IRS Scrutiny on Pandemic Tax Credit Abuse Sparks Legislative Action

The rampant exploitation of pandemic-era tax credits has caught the IRS’s attention, revealing widespread fraud even as lawmakers scramble to respond.

Key Takeaways

Candies Goode-McCoy from Las Vegas pleaded guilty to a nearly $100 million COVID-19 tax credit fraud scheme.
The IRS discovered significant fraud risk in Employee Retention Credit claims.
The DOJ has charged multiple individuals in related fraudulent activities.
Legislation to curtail tax credit fraud is under proposal, focusing on repealing the ERC.
Fraudulent tax schemes have led to substantial financial losses for the IRS.

Fraudulent Schemes and High-Risk Claims

The IRS has flagged several pandemic-era tax credit initiatives, notably the Employee Retention Credit (ERC) and paid sick leave credits, for fraudulent claims. Candies Goode-McCoy, a Las Vegas resident, admitted to conspiring to defraud the government by filing over 1,200 returns claiming nearly $100 million. Her fraudulent activities highlight a broader issue, compelling the IRS to urge businesses to double-check the legitimacy of claims before submission.

The IRS has already launched approximately 450 criminal investigations into nearly $7 billion worth of suspected fraudulent claims. These figures underscore the magnitude of exploitation within these financial relief programs designed to support businesses during the COVID-19 pandemic.

Legal Repercussions and Government Action

The Department of Justice (DOJ) continues to pursue legal action against fraudulent scheme participants, including Goode-McCoy’s case. “McCoy knew that these returns were fraudulent. Neither she nor the others for whom she filed them were eligible to receive the refundable credits in the amounts claimed,” confirmed the DOJ. Other cases highlight a trend, with the DOJ prosecuting seven individuals for a related $600 million fraud scheme.

As the fraud incidents escalate, pressure mounts on lawmakers to draft preventative measures. They have proposed the Employee Retention Tax Credit Repeal Act, which seeks to end processing claims beyond January 31, 2024, and introduce stiffer penalties for fraudulent activities.

Financial Impact and Broader Concerns

The fraudulent claims have had a substantial financial impact on the government, with significant misallocation of funds intended for struggling businesses. The IRS has paid out roughly $33 million in erroneous claims; however, Goode-McCoy’s plea agreement stipulates the return of most of this amount. Such exploitation has instigated skepticism about these programs’ efficacy and oversight.

In response, the IRS has issued new guidelines to help businesses identify improper ERC claims and has cautioned against trusting aggressive promoters who might be arranging these fraudulent claims. The audit rate and scrutiny over these credits are expected to increase as part of a broader strategy to deter future exploitation.