March 31, 2023
IRS CI: Investigated COVID-19 Fraud Exceeds $3.2 Billion As of March 2023
The Internal Revenue Service’s Criminal Investigation division (IRS CI) recently published a report on its COVID-19 fraud enforcement efforts in connection with the third anniversary of the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Passed on March 27, 2020, the CARES Act established several COVID-19 relief programs, including most notably the Paycheck Protection Program (PPP).
Almost immediately, the PPP became a prime target for fraud—due largely to the limited safeguards put in place to ensure that only eligible businesses were able to obtain the program’s government-backed forgivable loans. Subsequently, other COVID-19 relief programs, such as the Economic Injury Disaster Loan (EIDL) program and employee retention tax credit (ERTC), became prime targets for fraud as well. As a result, as of March 23, 2023, IRS CI reports that it has investigated close to 1,000 cases involving alleged fraud totaling $3.2 billion.
However, even this is just a small fraction of the fraud that experts believe has been perpetrated under the PPP and other COVID-19 relief programs. In an article describing PPP fraud as the “biggest fraud in a generation,” NBC News reports that as much as 10 percent of the $800 billion paid out under the PPP – about $80 billion – may have gone to businesses and individuals that didn’t qualify for loans. Loan forgiveness certification fraud under the PPP has proven to be a major issue as well.
As a result, while much of the world is working to move on from the COVID-19 pandemic, IRS CI is still focusing on uncovering and prosecuting COVID-19 relief fraud. The March 23 report quotes IRS CI Chief Jim Lee as stating:
“IRS-CI is proud to lead the fight against COVID-related fraud. . . . Any criminal looking to exploit the CARES Act should know that there are serious consequences for stealing from hardworking Americans, and it’s only a matter of time before they are held to account.”
According to IRS CI’s report, of the 975 COVID-19 relief fraud cases that IRS CI has investigated to date, 458 have resulted in indictments, with 236 of these indictments leading to sentencing. The report also states that “[t]hroughout the three years [since the CARES Act’s passage], CI has a nearly 100% conviction rate in prosecuted cases.”
Common Issues in IRS CI COVID-19 Relief Fraud Investigations
While IRS CI’s investigations targeting COVID-19 relief fraud have spanned (and continue to span) a broad range of allegations, we have seen some patterns start to develop within IRS CI’s recent enforcement efforts. For example, some of the most common types of allegations against individuals and businesses in these investigations have included:
1. PPP Loan Acquisition Fraud
While the window to apply for PPP loans closed nearly two years ago, IRS CI is continuing to target individuals and businesses that fraudulently applied for loans under the program. This includes targeting loan recipients who have not sought loan forgiveness and even targeting applicants who failed in their attempts to fraudulently obtain PPP loans.
IRS CI’s report includes a summary of a particularly egregious case in which an individual obtained $5 million in fraudulent PPP loans which he used to buy a Ferrari, Bentley and Lamborghini, among other luxury items. According to the report, the individual—who was sentenced to 54 months in federal prison and almost $3 million in restitution—submitted false payroll records and altered bank statements in support of his PPP loan applications, in addition to using someone else’s identity. However, IRS CI is investigating far less egregious cases as well, and these cases present similar risks for the business owners and other individuals who are being targeted.
2. PPP Loan Forgiveness Certification Fraud
Along with targeting PPP loan acquisition fraud, IRS CI is also targeting fraud in relation to PPP loan forgiveness. While PPP loans were forgivable (and remain forgivable for eligible recipients who have not yet filed for forgiveness), loan recipients seeking forgiveness must be able to certify that they only used their PPP funds for authorized purposes. Fraudulently certifying compliance with the PPP’s requirements in order to obtain loan forgiveness has been a common focus of IRS CI’s enforcement efforts as well.
3. EIDL Fraud
The EIDL was another small business loan program established at the height of the COVID-19 pandemic. While EIDL loans were not forgivable, they still provided a source of low-interest funding that proved to be all too accessible to non-qualifying applicants. Additionally, many loan recipients were able to obtain EIDL Advances, which the SBA described as “like grants, but without typical U.S. government grant requirements . . . [that] do not need to be repaid.”
Similar to PPP fraud, EIDL fraud has been—and remains—a focus area for IRS CI. Business owners and other individuals who fraudulently obtained EIDL loans and EIDL Advances can face a variety of criminal charges that collectively carry the potential for millions of dollars in fines and decades of federal imprisonment.
4. ERTC Fraud
Employee retention tax credit fraud is another priority enforcement area for IRS CI, and the IRS recently issued a warning about the risks of non-compliance. Similar to PPP and EIDL fraud, businesses and business owners accused of fraudulently claiming the ERTC can face intensive investigations that present risks for substantial penalties.
5. Facilitating COVID-19 Relief Fraud
In addition to targeting taxpayers, IRS CI has also emphasized enforcement against tax preparers and other individuals who are suspected of facilitating COVID-19 relief fraud. This includes assisting with the preparation of fraudulent PPP and EIDL loan applications, as well as preparing fraudulent certifications and improperly claiming the ERTC. IRS CI’s report highlights one of these cases as well—in which a woman was sentenced to 45 months in prison and $1.61 million in restitution for assisting multiple individuals with submitting fraudulent PPP loan applications in exchange for receiving a percentage of their loans.
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Our lawyers represent business owners and other individuals in IRS CI investigations and other serious tax controversies. If you need to speak with a lawyer about defending against allegations of COVID-19 relief fraud, call 817-870-0025 or contact us online to request a confidential consultation.