2023-11-22 | FIN-2023-Alert007

Added 2026-08-11 · Updated 2026-09-24

FinCEN Alert on COVID-19 Employee Retention Credit Fraud (FIN-2023-Alert007)

FinCEN requests that financial institutions reference alert FIN-2023-Alert007 in Suspicious Activity Report field 2 and field 34(z) when reporting fraud schemes related to the COVID-19 Employee Retention Credit. The alert outlines typologies involving fabricated entities, ineligible businesses, and third-party promoters, noting that fraudulent claims have resulted in over $2.8 billion in potentially fraudulent activity across 323 investigations. Financial institutions are urged to identify red flags such as deposits into accounts with limited prior transactions or the use of altered Treasury checks to detect and report suspicious activity.

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1. Internal Revenue Service’s (IRS) CI is the criminal investigation division of the IRS. For more information on CI,
   see IRS, About Criminal Investigation (Sept. 28, 2022).
2. 31 U.S.C. § 5312(a)(2); 31 CFR § 1010.100(t).
3. The ERC was established in Public Law 116–136 § 2301, and is occasionally referred to as the Employee Retention
   Tax Credit. It was further amended by the COVID-Related Tax Relief Act of 2020, the American Rescue Plan Act of 2021, and the Infrastructure Investment and Jobs Act of 2021. For more information about the Employee Retention Credit, see generally IRS, COVID-19-Related Employee Retention Credits: Overview (Jan. 31, 2023), and IRS, Employee Retention Credit (last updated Nov. 9, 2023) (“IRS Employee Retention Credit”).
4. Public Law 116–136.
5. IRS, “Employee Retention Credit available for many businesses financially impacted by COVID-19” (last updated Oct.
   23, 2023) and “Employee Retention Credit - 2020 vs 2021 Comparison Chart” (Feb. 28, 2023). Employers may receive up to $26,000 per employee if they meet certain conditions. See IRS, National Taxpayer Advocate, “Objectives Report to Congress Fiscal Year 2024” (June 23, 2023), p. v. Further, over 860,000 business have claimed over $152 billion in credits as of March 3, 2023, and the IRS continues to review claims ahead of the application deadline. See also “Appendix A: COVID-19 Employer Credits Claimed, by Type of Credit” in IRS, Data Book, 2022, (Apr. 14, 2023), p. 75.
6. The general deadline for applying for the ERC for the 2020 tax year is April 15, 2024, and, for the 2021 tax year, it
   is April 15, 2025. “Is there a deadline to claim the ERC?” in IRS, Frequently Asked Questions about the Employee Retention Credit (last updated Nov. 7, 2023).
7. To be eligible for the ERC, employers must have: (1) sustained a full or partial suspension of operations due to
   orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19 during 2020 or the first three quarters of 2021; (2) experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021; or (3) qualified as a recovery startup business for the third or fourth quarters of 2021 (“ERC Eligibility Requirements”). For more information on ERC eligibility, see IRS Employee Retention Credit, supra Note 3, at p. 1. For further analysis related to IRS’ backlog and processing delays as a result of the fraudulent claims, see IRS, National Taxpayer Advocate, “Objectives Report to Congress Fiscal Year 2024” (June 23, 2023), p. v. FIN-2023-Alert007 November 22, 2023 FinCEN Alert on COVID-19 Employee Retention Credit Fraud The U.S. Department of the Treasury’s (Treasury) Financial Crimes Enforcement Network (FinCEN), in close coordination with Internal Revenue Service Criminal Investigation (CI),1 is issuing this alert to financial institutions2 on fraud schemes related to the COVID-19 Employee Retention Credit (ERC)3 and is urging vigilance in identifying and reporting related suspicious activity. The ERC was authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act4 as a tax credit to encourage businesses to keep employees on payroll during the COVID-19 pandemic and was subsequently extended and amended three times.5 CI has identified ongoing fraud and scams related to the ERC that, to date, have resulted in 323 investigations involving more than $2.8 billion of potentially fraudulent ERC claims throughout tax years 2020, 2021, 2022, and 2023.6 Further, these fraudulent claims added to, and disrupted, the IRS’s ERC claim review process, which created a significant backlog and caused delays in the processing of legitimate ERC claims filed by eligible businesses. While portions of that backlog Suspicious Activity Report (SAR) Filing Request:
   FinCEN requests that financial institutions reference this alert in SAR field 2 (Filing Institution Note to FinCEN) and the narrative by including the key term “FIN-2023-ERC” and select SAR field 34(z) (Fraud – other).

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Source: Financial Crimes Enforcement Network — original document · Summary generated with machine assistance and reviewed before publication; the authoritative text is the regulator's original document. How RegAlert works