IRS Investigates Questionable Claims in COVID-19 Tax Relief Initiatives

The IRS is cracking down on COVID-19 tax relief fraud as cases like Candies Goode-McCoy’s $100 million scam come to light, shining a spotlight on the vulnerabilities in these programs.

Key Takeaways

Goode-McCoy filed over 1,200 fraudulent tax returns, claiming nearly $100 million in COVID-19 tax credits.
The IRS has identified a high risk of fraudulent claims within ERC applications and initiated numerous criminal cases.
Lawmakers have introduced a bill to repeal the ERC to combat fraud.

Cracking Down on COVID-19 Tax Credit Fraud

The IRS has ramped up its efforts to tackle widespread fraud in COVID-19 tax relief programs. Notably, the Employee Retention Credit (ERC) has faced abuse. One standout case involves Candies Goode-McCoy in Nevada, who admitted guilt to charges of defrauding the government. She filed over 1,200 false returns across 16 months to claim nearly $100 million in fraudulent credits. During this period, she received $1.3 million, in addition to $800,000 from clients.

Goode-McCoy’s lavish spending, which included gambling and luxury purchases, underscores the misuse of funds intended for pandemic relief. According to the Justice Department, neither she nor her clients qualified for the credits: “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.”

Focus on High-Risk Claims

The IRS has increased scrutiny, given the high percentage of ERC claims flagged for potential fraud. With 10-20% of applications identified as high-risk, the IRS Criminal Investigation Department has opened 450 cases related to disruptive claims amounting to nearly $7 billion. Bolstered by such actions, some lawmakers are proposing legislation to amend or repeal the ERC.

Response from Lawmakers

In response to these threats and fraud cases, lawmakers introduced the Employee Retention Tax Credit Repeal Act. The act seeks tougher penalties for false claims and would end ERC application processing after January 31, 2024. The need to stamp out fraud continues to be critical, as private enterprises must adhere to compliance standards to ensure program resources reach the intended beneficiaries.

The tightening of federal oversight aims to protect the integrity of tax relief programs. Yet, fraud cases like Goode-McCoy’s demonstrate the ongoing challenges in safeguarding government financial aid during times of crisis.