New Jersey Companies Thriving During the COVID-19 Crisis May Be at Risk for Tax Fraud Investigations

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Posted on October 30, 2020 |

While the COVID-19 crisis has had a substantial impact on New Jersey’s economy, and while many businesses have been forced to shut down, some companies are thriving. For those that are, the risk of facing a federal tax fraud investigation is a very real concern.

Since the start of the pandemic, Internal Revenue Service Criminal Investigations (IRS-CI) has been aggressively targeting individuals and businesses suspected of COVID-19-related tax fraud; and, with a substantial number of businesses suffering, economic prosperity may be viewed as a “red flag” for federal tax evasion. Here, New Jersey tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, discusses five tax-related issues that present risks for businesses during the novel coronavirus pandemic.

5 Tax Fraud Concerns Related to the COVID-19 Crisis

1. Submitting Fraudulent Tax Documents In Support of PPP Loan Applications

In many cases, IRS-CI is targeting businesses that are suspected of submitting fraudulent tax documents in support of their applications for Paycheck Protection Program (PPP) loans. Under the terms of the PPP, applicants were required to demonstrate their eligibility to receive federal funds, and submitting their prior years’ tax returns was among the primary means for doing so. However, it has now become clear that numerous PPP loan applicants submitted fraudulent tax documents, and this has led IRS-CI to carefully examine the tax records accompanying many PPP loan recipients’ applications.

2. Fraudulently Claiming Business Deductions Related to the Use of PPP Loan Funds

In addition to PPP loan application fraud, many companies are facing allegations of claiming improper deductions related to their use of PPP loan funds as well. Certain business expenses paid with PPP loan funds are not eligible to be deducted, and this is a restriction of which many business owners are (or previously were) unaware.

3. Failure to Collect or Remit Employment Taxes

During the COVID-19 crisis, some companies have faced allegations of bolstering their finances by falsifying payroll records and/or failing remit employment taxes. These are both serious violations of federal tax law that can lead to civil or criminal prosecution.

4. Misclassification of Employees

Some companies have also faced allegations of seeking to avoid employment-related expenses by misclassifying their employees as independent contractors. Conversely, some companies have been accused of claiming that their independent contractors are employees in order to secure additional PPP loan funds.

5. Failing to Report (or Pay) Taxable Business Income

Finally, in addition to investigating issues related specifically to the COVID-19 crisis, IRS-CI is continuing to aggressively target companies suspected of failing to accurately report and pay their federal tax liability. In these cases, companies, their owners and their executives can all potentially face prosecution for civil or criminal tax evasion and tax fraud.

Do You Need a New Jersey Tax Lawyer? Contact Kevin E. Thorn, Managing Partner of Thorn Law Group

If you have been contacted by agents from IRS-CI, it is important that you speak with a New Jersey tax lawyer immediately. To schedule a confidential consultation with Kevin E. Thorn, Managing Partner of Thorn Law Group, call 201-355-8202, email or request an appointment online now.

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