) “the operation of the trade or business . . . [was] 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” COVID-19, id. § 3134(c)(2)(A)(ii)(I); or (2) the employer’s gross receipts “for such calendar quarter are less than 80 percent of the gross receipts of such employer for the same calendar quarter

in calendar year 2019,” id. § 3134(c)(2)(A)(ii)(II). To qualify as an eligible employer, then, a business must show that it was either “fully or partially suspended” by a governmental order or that it received less than 80 percent of its usual revenue. Id. § 3134(c)(2)(A)(ii). And the ERC is a “presumption-out” statute, meaning that ‘everyone starts outside of eligibility for the stated relief, and claimants must show why they fit within and satisfy applicable statutory definitions to get ‘in’ and qualify for the relief.’” In re JSmith Civil,

LLC, 674 B.R. 207, 213 (Bankr. E.D.N.C. 2025). Notably, Congress did not define the key terms “partial,” “suspension,” or “orders from an appropriate governmental authority.” JPM Rest, 2026 WL 561147, at *1. In response to this uncertainty, the IRS issued Notice 2021-20 on March 1, 2021. See generally Internal Revenue Serv., Notice 2021-20, Guidance on the Employee Retention

Credit under Section 2301 of the Coronavirus Aid, Relief, and Economic Security Act (2021), https://www.irs.gov/pub/irs-drop/n-21-20.pdf [https://perma.cc/M4UC-3BFJ] (hereinafter “Notice 2021-10”); see also ERC Today LLC v. McInelly, 782 F. Supp. 3d 721, 727 (D. Ariz. 2025) (“As the agency tasked with administering the credit, the [IRS] had to determine what the statute required for eligibility and disseminate that information.”).

Important here, the IRS explained that qualifying governmental orders are “[o]rders, proclamations, or decrees from the Federal government or any State or local government” that “limit ‘commerce, travel, or group meetings’ . . . and relate to the suspension of an employer’s operation of its trade or business.” Notice 2021-10 at 24–25. But: Statements from a governmental official, including comments made during press conferences or in interviews with the media, do not rise to the level of a governmental order for purposes of the employee retention credit. Additionally, the declaration of a state of emergency by a governmental authority is not sufficient to rise to the level of a governmental order if it does not limit commerce, travel, or group meetings in any manner. Further, such a declaration that limits commerce, travel, or group meetings, but does so in a manner that does not relate to the suspension of an employer’s operation of its trade or business does not rise to the level of a governmental order for purposes of the employer’s determination of its eligibility for the employee retention credit.

Id. at 25. The IRS further addressed what it considers a “partial” suspension of operations, particularly where a governmental order did not force a business to close entirely. The IRS explained that “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. at 27. Moreover, [A] portion of an employer’s business operations will be deemed to constitute more than a nominal portion of its business operations if either (i) the gross receipts from that portion of the business operations is not less than 10 percent of the total gross receipts . . . , or (ii) the hours of service performed by employees in that portion of the business is not less than 10 percent of the total number of hours of service performed by all employees in the employer’s business (both determined using the number of hours of service performed by employees in the same calendar quarter in 2019).

Id. at 27–28. The IRS also clarified that a reduction in demand brought about by a governmental order does not qualify as a partial suspension, id. at 29; that a business that must be closed “for certain purposes” but “may remain open for other limited purposes” is considered partially suspended if “the operations that are closed are more than a nominal portion of its business operations and cannot be performed remotely in a comparable manner,” id. at 34; and that “[t]he mere fact that an employer must make a modification to business operations due to a governmental order does not result in a partial suspension

unless the modification has more than a nominal effect on the employer’s business operations,” id. at 39.1 Given the widespread impact of the COVID-19 pandemic, the demand for ERCs has been significant. The IRS has noted there are “unscrupulous actors misleading businesses about the ERC and encouraging businesses to claim the credit regardless of eligibility.” ERC Today, 782 F. Supp. 3d at 728; see also IRS Accelerates Work on

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Tapestry Senior Housing Management, LLC v. United States of America, Counsel Stack Legal Research, https://law.counselstack.com/opinion/tapestry-senior-housing-management-llc-v-united-states-of-america-mnd-2026.