New IRS Warning
The IRS issued a new warning “urging people to carefully review the Employee Retention Credit (ERC) guidelines before trying to claim the credit as promoters continue pushing ineligible people to file,” on March 7, 2023. The new warning echoes their previous warning about ERC fraud published last October. In the news release, Acting IRS Commissioner Doug O’Donnell is quoted as saying, “Anyone who is considering claiming this credit needs to carefully review the guidelines. If the tax professional they’re using raises questions about the accuracy of the Employee Retention Credit claim, people should listen to their advice. The IRS is actively auditing and conducting criminal investigations related to these false claims. People need to think twice before claiming this.”
President Proposes Going After COVID-19 Fraud
President Biden is proposing $1.6 billion in new spending specifically aimed at targeting fraud resulting from various COVID-19 relief programs. According to the Wall Street Journal: “As part of the proposal, Mr. Biden would call on Congress to approve $600 million to increase pandemic-fraud investigations and prosecutions. With that money, the administration hopes to set up at least 10 additional Justice Department ‘strike forces’ to target the criminal organizations behind some of the biggest fraud cases. The administration also proposed providing additional money to the Labor Department and Small Business Administration inspectors general, as well as the Pandemic Response Accountability Committee, apanel of inspectors generalfrom across the government that oversees pandemic-relief measures.”
IRS Actively Going After ERC Fraud
In January, IRS Small Business and Self-Employed Division Commissioner Lia Colbert spoke at the California Society of Enrolled Agents 2023 IRS Practitioner Seminar and said, “[the employee retention tax credit] unfortunately has been an area very ripe for fraudulent activity.”
In February, Tax Notes interviewed IRS Criminal Investigations (CI) Deputy Chief Guy Ficco. The following is a segment of their transcript:
Nathan Richman: “I’ve been hearing a lot about [how] CI from the beginning was going after Paycheck Protection Program (PPP) fraud, and we’ve heard about all sorts of other investigations. How are those investigations going, and do you have any sorts of interesting recent case counts, perhaps? Have you guys done much with, publicly yet, with the employee retention credit filings?”
Guy Ficco: “So yeah, to your point, when the pandemic hit and through congressional action, different relief was spawned, it did create this tremendous collaborative effort across the government to respond. IRS CI was right at the forefront with other agencies and really utilized our financial investigative expertise in those investigations. As you said, the majority of those investigations were [Small Business Administration] driven with PPP and EIDL (economic injury disaster loan).
“We’ve averaged, and I’ll throw a stat out there, direct investigative time, which is the percent of time that our field agents spend on investigations. Since the summer of 2020, we’ve averaged approximately 7 percent to 7.5 percent of our direct investigative time has been spent on COVID[-19] related fraud.
“Now the majority, not entirely, but the majority of our SBA response, the PPP and EIDL investigations, would fall into nontax investigations. But there were, and there have been and there continued to be, other tax components. You talk about refundable credits that are certainly paramount and still ongoing with some of those investigations. And CI has been [and] is continuing to be involved.
“I’m looking down at my notes here to try to get an accurate read of cases, but as of January 31, so just a couple of weeks ago, CI had indicted more than 10 cases. I think it’s 11 cases, ERC cases, across the country. And of them, a couple of them have been sentenced, but the other ones are still ongoing, in the indictment phase. “
Specifically, Mr. Ficco referenced the indictment of two Utah residents and their accounting firm because, according to the United States Attorney’s Office, they “participated in a fraudulent tax scheme to seek COVID-related relief funds by preparing and submitting more than one thousand tax forms to the IRS, claiming in excess of $11 million in false and fraudulent Employee Retention Credit (ERC) and sick and family leave wage credits.” This newly indicted accounting firm was the employer of the individual convicted in May 2022 discussed in the first installment of this series and mentioned in the U.S. Treasury Inspector General Semiannual Report from October 2022.