COVID-19 Fraud Schemes

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As the COVID-19 pandemic continues to present challenges in all areas of life, it is important for CPAs to stay informed about the newest and most prevalent COVID-19-related fraud schemes and scams.  COVID-19 has opened up new opportunities for fraudsters to steal from individuals and businesses.  This blog post highlights some of the latest tactics that criminals are using to steal from the public and that CPAs need to be aware of in all areas of accounting.

Unemployment Insurance Fraud

Both employers and employees have been found committing unemployment insurance fraud.  Many state unemployment systems were unprepared for the barrage of unemployment claims at the start of the pandemic.  The level of overwhelm allowed people to find multiple ways to defraud the system.  Some of the types of unemployment fraud that have been discovered include:

  • Using false or stolen identification information to file for benefits.  Many people have received notification of a stranger filing for unemployment benefits using their social security number and other identifying documentation.

  • Employees and employers working together, colluding, to take advantage of the system by collecting benefits for the employee who is still working.

  • Individuals returning to work but not reporting the change in employment status.

  • Inflating the wage amounts reported to increase the amount of unemployment collected.

  • State unemployment employees inappropriately accessing the payment system to alter information and steal funds.

Tax Preparation Schemes

COVID-19 has made it easier for tax preparers to commit fraud and steal from clients and the government.  While we think of tax preparers as having strong ethics, the financial challenges of the pandemic have created more temptations for those with their own personal financial issues and tax professionals are not exempt from these temptations.  Tax preparation fraud schemes to be on the lookout for include:

  • Inflating tax refunds by claiming improper or fake deductions

  • Direct depositing a portion of a client’s refund into the preparer’s own bank account

  • Increasing a client’s income to increase the amount of credit claimed on the return.  An increase in credits can often increase the amount of a client’s tax refund.

  • Requiring clients to pay for tax services with cash and not giving a receipt for services provided.

  • Preparers receiving payment from a client but refusing to sign as the paid preparer on the return.

Senior Adult Scams

Scamming the senior population is nothing new; it is a prevalent type of fraud.  But the pandemic has increased the amount of senior citizen fraud.  Using threats as well as some of the tax preparation schemes listed above are common ways of defrauding senior adults.  Technology during COVID-19 is challenging for many seniors, and fraudsters have taken advantage of this lack of technological knowledge to steal from senior adults.

Immigration Fraud

Similar to senior adult fraud, immigration fraud takes advantage of the immigrants living in the United States.  Fraud is committed against immigrants but using their limited English proficiency against them and by making threats of incarceration, deportation, or drivers’ license revocation without their cooperation.  

Offers-in-Compromise Tricks

When the IRS and a taxpayer settle a tax debt owed by the taxpayer, it is called an offer-in-compromise, which is a completely legal process.  Unfortunately, some businesses are promising illegal debt settlements that will get rid of all of a taxpayer’s debt for a very low sum.  

These businesses collect a fee upfront to settle the debt amount owed, knowing that the client would not qualify for an offer-in-compromise plan.  The IRS does provide some tools on their website for use in evaluating if a person or business is eligible for an offer-in-compromise.