Auditor makes internal audit of company and checks financial report with magnifying glass.
With the release of the IRS’ strategic operating plan (you can read about it here), there has been a lot of conversation about enforcement. Specifically, there are worries that the IRS will use extra funding from Congress to target working families and small businesses making under $400,000—a charge that both Treasury Secretary Yellen and IRS Commissioner Danny Werfel have denied.
While these debates continue, IRS has been using existing resources to continue enforcement activities—both civil and criminal. Some of these efforts—the ones that catch the bad guys—don’t get much exposure. That’s especially true in a climate where enforcement has become politically charged. But understanding the work that’s happening should be an essential part of the story. Here’s a look at two enforcement efforts that resulted in criminal charges.
PPP Fraud
Earlier this year, Sherry Joseph of New York, New York, was sentenced to 45 months in prison for her role in a fraudulent loan scheme that attempted to nab more than $9.2 million in forgivable Paycheck Protection Program (PPP) loans. In addition to her prison sentence, Joseph was ordered to serve three years of supervised release and pay $1,612,837.78 in restitution and $55,000 in forfeiture.
Joseph pleaded guilty in the Southern District of Florida to conspiracy to commit wire fraud on Nov. 10, 2022. Wire fraud involves wire communication—in this case, it involves the internet—sent across state lines to promote or commit fraud. According to court documents, Joseph recruited multiple individuals to apply for fraudulent PPP loans for kickbacks from their PPP loan proceeds. Joseph used aliases, including “Gray” and “Mia Santos” to send the information to co-conspirators to prepare fraudulent PPP loan applications that included falsified bank statements and payroll tax forms and falsely represented the borrowing entities’ number of employees and amount of monthly payroll. This wasn’t Joseph’s first run-in with law enforcement—she engaged in the scheme while on pretrial release for separate federal fraud-related offenses.
IRS Criminal Investigations (IRS-CI) and the Small Business Administration Office of Inspector General (SBA-OIG) investigated the case.
IRS-CI is the criminal investigative arm of the IRS. IRS-CI works closely on tax-related investigations with federal, state, and local law enforcement partners and foreign tax and law enforcement agencies. About 2,100 Special Agents work those cases, combining accounting and law enforcement skills to investigate financial crimes.
David Passonno, who worked the Joseph case, fits that bill. Passonno hails from the upstate Albany, New York, area—which might explain how he ended up as a Special Agent in the Miami field office. He has a bachelor’s degree in accounting and a master’s degree in forensic accounting. He also holds a CPA license and is a certified fraud examiner. That combination of education and skills led him to IRS-CI.
Since Joseph used aliases and emails, the investigation relied heavily on internet records. Passonno subpoenaed records, including IP addresses, to connect the dots as part of the investigation. That requires organization and patience. “It doesn’t happen too quickly,” according to Passonno.
The emails were sent to multiple individuals beginning in 2020, and it became clear that Joseph wasn’t acting alone. In 2022, Joseph was the 30th person to be charged and convicted in this PPP fraud ring. As part of this scheme and according to court records, Joseph helped at least 19 people apply for $9,233,430 in fraudulent PPP loans—six received PPP loans of between $400,000 and $500,000 each. Overall, the scheme resulted in fraudulent application materials for at least 79 PPP loans worth at least $35,746,506, with additional applications planned to be submitted.
Tips and Referrals
The case began like many IRS-CI cases—through tips and referrals. There are a few ways that taxpayers can report tax fraud and tax crimes. It can start with local law enforcement (identity theft, for example, tends to begin with a report to the police). You can also refer directly to agencies like the National Center for Disaster Fraud (NCDF), which focuses on complaints of fraud, waste, abuse, or mismanagement related to any man-made or natural disaster, including the pandemic. They have an online tip form and a hotline number (1-866-720-5721).
You can report tax fraud to the IRS Whistleblower Office.
Unemployment Compensation Fraud
Economic crime during the pandemic isn’t limited to PPP fraud—many taxpayers were impacted by unemployment compensation fraud.
Special Agent in Charge Yury Kruty worked such a case out of the Philadelphia Field Office. Kruty, who holds a bachelor’s degree in international business, has served all over the world, including time in the U.S. Consulate’s office in Frankfurt, Germany. In August of 2021, he was named Special Agent in Charge of the Philadelphia Field Office, where he is responsible for planning, directing, and evaluating activities of IRS-CI employees in Pennsylvania and Delaware.
During the pandemic, Kruty became aware of a scheme to secure pandemic unemployment compensation benefits—happening inside of a prison. He says that he’s seen a lot of fraud in his 21 years in law enforcement but, he admits, not many crimes from jails. It is, he says, “unique.” But it doesn’t make the activities any less criminal.
Kenneth L. Huggins, Jr., an inmate at Chester County Prison in West Chester, Pennsylvania, applied to receive unemployment compensation, claiming he had been unable to work due to the pandemic, even though he had been incarcerated since before the pandemic began on a state drug trafficking charge. And since, as Kruty noted, it’s difficult to carry out this kind of fraud alone, Huggins sought help. Beginning in July 2020, Huggins arranged to have his mother, Patrice Hawthorne, and cousin, Dashona Lawrence, both co-defendants in the case, submit a fraudulent unemployment claim on his behalf. Huggins also attempted to convince his co-defendants to file fraudulent applications for two of his fellow inmates—who were also ineligible for benefits—and planned to keep the vast majority of any funds paid to those inmates for himself.
The proof in this case? Recorded calls from the prison detailing the scheme. That allowed IRS-CI to proceed faster—since investigating these cases can take up to a year or more. The key is following the money—that’s what IRS-CI says it does best.
Huggins eventually pleaded guilty to mail fraud charges and conspiracy to commit mail fraud stemming from the scheme to file false unemployment compensation claims. Mail fraud is similar to wire fraud, except that it occurs, as the name implies, through the mail. He was sentenced to two years and nine months in prison plus three years of supervised release.
IRS-CI continues to investigate pandemic-related and other crimes. Last year, the agency identified more than $31 billion in tax fraud and other financial crimes. You can read more about IRS-CI in their annual report.
Credit: Source link
