Covid Crooks Were No Match for IRS in Pandemic Fraud Task Force

The Covid-19 pandemic brought about a once-in-a-generation health crisis, also creating a surge in fraud. Earlier this month, the IRS’s Criminal Investigation Division unveiled a conspicuously high conviction rate—over 98% for the more than 300 Covid-19 fraud cases investigated in the last three years.

This oversized conviction rate has many wondering what makes Covid-19 cases different from your typical tax case. I contend the answer lies in the way the relief programs were administered, and the unique capabilities that IRS CI brings to these types of investigations.

IRS CI plays a crucial role investigating tax and other financial crimes, forming the backbone of our voluntary compliance tax system. Over the years, it has regularly boasted one of the highest conviction rates in federal law enforcement.

Five years ago, the thought of the IRS administering social aid would have been foreign to most of us. The economic stimulus packages and relief programs introduced during the pandemic have provided fraudsters with new avenues for exploitation. Covid-19 fraud is unique only in that fraud was created by something the IRS did in the first place—administer aid in an expedient manner.

The government has been criticized for the way it administered pandemic aid—quickly and to everyone—without many protective layers that would have stopped some fraud, but kept aid out of the hands of those who needed it most. But speed was essential in distributing the aid.

All these factors contributed to the amount and timing of Covid-19 fraud, but what has made IRS CI so effective in combating it?

Public Awareness

Oddly enough, the urgency and severity of the pandemic heightened awareness of this fraud in ways not seen in the past. Sustained media campaigns by the IRS and other agencies warned the public of identity theft—and it still took years for the public to take notice.

But the immediate impact of Covid-19 fraud on aid programs affecting the public, coupled with the immediate governmental focus on these crimes, led to greater resources and attention dedicated to investigations.

Shortly after Covid-19 fraud began to pop up, a task force was formed that took a whole-of-government approach. The collaboration between the IRS and other law enforcement agencies, such as the FBI and the Department of Justice, enhanced the effectiveness of investigations and prosecutions. The results have been impressive.

Once fraud was detected, the IRS and IRS CI immediately began warning the public about what they were seeing. Investigators have attributed an increase in reporting of suspicious activities to the corresponding heightened public awareness surrounding this type of fraud. This influx of tips and information helped the IRS identify potential fraudsters and build strong cases against them.

Sidestepping Criminals

The final step of the investigation was actually performed by the public that made up the jury. When criminals take money that was intended for truly worthy recipients, someone in need is left without. The government’s approach and response in that regard was commendable.

Covid-19 fraud cases also present unique advantages that contribute to the IRS’s high conviction rate. The pandemic created an environment of fear and urgency, making individuals more susceptible to scams. People needed money. Covid-19 aid programs were new. Scams were more believable, and desperation caused the public to take more risks.

However, these fraudsters weren’t the smartest of criminals, and as is typically the case, they left a trail of financial evidence for investigators to follow. By and large, these cases were easy to prove—certainly far easier than a tax case.

When fraudsters lie about the number of employees they have, and about the formation of their company, and then in many cases spend their ill-gotten proceeds on visible toys, it makes for low hanging investigative fruit.

This is a fairly simple fraud—accessible financial evidence, willing witnesses, and a limited number of years, making for speedy prosecutions. These factors contributed to a higher conviction rate on Covid-19 fraud cases.

Going Forward

While IRS CI’s Covid-19 fraud conviction rate is impressive, it also has unintended consequences. Covid-19 fraud isn’t the agency’s primary mission, and there’s only a finite number of cases the IRS can work each year.

Taking an already resource-strapped federal agency away from its primary mission of prosecuting federal tax crimes means tax administration suffers. IRS CI has consistently risen to the occasion to combat these challenges, but a breaking point can’t be too far in the future.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Don Fort is director of investigations at Kostelanetz and the immediate past chief of the IRS’s Criminal Investigation Division.