Columbus Orthopaedic Clinic, P.A. v. United States, Civil Action No. 1:25-cv-78-RPC-RP (N.D. Miss. Oct. 30, 2026)

For Certified Public Accountants (CPAs) and Enrolled Agents (EAs) representing clients facing Employee Retention Credit (ERC) audits or litigation under Internal Revenue Code (I.R.C.) § 3134, the decision in Columbus Orthopaedic Clinic, P.A. v. United States serves as a benchmark. Decided by the United States District Court for the Northern District of Mississippi (Aberdeen Division), this case reinforces a rigorous, narrow interpretation of the “full or partial suspension” requirement under I.R.C. § 3134(c)(2)(A)(ii)(I).

The court granted summary judgment in favor of the United States, holding that essential medical service providers who modified operations, experienced throughput reductions, or voluntarily complied with non-binding public health recommendations failed to satisfy the statutory prerequisites for the ERC. Crucially, the court adopted the stringent legal framework established by the U.S. Court of Federal Claims in Northeast Health Services, LLC v. United States, holding that entitlement under the partial suspension prong requires proof that a compulsory governmental order carrying force of law and enforcement penalties was both the factual and proximate cause of a cessation of a discrete, more-than-nominal portion of business operations.

Factual Background and Taxpayer Operations

The taxpayer, Columbus Orthopaedic Clinic, P.A. (“Columbus”), is a professional association operating an orthopaedic medical practice headquartered in Columbus, Mississippi, with additional operations in Meridian, Mississippi. Owned equally by ten physician-partners, Columbus provides comprehensive orthopaedic care, including clinical evaluation, pain management, sports medicine, occupational therapy, and physical therapy services. Columbus operates under a single Taxpayer Identification Number (TIN) encompassing both its clinical practice and its physical therapy gym.

Columbus’s physicians also perform surgical procedures at the Columbus Orthopaedic Outpatient Center, LLC (“ASC”), an ambulatory surgery center located adjacent to the clinic. The ASC is co-owned 50% by Columbus Surgery Center Affiliates, LLC (a holding entity owned by Columbus’s physicians) and 50% by Baptist Memorial Hospital. Patients treated at the ASC are typically clinical patients of Columbus referred internally for outpatient surgical or pain procedures.

With the onset of the COVID-19 pandemic in early 2020, federal and state regulatory bodies issued various directives. Throughout 2020 and 2021, Columbus instituted several operational adaptations:

Essential Business Designation: Under Mississippi Executive Order No. 1463, Columbus was classified as an “Essential Healthcare Operation” and permitted to maintain continuous, uninterrupted operations.
Physical Therapy Modifications: Columbus removed 50% of its physical therapy treatment tables to accommodate six-foot social distancing recommendations, adjusted therapist schedules so that only half worked at any given time, prioritized acute surgical cases, and directed non-acute patients to perform home exercises.
Clinical Scheduling and Patient Protocols: Clinical appointment scheduling templates were restricted to allow time for sanitization between patients; seating in waiting areas was reduced; patients were instructed to wait in vehicles; accompanying visitors were restricted; and mandatory mask and screening protocols were instituted. Prior to the pandemic, Columbus treated over 400 patients per day; during the pandemic, daily volume declined by 50% or more.
Elective Procedures and Referral Volume: Following state health alerts regarding hospital bed capacity, Columbus physicians voluntarily postponed certain non-emergent elective surgeries (specifically Tier 2a procedures such as elective joint replacements and spine surgeries), which in turn reduced internal referrals to Columbus’s physical therapy department.
Exogenous Supply Chain and Community Impacts: Columbus experienced supply chain delays for Personal Protective Equipment (PPE), specialty medications, and EPA-approved disinfectants, alongside reductions in athletic trainer coverage revenue due to cancelled high school and collegiate sports.

Taxpayer Claim and Requested Relief

On December 5, 2022, Columbus filed Form 941-X (Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund) for the first calendar quarter of 2021 (“Q1 2021,” covering January 1, 2021 through March 31, 2021). On Form 941-X, Columbus reported $667,529.20 in qualified wages and claimed an ERC refund of $467,270.44 pursuant to I.R.C. § 3134.

Columbus premised its claim exclusively on the full-or-partial-suspension test under I.R.C. § 3134(c)(2)(A)(ii)(I), explicitly disclaiming reliance on the gross receipts decline test under I.R.C. § 3134(c)(2)(A)(ii)(II). Columbus asserted that its operations were partially suspended due to six specific federal and state health directives:

Centers for Medicare & Medicaid Services (“CMS”) Memorandum QSO-20-14-NH (issued March 4, 2020);
Mississippi Executive Order No. 1463 and its accompanying supplement (issued March 26, 2020);
Mississippi Health Alert Network (“MS HAN”) Alert (issued October 2, 2020);
Mississippi Executive Order No. 1535 (issued December 9, 2020);
MS HAN Alert regarding inpatient hospital capacity (issued December 30, 2020); and
MS HAN Alert (issued March 4, 2021).

After the Internal Revenue Service failed to render a decision on the refund claim within six months of filing—satisfying the statutory waiting period under I.R.C. § 6532(a)(1)—Columbus filed a tax refund suit against the United States on May 20, 2025, in the U.S. District Court for the Northern District of Mississippi pursuant to 26 U.S.C. § 7422(a). On July 31, 2026, the United States moved for summary judgment under Rule 56(a) of the Federal Rules of Civil Procedure, arguing that Columbus was exempt from operational closure requirements as an essential business and failed to demonstrate that its operations were suspended by a qualifying governmental order.

Statutory Framework and Judicial Standards of Review

To evaluate ERC eligibility, tax professionals must examine the structure of I.R.C. § 3134. Originally enacted under Section 2301 of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act (Pub. L. 116-136, 134 Stat. 281) and amended by the American Rescue Plan Act of 2021 (“ARPA”), I.R.C. § 3134 provides a refundable employment tax credit equal to 70% of qualified wages paid per quarter in 2021.

Presumption-Out Statutory Construction

The court emphasized that unlike other CARES Act provisions that offered broad, automatic stimulus, the ERC is framed as a “presumption-out statute” (In re JSmith Civil, LLC, 674 B.R. 207, 213 (Bankr. E.D.N.C. 2025)). As a foundational principle of tax law, tax credits are matters of legislative grace, and taxpayers bear the burden of proving strict compliance with statutory definitions. Thus, claimants start “outside of eligibility for the stated relief” and must affirmatively show how they satisfy each element of I.R.C. § 3134(c)(2)(A)(ii)(I) (JPM Rest., LLC v. United States, 2026 WL 561147, at *1 (E.D. Tenn. Feb. 27, 2026)).

Four-Part Eligibility Test for Partial Suspension

Under I.R.C. § 3134(c)(2)(A)(ii)(I), an employer claiming eligibility under the suspension prong must establish four distinct legal elements:

The employer was subject to a compulsory governmental mandate;
The mandate was issued by an appropriate governmental authority in response to COVID-19 and limited commerce, travel, or group meetings;
The employer experienced a full or partial suspension of business operations during the relevant quarter; and
The full or partial suspension was directly “due to” the compulsory governmental mandate.

In reviewing the government’s Motion for Summary Judgment under Fed. R. Civ. P. 56(a), District Judge Sharion Aycock noted the absence of controlling Fifth Circuit precedent on ERC partial suspension claims and looked to persuasive authorities from the U.S. Court of Federal Claims, federal district courts, and bankruptcy courts.

Judicial Analysis of Qualifying Governmental Orders

The court first addressed whether the six directives relied upon by Columbus met the legal definition of a “qualifying governmental order.” Applying the plain and ordinary statutory meaning analysis set forth in Northeast Health Services, LLC v. United States, 181 Fed. Cl. 566 (2026), the court established a sharp legal distinction between mandatory orders and advisory recommendations.

Legal Definition of a Qualifying Order

Citing Northeast Health Services, the court articulated that:

“An order is generally considered a command, direction, or instruction or a written direction or command delivered by a government official. An order should be understood in contrast to a recommendation... Both an order and a recommendation endorse a specific course of conduct; the difference lies in whether the endorsement is enforceable. Thus, to qualify as an order under the suspension-of-business prong, a government directive must, as a whole, carry enforcement authority or otherwise have the ability to compel a certain course of conduct through the imposition of binding requirements or repercussions for noncompliance.” (Ne. Health Servs., 181 Fed. Cl. at 575–76).

Evaluation of Non-Qualifying Directives

Applying this legal standard, the court disqualified four of the six health directives:

March 4, 2020 CMS Memorandum: The court held that CMS Guidance QSO-20-14-NH provided advisory FAQs for hospitals regarding patient placement and infection control. It lacked compulsory commands, created no binding obligations on Columbus, and attached no penalties for noncompliance.
October 2, 2020 and March 4, 2021 MS HAN Alerts: These state health alerts advised healthcare providers that outpatient services “should be conducted to accommodate social distancing recommendations” and that lower patient volumes “should continue.” The court noted that the permissive term “should” denotes non-binding guidance. The alerts carried no enforcement mechanisms or statutory penalties. The court rejected Columbus’s argument that its voluntary adoption of these measures converted them into mandatory orders: “Although Columbus may have voluntarily implemented the measures recommended in the alert, its decision to do so does not transform those recommendations into compulsory governmental requirements.”
December 30, 2020 MS HAN Alert: This alert addressed hospital capacity by stating that “all hospitals must delay all: elective surgeries in Tier 1 and 2... that require overnight hospitalization.” Although the alert utilized mandatory language (“must”), the court held that it did not qualify as an order suspending Columbus’s operations. First, the directive applied exclusively to inpatient hospital procedures requiring overnight stays, whereas Columbus performed outpatient procedures. Second, the alert permitted urgent procedures upon written justification. Third, the alert contained no statutory penalty provisions or direct enforcement mechanism against outpatient clinics. Columbus’s refusal to perform outpatient procedures based on a fear that patients might require emergency hospitalization was held to be an erroneous, voluntary misinterpretation of the alert.

Evaluation of Qualifying Executive Orders

Conversely, the court held that Mississippi Executive Order No. 1463 and Executive Order No. 1535 constituted qualifying governmental orders. Both orders were issued by Governor Tate Reeves pursuant to state emergency management statutes (Miss. Code Ann. § 33-15-11(b)(5)) and carried explicit criminal fines and imprisonment penalties for violations under Mississippi Code Annotated § 33-15-43 (imposing fines up to $500 and imprisonment up to six months).

Application of Law: Partial Suspension and the Causation Requirement

Having established that Executive Order Nos. 1463 and 1535 were qualifying orders, the court evaluated whether Columbus experienced a “partial suspension” of operations, and whether such suspension was “due to” those orders.

Legal Definition of Partial Suspension

The court adopted the standard from I Health & Life Insurance Services v. United States, 2026 WL 2148921 (Fed. Cl. July 23, 2026), and Sundancer Pools, Inc. v. United States, 182 Fed. Cl. 246 (2026), defining a partial suspension as a temporary cessation or termination of a discrete, more-than-nominal portion of business operations.

The court explicitly rejected Columbus’s assertion that operational modifications, capacity constraints, and hygiene protocols constitute a partial suspension:

“[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 an employer’s ability to provide... services in the normal course of the employer’s business.” (Sundancer Pools, 182 Fed. Cl. at 252).

“A showing of partial suspension requires an employer to ‘plead that a specific, discrete portion of its business temporarily ceased.’” (I Health, 2026 WL 2148921, at *10).

The court highlighted classic examples of partial suspensions—such as a restaurant closing its indoor dining room while maintaining drive-thru operations, or a retailer closing its brick-and-mortar store while operating online. In contrast, Columbus never ceased operating any discrete department, clinic, or service line. Removing 50% of physical therapy tables, staggering staff, cleaning rooms, and limiting waiting room seating represented operational modifications and capacity adjustments, not a cessation of a discrete business segment.

The “Due To” Causation Standard: Factual and Proximate Causation

A critical legal holding in Columbus Orthopaedic is the court’s adoption of the strict causation standard governing the phrase “due to” under I.R.C. § 3134(c)(2)(A)(ii)(I).

The court noted a judicial split between Titan Mutual Lending, Inc. v. United States, 2026 WL 2263549 (C.D. Cal. Aug. 3, 2026) (which adopted a lenient “but-for” causation standard) and Northeast Health Services, LLC v. United States, 181 Fed. Cl. at 578–80 (which required both factual and proximate causation). Endorsing Northeast Health Services, District Judge Aycock held that:

“[E]ntitlement to the ERC under the suspension-of-business prong is limited to businesses that can show that a qualifying governmental order was both the factual and proximate cause of a full or partial suspension.” (Ne. Health Servs., 181 Fed. Cl. at 580).

Applying this standard, the court found that Executive Order No. 1463 expressly designated Columbus as an “Essential Business,” thereby exempting it from 10-person gathering limits and capacity caps, and affirmatively directing that essential operations remain open and uninterrupted. While Executive Order No. 1463 required essential businesses to take “reasonable measures” to comply with CDC guidelines, it did not mandate table removals, staffing cutbacks, or scheduling reductions.

The court held that voluntary business decisions made out of caution, practical safety considerations, or general pandemic apprehension break the causal chain:

“A business voluntarily suspending its own operations has not been suspended due to orders from an appropriate governmental authority but rather has suspended operations of its own volition.” (Stenson Tamaddon LLC v. United States Internal Revenue Serv., 2025 WL 1725942, at *9 (D. Ariz. June 20, 2025)).

“[T]he causal chain between the orders and the reason for the delays is too attenuated to meet the definition of due to.” (Ne. Health Servs., 181 Fed. Cl. at 583–84).

Furthermore, the court addressed macro-economic disruptions cited by Columbus, including school closures, sports cancellations, and supply chain bottlenecks for PPE. Citing JPM Restaurant, LLC v. United States, 2026 WL 561147, at *9, the court held that general pandemic consequences, supply chain delays, and broader economic downturns do not satisfy the statutory mandate: an employer must trace its operational disruption directly to a binding order applicable to its own trade or business.

Holding and Conclusions of the Court

The court concluded that Columbus failed to raise a genuine dispute of material fact regarding its eligibility for the ERC under I.R.C. § 3134(c)(2)(A)(ii)(I).

District Judge Aycock summarized the ultimate ruling:

“Simply stated, there are no ‘shutdown’ orders involved in this case. There are state health care recommendations and mandates as well as Executive Orders, some of which encourage compliance, some of which recommend compliance, and some that demand compliance. As to those that demanded compliance, only a few directives applied to Columbus as a business providing ‘essential services.’ None of those mandated actions that required a disruption of Columbus’s business.”

Echoing the reflections of the U.S. Court of Federal Claims in Northeast Health Services, the court acknowledged the substantial economic burdens endured by healthcare taxpayers while reiterating strict adherence to statutory boundaries:

“The Court is sympathetic to NEHS’s plight. To say that the COVID-19 pandemic presented difficult decisions to the nation, its citizens, and businesses looking to navigate their way through times of great uncertainty would be an understatement... Erring on the side of caution in the face of those measures was a commendable course of action, and Congress provided significant, widely available relief to businesses who did so involuntarily or at the cost of their bottom line. But that relief was not unlimited. Where Congress restricts the availability of certain relief—however significant and remedial the relief is intended to be—the Court is bound to observe those restrictions. Here, Congress placed clear limits on the availability of the ERC. Because the disruptions to NEHS’s business fell outside the bounds of those limits, NEHS is not entitled to the tax credit.” (Ne. Health Servs., 181 Fed. Cl. at 584).

Accordingly, the court GRANTED the United States’ Motion for Summary Judgment, denied all pending evidentiary motions in limine and sanctions motions as moot, and DISMISSED Columbus’s action with prejudice.

Key Takeaways for Tax Practice

Essential Business Exemption Trap: Businesses classified as essential operations that were permitted to remain open generally cannot claim partial suspension based on mandatory executive orders, as those orders exempted them from shutdown mandates.
Advisory Guidance vs. Compulsory Orders: Agency alerts and health recommendations (e.g., CDC guidelines, OSHA recommendations, state HAN alerts) using permissive language like “should” or “encouraged” do not constitute qualifying orders under I.R.C. § 3134.
Operational Modifications Are Not Suspensions: Implementing physical distancing, sanitization, PPE protocols, table removal, or reduced appointment scheduling does not equal a partial suspension unless a discrete segment of the business was completely halted.
Proximate Causation Standard: Taxpayers must prove that a mandatory order directly required the suspension. Voluntary operational curtailments, cautious misinterpretations of directives, and general supply chain delays fail the “due to” test.

Prepared with assistance from Gemini Notebook.