May 19, 2021

In March, 2020, the CARES Act (Coronavirus Aid, Relief and Economic Security) Act was signed into law. This act created a number of different measures designed to help both individuals and small businesses. For example, laid off and furloughed individuals received additional funds in their unemployment checks, and small businesses that needed extra help could go through the Small Business Administration for a Paycheck Protection Act loan. These are only two examples of the many programs that were put into place. The problem is that a number of individuals and businesses received those funds under false pretenses, and the IRS criminal investigation division is committed to finding them and ensuring that justice is paid.

Tax Fraud and Money Laundering Cases

According to the IRS Criminal Investigation Division, who has been working alongside the U.S. Attorney’s Office to find and prosecute perpetrators, there have been over 350 different tax fraud and money laundering cases across the country related to CARES Act funds. These 350 different cases amounted to an astonishing 440 million dollars worth of misused money. In order to find the people who have filed false claims or fraudulently obtained Paycheck Protection Act loans, they have resorted to working with local law enforcement and other organizations.

False Unemployment Claims

A number of the fraudulent claims that the IRS Criminal Investigation Division has uncovered are false unemployment claims. The CARES Act provided an additional amount of money, for people who became unemployed due to the COVID-19 pandemic, with the federal government giving money to the states who then disbursed it to eligible individuals.

When the COVID-19 pandemic hit, non-essential workers were furloughed or laid off by the thousands. The unemployment rate in the United States hit a new high, and so did the number of people applying for unemployment compensation. On top of this, people who were formerly ineligible for unemployment, such as independent contractors and gig workers, were now allowed to file and receive compensation. As such, states were overwhelmed and a number of fraudulent cases snuck through.

The results left a number of people who were allowed to receive unemployment without a way of getting ahold of state officials, due to the vast amount of people applying at once. Since some of these people were not eligible for unemployment, yet received standard unemployment compensation and the additional amount anyway, it’s understandable that laid off workers and federal officials were left angry and looking to find ways to combat those fraudulent claims.

Issues with Economic Impact Payments

The CARES Act also created Economic Impact Payments, also known as a stimulus payment, for eligible taxpayers. These payments were mostly in the amount of $1,200 for a single individual making less than $75,000 per year or $2,400 for a married couple making less than $150,000. Then, in December 2020, an additional Economic Impact Payment in the amount of $600 was sent out to those same individuals, although the eligibility for them was raised so that slightly fewer people received the full amount.

Since both of the Economic Impact Payments rolled out quickly in order to get much-needed funds in the hands of people who needed them the most, of course, fraud occurred. Some people received additional stimulus payments on top of the first ones that appeared in their bank accounts. In other cases, deceased individuals received the money. The IRS went off of the previous two years’ worth of tax returns in order to come up with the amounts that people received, leaving some with the chance to file a false return for 2019 so that they could qualify.

On top of that, when physical checks were sent out with stimulus funds for people who did not have a bank account on file with the IRS, additional fraudulent activity took place as some checks were intercepted and cashed by those other than whom the money was intended. All of this fraud led to a number of problems, as those funds could have been better used for the people who needed them the most.

Paycheck Protection Act Loan Fraud

At the same time, the Paycheck Protection Act loans were created. These loans were designed for small businesses, and as such, were run by the Small Business Administration who reached out to local banks for assistance in reaching eligible companies. The problems with this system were multiple. One, the loans did not define what a small business was, leaving some larger companies to apply for and receive them. In addition, many local banks tended to favor those companies that they had prior relationships with, allowing them to receive loans while other eligible small businesses did not receive any funds before they ran out.

Paycheck Protection Act loans are designed to do exactly as the name implies – protect the paychecks of those employed by small businesses. Those companies that were affected by the pandemic, seeing a drop in revenue, could keep their employees doing their jobs, despite this lack of funds, thanks to the loans. Even better, once these small businesses provided the right paperwork and proof that they used the funds to pay their workers, they could have the loans forgiven by the government. Otherwise, they would have to pay the loan back, although the interest rate was fairly low and the terms of the loan quite fair.

As you could imagine, fraud was rampant when these Paycheck Protection Act loans were being disbursed. Not only were larger companies, such as nationwide restaurant chains, applying for and receiving them, but so were people whose companies, as such, did not quite qualify for the loans. Some of these companies only employed one person (the owner), while others did not exist prior to the creation of the CARES Act. These fraudulent companies received funds, while legitimate eligible businesses did not. It is no wonder why the IRS Criminal Investigation Division is trying to find and prosecute them.

Why The IRS?

One question here is: why is the IRS investigating these crimes? Since the money obtained by the individuals, either through fraudulent unemployment claims, false Economic Impact Payments, or Paycheck Protection Act loan abuse was either sent out by the IRS (in the case of the Economic Impact Payments) or will be placed on a tax return (the unemployment money and the Paycheck Protection Act loans), it falls into the hands of the IRS to find and prosecute those who have committed financial misdeeds regarding them. Plus, the IRS already has a financial crime division in place, the Criminal Investigation Division, who have the ability to step in and find those who committed the crimes.

Some Prominent Examples

A few prominent examples of people who have been investigated by the IRS and found guilty in a court of law include Nadine Consuelo Jackson, a woman from Dayton, Ohio. She used her company, Extract LLC to receive three different loans – two Paycheck Protection Act loans and one Economic Injury Disaster Loan – from the Small Business Administration. The Paycheck Protection Act loans were for 1.3 million dollars and 1.2 million dollars respectively. The only problem was that the company that she claimed had 70 employees only had one: her. She received 24 months in prison for wire fraud, as well as making a false statement to a bank.

Other examples come from Georgia and South Carolina. Six people were indicted in one particular Paycheck Protection Act loan scheme that netted them a collective 3 million dollars. This scheme was put into place by Rodericque Thompson who recruited the others, all small business owners, to file false loan applications in order to receive Paycheck Protection Act loans. Once those loans were received, Rodericque Thompson was given a portion of each loan as payment. Each person involved in the plan was charged with money laundering, bank fraud, making false statements to a financial institution, and conspiracy to commit bank fraud.

A final example (although by no means the last person charged with committing one of these crimes) comes from New Jersey. Bernard Lopez applied for and received a Paycheck Protection Act loan for his business, Company-1, even though his business does not employ anyone but himself. On top of that, he stole and then altered a U.S. Treasury check made out to Pezlo Management LLC. He opened an account in that company’s name, deposited the check, and then withdrew the funds for personal use. Bernard Lopez wound up pleading guilty to bank fraud and other crimes, and will be sentenced in October of 2021.

Contact Us Today

If you have received a notice that you are under investigation for COVID-19-related tax fraud or suspect that someone you know has, then reach out to the tax advisors at Enterprise Consultants Group. We can answer your questions, discuss your rights, and provide actionable options. Please contact us online or at (800) 575-9284 today to schedule a free and confidential consultation to see how we can help you.

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