COVID-19 Fund$ and Fraud: The potential and pitfalls of the Employee Retention Credit.

• Author: Anderson, Tasha

The 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 USASpending.gov, 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, land] 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

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...