In a recent video series, Robert Goulder of Tax Notes and William Stone III of Morris, Manning & Martin LLP discuss the IRS’s focus on fraud in the employee retention credit claims and syndicated conservation easement transactions. They delve into the distinction between civil and criminal fraud, with criminal fraud typically involving monetary penalties and potential jail time in district court, while civil fraud results in a penalty under section 6663 in the Tax Court.
Stone explains that syndicated conservation easements involve pooling resources with investors to incentivize conservation by placing restrictions on real property. The IRS has targeted these transactions as potentially abusive tax shelters, leading to enforcement actions under former Commissioner Rettig. On the other hand, the employee retention credit (ERC) was introduced as part of COVID-19 relief efforts to support struggling businesses. Stone notes that allegations of fraud in ERC claims have been more prevalent, with bipartisan concerns raised by Senators Wyden and Johnson.
Stone highlights the fact that not all ERC claims have been processed, raising questions about premature fraud allegations. He distinguishes between genuine mistakes in claiming the ERC and clear-cut fraud involving fictitious entities. Stone emphasizes the importance of differentiating between valid claims and fraudulent ones, highlighting the need for a thorough investigation before labeling claims as fraudulent.
The discussion turns to the implications of widespread fraud allegations on taxpayer trust and compliance. Stone draws on the Aesop’s fable “The Boy Who Cried Wolf” to underscore the risk of eroding trust by overstating fraud in programs like conservation easements and the ERC. He suggests that conflating criticisms of program generosity with fraud allegations may undermine taxpayer confidence and distort the legislative approach to curbing government spending.
Stone concludes by emphasizing the role of Congress in addressing concerns about fraud in programs like the ERC through legislative action. He calls for a balanced and evidence-based approach to investigating claims and avoiding premature fraud allegations that can harm taxpayer trust. The discussion sheds light on the complexities of fraud detection and the potential consequences of overstating fraud in federal tax programs.
