X
X

Find Your Specialist

X

Contact Us

    Go Back

    IRS Uncovers $3.1 Billion in COVID Fraud

    The IRS Criminal Investigation department (IRS-CI) has partnered with the Justice Department to uncover and prosecute fraudulent activities related to the federal government’s COVID relief programs. To date, the IRS has conducted 840 investigations involving fraud amounts totaling more than $3.1 billion. The types of abuse include fraudulently obtained loans, ineligible tax credits and questionable payments meant for qualified workers, families and small businesses.

    “Our special agents aim to do right by the American people and ensure that those who misused these funds face justice for the crimes they committed,” explained IRS-CI Chief Jim Lee.

    The programs under scrutiny include:

    • Paycheck Protection Program (PPP) Loans
    • Employee Retention Credit
    • Economic Injury Disaster (EIDL) Loans
    • Economic Impact Payments

    Examples

    Examples of the criminal cases resulting from the IRS’s enforcement efforts are listed below.

    U.S. v. Johnson: Marque Willard Johnson, of Tampa, Florida, pleaded guilty in a Florida federal to bank fraud and money laundering as part of a scheme to fraudulently obtain $544,900 in PPP and EIDL funds. Johnson falsely claimed he had large monthly payrolls and provided false and fraudulent representations concerning the financial condition of his companies and the intended purposes for the loans.

    U.S. v. Thomas: Thirteen defendants were sentenced and another five pleaded guilty in a Georgia federal court for participation in a scheme to fraudulently obtain over $12 million in PPP and EIDL funds. They submitted at least 14 fraudulent loan applications. In the PPP loan applications, each business reported it had 60 employees and $300,000 in average monthly payroll expenses, when, in fact, most of the businesses existed on paper. To support these payroll figures, each business loan application was accompanied by a fraudulent IRS Form 941.

    Justice Department’s Scorecard

    The Department of Justice has formed Covid-19 Fraud Strike Force teams and regularly issues press releases under Covid Fraud News, which detail the many fraud investigations and cases. To date, the Agency’s efforts have resulted in criminal charges against over 1,500 defendants with alleged losses exceeding $1.1 billion, the seizure of over $1.2 billion in relief funds and civil investigations into more than 1,800 individuals and entities for alleged misconduct in connection with pandemic relief loans totaling more than $6 billion. Assistant Attorney General Kenneth A. Polite, Jr., of the Justice Department’s Criminal Division, explained, “As these cases demonstrate, we are unwavering in our determination to prosecute those who have defrauded relief programs meant to help struggling Americans during the pandemic.”

    IRS Warns of Improper Employee Retention Credit Claims

    Though less serious than fraud, the IRS is more closely scrutinizing employee retention credit claims. The IRS recently warned employers that third party advisors through advertising and direct solicitations are promising employers higher employee retention credits (ERCs) than they are entitled to, which can lead to an IRS audit and possible penalties and interest for the employer. Even CPAs are getting these solicitations. The problem firms often charge large upfront fees or a fee that is contingent on the amount of the refund.

    These firms may misrepresent taxpayer eligibility and improperly compute the credit. For example, they may not inform taxpayers that wage deductions claimed on the business’s federal income tax return must be reduced by the amount of the credit. If an employer already filed an income tax return deducting the wages before it filed an employment tax return claiming the credit, the employer should file an amended income tax return to correct any overstated wage deduction.

    ERC Basics

    The ERC is a refundable tax credit for businesses that continued paying employees during COVID shutdowns or that had significant declines in gross receipts from March 13, 2020 to December 31, 2021. Eligible taxpayers can claim the ERC on an original or amended employment tax return due for those dates. The IRS has published on its website an ERC comparison chart for 2020 v. 2021 which explains the detailed rules.

    Observations

    During the pandemic, government agencies were focused on getting individual taxpayers and businesses the relief they needed to keep the economy going and tide people over until the pandemic was under control. The emergency nature of the disbursements meant that the IRS could not focus on ensuring eligibility up front, allowing bad actors to obtain covid relief benefits to which they were not entitled. Now, the IRS and the Justice Department are going back and investigating these programs in an attempt to recover any fraudulently obtained relief funds and to reverse any ineligible tax benefits. Given the scope of the covid relief programs, this effort is likely to last a long time.

    Related Articles

    • 01.25.2023

      A New Year Means New Privacy Laws

      Ever since the General Data Protection Regulation (GDPR) came into effect in May 2018, US state privacy laws have been passed in Virginia, Colorado, Connecticut, Utah and, most pressing of them all, California. The California Privacy Rights Act (CPRA) went…

      Continue Reading
    • 01.19.2023

      The New Rules Under Section 174

      Internal Revenue Code Section 174 has long been used by taxpayers to deduct certain expenses related to research and experimentation (R&E) in the current year.  The code section was originally enacted in 1954 to eliminate uncertainty in the tax accounting…

      Continue Reading
    • 12.20.2022

      IRS Customer Service May Improve in 2023

      With 4,000 new customer service representatives and plans to hire 700 new Taxpayer Assistance Center (TAC) employees, taxpayers soon may get relief from endless hold times, no in-person help and unresolved problems.

      Continue Reading
    • 12.12.2022

      Reduce Taxable Income with IRA Distributions Transfers

      IRA owners who are age 70½ or over can transfer up to $100,000 per year to charity to reduce their taxable income. These transfers, known as qualified charitable distributions or QCDs, offer end-of-the year tax savings and can count toward required minimum distributions (RMDs) that taxpayers who are age 72 must make each year. Think of it as a tax-free charitable rollover of IRA funds.

      Continue Reading
    • 12.02.2022

      UK R&D Tax Reliefs – Where Are We Now?

      In the November 2022 Autumn Statement, the Chancellor announced significant changes to the current Research and Development (R&D) tax reliefs. The key announcements were a change to the applicable rate of the Research and Development Expenditure Credit (RDEC) and a…

      Continue Reading
    • 12.01.2022

      1099s Required for 2022 Tax Year

      Taxpayers earning income from selling goods or providing services may receive a Form 1099-K, Payment Card and Third-Party Network Transactions, for the first time in early 2023, when the 2022 forms are due. The requirement to file Forms 1099 have…

      Continue Reading
    • 11.28.2022

      IRS Uncovers $3.1 Billion in COVID Fraud

      The IRS Criminal Investigation department (IRS-CI) has partnered with the Justice Department to uncover and prosecute fraudulent activities related to the federal government’s COVID relief programs. To date, the IRS has conducted 840 investigations involving fraud amounts totaling more than…

      Continue Reading
    • 10.25.2022

      IRS Inflation Reduction Act Increases Funds

      The Inflation Reduction Act of 2022, enacted in August, increased funding for the IRS by $80 billion through 2031 for enforcement activities, operations support, systems modernization and taxpayer services. The legislative language, Treasury Secretary Janet Yellen and IRS Commissioner Charles…

      Continue Reading

    Privacy Overview

    When you use or access the Site, we use cookies, device identifiers, and similar technologies such as pixels, web beacons, and local storage to collect information about how you use the Site. We process the information collected through such technologies, which may include Personal Information, to help operate certain features of the Site (e.g., to prevent online poll participants from voting more than once), to enhance your experience through personalization, and to help us better understand the features of the Site that you and other users are most interested in.

    You can enable or disable our use of cookies per category.
    Always Enabled