IRS Grapples with Fraud in Pandemic Tax Credit Schemes: A Closer Look

The IRS is battling significant fraud issues within pandemic tax credit programs such as the Employee Retention Credit, spotlighting cases like Candies Goode-McCoy’s $100 million fraud scheme.

Key Takeaways

The IRS is investigating fraudulent activities in pandemic-related tax credit programs, notably the Employee Retention Credit.
Nevada resident Candies Goode-McCoy admitted to a $100 million fraud scheme using falsified tax returns.
The IRS initiated 450 criminal cases to tackle the rising fraud, identifying $7 billion in suspicious claims.
Lawmakers introduced legislation to repeal the ERC to curb fraudulent claims and increase penalties.

Fraudulent Activities and Legal Measures

Amidst the pandemic relief efforts, fraudulent activities surrounding tax credits have posed severe challenges to the IRS. Programs such as the Employee Retention Credit, aimed to support businesses during the COVID-19 pandemic, have been exploited for fraud. Key among these is the case of Candies Goode-McCoy from Nevada who filed over 1,200 fraudulent tax returns, seeking almost $100 million in COVID-19 credits.

Goode-McCoy managed to ensure the IRS paid out $33 million, of which she pocketed $1.3 million and received $800,000 more from clients. This money was lavishly spent on gambling, vacations, luxury cars, and designer clothing. The businesses she filed returns for were ineligible for these credits, underscoring the scheme’s scale.

Legislative Response and Future Outlook

The Department of Justice, in an aggressive crackdown on fraudulent activities, has charged seven individuals involved in a related $600 million COVID-19 tax credit fraud. Such scrutiny has led to identifying 10-20% of Employee Retention Credit claims as high-risk. In response, the IRS initiated 450 criminal cases associated with nearly $7 billion in potentially fraudulent claims.

The IRS has also issued guidance to businesses for identifying incorrect ERC claims and warned against aggressive promoters. Lawmakers proposed the Employee Retention Tax Credit Repeal Act, to cease claim processing on January 31, 2024, and enhance fraud penalties. These measures signify concerted efforts to protect the integrity of pandemic relief programs and deter future fraudulent activities.