An Internal Revenue Services (IRS) investigation has revealed that fraud related to COVID-relief funds has cost taxpayers more than $3 billion.
- During the early days of the COVID-19 pandemic, the federal government released trillions of dollars in aid to individuals, businesses, and governments.
- Now, the IRS has investigated 975 cases of alleged tax and money laundering related to COVID-19 funding, adding up to $3.2 billion, Forbes reports.
- Following the investigations, 458 individuals have been indicted and 236 sentenced to federal prison concerning COVID-fraud-related activities.
- The fraud tends to be in one of three categories: Paycheck Protection Program (PPP) fraud, Economic Injury Disaster Loans (EIDL) fraud, and Unemployment Insurance (UI) fraud.
Why it’s news
During the pandemic, COVID relief programs like the CARES Act represented needed assistance for millions of Americans and businesses that struggled to survive the shutdown. Fraudsters who took advantage of these programs intercepted billions of funds that could have supported Americans in need.
Around 12 million loans worth $800 billion were approved for PPP funding. This loan was meant for small business owners to help them survive the shutdown and continue to pay their employees. The average loan was around $42,000. Some fraudsters inflated their payroll expenses to access larger funds, and others established shell corporations with no employees and pocketed the entire loan for themselves.
EIDL fraud was among the smallest categories of fraud, as these loans were not as popular as others. About $378 billion worth of loans to nearly four million applicants were awarded during the pandemic. Unlike other funds, an EIDL must be repaid eventually.
These loans were supposed to be used to cover the typical operating expenses of a business. Certain businesses that met special criteria did not have to repay these loans. Like the PPP loans, fraudsters created fake companies to claim these loans.
UI fraud is among the most complicated forms of pandemic assistance fraud to resolve. More than $653 billion was paid out in UI assistance. However, scammers had multiple avenues to exploit this funding. Some falsified documents, others stole the identities of eligible applicants, and still others created fake unemployment benefit websites to steal taxpayer information, Forbes reports.
In all, the Department of Labor estimated that the total amount of UI benefit fraud is—at a minimum—$39.2 billion. To make matters more complicated, honest applicants who accidentally filled out forms incorrectly were often investigated. The prevalence of fraud and application mistakes led to many delays for those needing assistance.
So far, the IRS has been successfully prosecuting these cases of fraud. It has a nearly 100% conviction rate in prosecuted cases.