During and after the Covid-19 pandemic, the employee retention credit became a massive source of new business for many accountants and other tax professionals. But as has been widely reported for years, the IRS often pushed back on aggressive and downright bogus claims. There were also plenty of good faith interpretive questions, where taxpayers and their advisers believed they qualified for the credit but where the IRS said otherwise.
Some claims, though, were beyond the pale, and even have become criminal tax cases. Can a tax audit lead to serious criminal charges? In some cases yes. A case is point is a new federal indictment that charges seven individuals with operating a multi-state conspiracy to defraud the United States of more than $600 million via filing more than 8,000 false tax returns claiming Covid-19-related employment tax credits. The Department of Justice news release is here.
In response to the Covid-19 pandemic and its economic impact, Congress authorized a tax credit that incentivized businesses to keep employees on their payroll, also known as the “Employee Retention Credit” or ERC. Congress also authorized a credit that reimbursed businesses for the wages paid to employees who were on sick or family leave and could not work because of Covid-19. This “Paid Sick and Family Leave Credit,” or SFLC, was equal to the wages the business paid the employees during their leave.
The accusation law claimed that from November 2021 to June 2023, the defendants Keith Williams, Jamari Lewis, Morais Dicks, Janine Davis, Tiffany Williams, James Hames Jr. and Ewendra Mathurin, all existing or old citizens of new new York, these systems have exploited. They planned to attend corporations affected through the COVVI-19 pandemic. The regime would have been at the headquarters of the credit reset, an alleged corporate payment of credits that Keith Williams has been owned and operated. Acting as fiscal coaches, the defendants would have submitted more than 8,000 false employment statements on employment, the IRS claiming tax credits similar to Cocovio for them and their clients.
Each of those statements of the source of income would have been fraudulent to the extent that they affirmed that the SFLC exceeds the amount of wages declared at the source of the Declaration of Income, indexed the same salaries as the same salaries of occupational disease and The qualified circle of the relatives of relatives or claimed the SFLC and the ERC for the same salaries, none of which has been legal through the law. The defendants would have taken the merit of the program upon receiving US Treasury Tax Refund checks. And the billing of consumers at prices or a percentage of the reimbursement of taxes earned through the client.
The defendants also allegedly recruited others in the program, who were compensated by receiving one of fraudulently received money checks from the USA.
The indictment claims that the defendants concealed their preparation of the false tax returns by not listing themselves as the paid preparer on the tax returns, and by using Virtual Private Networks to obscure their IP addresses while filing the false returns. For clients without a business, the indictment alleges, members of the conspiracy would sell shell companies to the clients in order to file false tax returns.
How was this ring discovered? The indictment notes that after having seen differences in the returns produced, the IRS and the Social Security Administration would have requested additional data on the source of income statements that the defendants have prepared. In response, the conspiracy members would transmit false data to each other at the IRS and SSA. Some of the defendants also allegedly submitted applications for fake paycheck coverage program loans.
The defendants were accused of forty -five rates with respect to the program, adding the conspiracy to defraud the United States, fraud and assistance and assistance to prepare the false source of income statements. Keith Williams, Lewis, Mathurin, Davis, Tiffany Williams and Dicks were also accused of cord fraud for the fraudulent requests of PPP they have presented.
Make no mistake, those are serious charges. If found guilty, the defendants are a very serious prisoner:
This is just an indictment, and the government will have to produce your record to discharge a conviction. But if all seven defendants are found guilty, the potential criminal sentence is long.
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