IRS Fraud Related to COVID-19
Like other federal agencies, the Internal Revenue Service (IRS) is continuing to enforce individuals’ and companies’ obligations during the novel coronavirus (COVID-19) pandemic. While some tax relief is being offered, the IRS is also pursuing audits and investigations to uncover fraud during the crisis.
The economic impacts of the COVID-19 crisis have spread to all corners of America. Individuals who are out of work due to business closures, individuals who have been unable to work due to contracting the virus, businesses that have been forced to close or severely limit their operations, and even the federal government have all suffered substantial losses.
In response to the pandemic, Congress and the Internal Revenue Service (IRS) have offered various forms of relief to individual and corporate taxpayers. The IRS pushed Tax Day back to July 15, and Congress authorized stimulus checks to individuals while launching the Paycheck Protection Program (PPP) in order to help keep struggling businesses afloat. However, the IRS is still enforcing taxpayers’ reporting and payment obligations, and it is monitoring for signs of tax fraud scams as well.
Are You at Risk for Allegations of IRS Tax Fraud During the COVID-19 Crisis?
At Oberheiden P.C., we represent individuals and companies in IRS tax fraud audits and investigations, and we provide defense representation for those facing federal charges. Our practice focuses on federal defense, and our firm includes former federal white-collar prosecutors as well as a former Special Agent with Internal Revenue Service’s Criminal Investigations division (IRS-CI). We handle federal tax fraud matters across the country, and we are operating at full capacity during the COVID-19 crisis.
If you have received an audit letter, subpoena, or any other form of inquiry from the IRS, or if you are being targeted by the U.S. Department of Justice (DOJ) through a civil investigation demand (CID) or criminal complaint, you need to engage experienced federal defense counsel. The penalties for federal tax fraud can be substantial, but it will often be possible to avoid these penalties with a proactive and strategic defense.
7 Examples of Tax Fraud Allegations Related to COVID-19
The IRS and DOJ are pursuing audits, investigations, and charges (both civil and criminal) for various forms of tax fraud during the COVID-19 crisis. Both individual and corporate taxpayers are at risk, and even issues triggered by necessity (i.e. inability to pay the tax that is owed) can lead to steep penalties. Our federal tax fraud defense practice encompasses all types of IRS fraud allegations, including (but not limited to):
1. Failure to Report or Pay Federal Income Tax
All U.S. residents and all businesses operating in the United States have an obligation to report their income to the IRS. They also have an obligation to timely pay any federal income tax that they owe. While it is possible to obtain an extension for filing federal returns, this extension does not apply to taxpayers’ payment obligations. This is true even if you have recently been out of work or your business has been struggling due to the COVID-19 crisis.
Failure to file federal tax returns and pay federal income tax when due are both forms of tax fraud that are highly likely to trigger an inquiry from the IRS. Whether this inquiry takes the form of a correspondence audit, office audit, field audit, or criminal investigation will depend on the particular circumstances involved, but all forms of inquiry have the potential to lead to interest, fines, and other penalties (including federal incarceration for criminal tax fraud).
2. Submitting False Tax Returns
Falsifying federal income tax returns is another form of fraud that can have serious consequences. Underreporting income, claiming fraudulent deductions, and other violations of the Internal Revenue Code (IRC) can lead to civil or criminal prosecution for individual taxpayers as well as company owners and executives. Even if you hire an accountant to prepare your returns, it is still up to you to make sure that your federal income tax obligations are accurately reported.
3. Tax Fraud Related to the Paycheck Protection Program (PPP) Loans
For companies that received federal loans under the Paycheck Protection Program (PPP), in addition to the risk of facing a PPP fraud audit or investigation, there is also a risk of facing an IRS inquiry as well. Companies that received PPP loans must continue to meet their federal income tax obligations, and the IRS has taken the position that loan recipients are, “not . . . allowed to deduct the normally deductible ordinary and necessary business expenses of payroll, mortgage or rent payments, and utilities paid with the PPP loan proceeds.” As a result, if your company received a PPP loan, it will be particularly important to ensure that your company’s federal returns accurately reflect its taxable income for the 2020 tax year.
4. Employment Tax Fraud
The Coronavirus, Aid, Relief and Economic Security (CARES) Act, “allows employers to defer the deposit and payment of the employer’s share of Social Security taxes and self-employed individuals to defer payment of certain self-employment taxes.” However, there are strict rules around when companies can defer employment taxes under the CARES Act, and companies must take care to ensure that they comply with these rules in order to avoid unwanted IRS scrutiny. The Emergency Paid Sick Leave Act (EPSLA), which is part of the Families First Coronavirus Response Act (FFCRA), provides tax benefits to companies that comply with its provisions as well; but, here too, companies need to be very careful to avoid miscues that could trigger an IRS audit or investigation.
5. Retirement Distribution Tax Fraud
In response to the financial impacts of the COVID-19 crisis for individuals, the CARES Act made provisions for non-retirees to make penalty-free withdrawals from their 401(k) and IRA plans. However, this option is limited to qualifying individuals, and those who attempt to avoid early withdrawal penalties without qualifying could put themselves at risk for being targeted in an IRS fraud audit or investigation.
6. Fraud Scams Targeting Federal Taxpayers
In addition to tax reporting and payment fraud, the IRS is also on high alert for tax fraud scams targeting individual taxpayers. In June 2020, the IRS announced that:
“In the last few months, the IRS Criminal Investigation division (CI) has seen a variety of Economic Impact Payment (EIP) scams and other financial schemes looking to take advantage of unsuspecting taxpayers. CI continues to work with law enforcement agencies domestically and abroad to educate taxpayers about these scams and investigate the criminals perpetrating them during this challenging time.”
Individuals and businesses accused of perpetrating tax fraud schemes during the COVID-19 pandemic are all but certain to face swift law enforcement action by IRS-CI and the DOJ, and prosecutors are likely to seek substantial penalties in criminal cases.
7. Unlawful Tax Evasion and Tax Avoidance Schemes
Finally, during the COVID-19 crisis, the IRS is continuing to monitor and investigate allegations of individuals and companies unlawfully utilizing offshore tax havens and other tax avoidance schemes. While individuals and companies seeking to mitigate their federal income tax liability have legitimate options for doing so, the IRS is wary of any efforts that appear to be intended to skirt federal income tax laws and regulations. In this same vein, the IRS is continuing to enforce U.S. taxpayers’ obligations with regard to reporting offshore bank accounts and other foreign holdings as well.
Federal Statutes Used to Prosecute IRS Tax Fraud
There are three primary federal statutes that the IRS and DOJ use to prosecute tax fraud. These are: (i) 26 U.S.C. Section 7201 (Tax Evasion), (ii) 26 U.S.C. Section 7206(1) (False Statements on Income Tax Returns, and (iii) 26 U.S.C. Section 7206(2) (Aiding or Assisting in Preparation of false Documents Under Internal Revenue Laws). However, this list is nowhere near exhaustive of the numerous statutory provisions that establish individual and corporate taxpayers’ obligations, and successfully defending against allegations of federal tax fraud requires a comprehensive understanding of all of the various laws and regulations that apply.
Federal Penalties for IRS Tax Fraud
If you or your company is targeted in an IRS tax fraud investigation during the COVID-19 pandemic, what is at risk? Under the three sections of the IRC listed above, maximum penalties range from three to five years in prison and $100,000 or $500,000 in fines. In civil cases, taxpayers can face liability for back taxes, interest, and additional financial penalties. Due to the risks involved, if you or your company is being targeted for IRS tax fraud, it is absolutely imperative that you engage experienced federal defense counsel. Our firm represents clients on a nationwide scale, and our attorneys can begin building your federal tax fraud defense immediately.
Speak with an IRS Tax Fraud Defense Lawyer at Oberheiden P.C.
For more information about how our federal defense attorneys and former federal agents are protecting individual and corporate taxpayers during the COVID-19 crisis, contact us to arrange a complimentary case assessment. To speak with a senior attorney at Oberheiden P.C. in confidence, call 888-680-1745 or tell us how we can help online now.
Dr. Nick Oberheiden, founder of Oberheiden P.C., focuses his litigation practice on white-collar criminal defense, government investigations, SEC & FCPA enforcement, and commercial litigation.