COVID-19 Fund$ and Fraud

The potential and pitfalls of the Employee Retention Credit
By Tasha Anderson

he economic impact of the COVID-19 pandemic has been unprecedented. The federal government has invested heavily in its efforts to keep businesses afloat and stimulate the economy through various avenues. According to figures from, forty-three federal agencies are responsible for $4.5 trillion in pandemic-related obligations and have outlaid $4.2 trillion of those. It’s a lot of money, and where such funds are found, fraud naturally follows.

According to Bret Kressin, special agent in charge at the Seattle Field Office for IRS Criminal Investigation, there are multiple ways that individuals and businesses have attempted to claim funds they aren’t entitled to. He says one common area of fraud centered around the Paycheck Protection Program. Those funds were administered through the US Small Business Administration (SBA) in partnership with private banking institutions. “We’ve been involved in a lot of activity dealing with fraud in that arena, fraudulent loans and things like that,” Kressin says. “There’s also unemployment fraud, [and] we’ve worked with the Department of Labor on some of those investigations.”

Another popular area for fraudulent activity was economic impact payments made out to individuals. “There’s obviously the risk of identity theft anytime identity thieves see that there’s a pot of money out there… Those payments have all since come and gone, but that doesn’t mean that there’s still people trying to claim that stuff,” Kressin says.

But one tempting money pot that remains highly pertinent for businesses, which Kressin describes as “the biggest credit that applied to businesses,” is the Employee Retention Credit (ERC).


The ERC is a tax credit designed to give relief to businesses that were severely impacted or even shut down because of the pandemic. Kressin gives the example of tourism and tour companies, many of which had severely reduced revenue, or perhaps none at all, in the 2020 summer season.

There are two iterations of the ERC. “Initially they passed the ERC, which allowed a company to deduct 50 percent of a qualified employee’s wages up to $10,000 per employee for wages paid from March 13, 2020 through December 31, 2020.” That essentially amounted to $5,000, and employers would “get 50 percent of that,” he explains.

The following year, the ERC was updated. “For wages in 2021… if a business was still having impacts, an employer could deduct up to 70 percent of an employee’s wages of $10,000 per quarter, instead of per year,” Kressin says. Now an employer could deduct up to $28,000 of an employee’s wages in the calendar year 2021.

According to Kressin, “Those periods have elapsed, but businesses are able to still claim those credits. They can file amended tax returns.” Businesses have four years after the tax year to amend their returns; they can amend their 2020 tax returns through 2024 and their 2021 returns through 2025. But just because the window hasn’t closed, does that mean every business should be looking to amend their taxes? No.

“Small businesses who claim COVID-19 credits should be cautious. The consequences of improperly claiming these credits could be significant.”
Joseph Moore, Principal, Altman Rogers & Co.

To Qualify

Only businesses that had 100 employees or fewer qualify for the 2020 credit, and businesses needed to have fewer than 500 employees (the SBA’s definition of a small business) in 2021 to qualify that year. Additionally, any business that has claimed the ERC once cannot amend their taxes to claim it for a second year.

Beyond that, Jeremiah Benson explains, a business must meet one of three major qualifiers to be eligible for the ERC: did the business experience revenue loss compared to 2019; was the business nominally affected by supply chain issues (nominally in this case being defined by the IRS as 10 percent); or was the business impacted by shutdowns, restrictions, or state or federal mandates?

Benson is at the helm of ERC Specialists Alaska, the local arm of ERC Specialists, based out of Utah. The company’s goal is to help businesses determine their eligibility for the ERC and, if eligible, maximize that company’s benefit. “My job as someone who is helping businesses get the ERC is to educate them on the credit,” he says.

Benson talks to multiple businesses every day about their eligibility for the ERC, and while many qualify, there are definitely those that do not. He gives the examples of a touchless car wash. Even though a touchless car wash in Alaska may have employed fewer than 100 people, if it was never mandated to shut down, didn’t experience any supply-chain issues such as sourcing soap or other chemicals, and can’t show a drop in revenue compared to 2019, it would not qualify.

On the other hand, Benson used to ply his trade as a plumber, and he retains his license and connections. “I have a lot of friends and ex-coworkers that are still in that space, and they cannot get rooftop units, exhaust fans, furnaces, boilers—it’s a textbook example of a supply-chain qualifier.”

According to Benson, “That’s the gist of the program. But there’s a lot that goes into actually figuring out exactly how much a business qualifies for.”

Don’t Forget the CPA

Small businesses that reach out to Benson are first informed of the three qualifiers. If the business believes it qualifies, Benson supplies a link to a questionnaire developed by ERC Specialists that is based on the 200-page bill for the ERC program. “It essentially creates a substantiation package for that business” that can be used in the event that a business were audited, Benson says. He adds that audits are a concern that many interested businesses express, and the questionnaire sets up an “initial defense.”

Amending one’s taxes to take advantage of the ERC does not automatically flag a company for auditing, according to Kressin, nor does it necessarily make it more likely. Instead of that approach, the IRS looks for underlying patterns that indicate a fraudulent situation. “I use the example of a business that drops out of thin air that hadn’t been there prior to 2020. Obviously, some businesses were started in 2020, but if someone is suddenly claiming hundreds of thousands of dollars in ERC credits, that would obviously raise red flags with us,” says Kressin.

If the questionnaire indicates the company will qualify for the ERC, ERC Specialists will then use documentation submitted by the small business to determine the maximum appropriate credit.

“We are seeing that there are some return preparers that are providing bogus advice in this area… They’ll approach businesses that maybe didn’t know about these credits and weren’t even contemplating them and taking improper positions about their qualifiers for these credits.”
Bret Kressin, Special Agent in Charge, IRS Criminal Investigation, Seattle Field Office

While ERC Specialist’s work is finished at that point, the small business’ isn’t; it’s on the small business to complete its tax filing. “I want to emphasize that we are not a tax-preparer business,” Benson says. “Please refer to your CPA or accountant after you get the credit. It’s not counted toward income tax, but you will need to go back and adjust the amount of payroll taxes that you wrote off for those quarters.”

Businesses that already partner with an accounting firm or CPA will need to coordinate with their service provider to ensure their amended return is filed completely and appropriately. For those who have an accounting relationship already, they may be able to work directly with their CPA or accountant to determine eligibility, obtain the credit, and file.

Joseph Moore, a principal for accounting and tax firm Altman Rogers & Co., says that eligibility for the ERC is something the firm determines in collaboration with its clients, since many of the details are complex. It does not automatically consider the credit for every client, since it’s not universally appropriate, even for small businesses. “Ultimately, the client is responsible for supplying the information that would qualify them for the ERC,” Moore explains. “Accurate books and records for the affected years, as well as facts and circumstances for each client, are considered for eligibility.”

Where’s the Fraud?
People are creative, Kressin says. “We kind of see the gamut with the fraud.” It can be as simple as a legitimate business with employees claiming more employees than it actually has. Or the business might be less than legitimate: “We’re also seeing people create shell, bogus, or dormant companies and then filing returns claiming these credits,” he says.

Not all fraud comes from tax filers, either. “We are seeing that there are some return preparers that are providing bogus advice in this area,” Kressin warns. “They’ll approach businesses that maybe didn’t know about these credits and weren’t even contemplating them and taking improper positions about their qualifiers for these credits.”

His advice? Business owners need to make sure that what they’re hearing makes sense. “Whether it’s a return preparer or other third party, we’re advising [business owners] to make sure they’re asking questions and they understand why they’re eligible for the credit,” Kressin says. “Really, this should largely be easily explainable to you, and you can understand it as a business owner.”

Moore echoes the advice: “Small businesses who claim COVID-19 credits should be cautious. The consequences of improperly claiming these credits could be significant.”

The accountant’s guidance for COVID-19 relief is the same that applies to most fraud risks: “Perform due diligence and beware of tax savings that are too good to be true.”

For more information on the ERC, please visit