The Internal Revenue Service is cracking down on small businesses that may have improperly used federally-backed COVID relief funds.
IRS Launches Investigation Into CARES Act Fraud
In a strong show of action, the IRS has assigned 30,000 agents from their ranks to dig into millions of potential fraud cases related to CARES (Coronavirus Aid, Relief, and Economic Security) Act funds.
Small businesses across the country have been flagged.
Small Businesses to Be Scrutinized
The businesses in question received pandemic relief funds in the form of loans that the government backed, intended to help keep businesses afloat during COVID-19 lockdowns.
CARES Act Funds Meant for Specific Uses
The loans were issued with no interest and were supposed to be used to make sure employees could still get paid even while the businesses were struggling with decreased revenue.
Unauthorized Use of CARES Act Funds is Fraud
Rumors had been circulating for a while that many relief recipients had accepted the funds but used them for unauthorized purposes.
The IRS considered this fraud, and the businesses who engaged in this behavior face potentially severe consequences.
New IRS Funding Provides Backing Needed for Investigation
Until recently, the IRS did not have the funding needed to investigate these rumors properly, so the issue was put on the back burner.
But recently, the IRS received $80 billion from the federal budget, so an investigation is now being launched.
Nearly a Trillion Dollars May Have Been Misused
The government issued $1.2 trillion in small business relief to millions of small businesses, so an investigation of this scope is no easy task.
Emerging details reveal that 70% – or $840 billion – was not properly paid to employees as intended.
Owners and Investors Pocketed Loan Funds
Instead, the majority of the funds meant to supplement wages went into the pockets of owners and investors.
Widespread fraud is being revealed – fraud that ultimately cost American taxpayers money.
Many of the Loans in Question Have Been Forgiven
Since a great deal of the loans that were given as part of COVID relief funding programs have been forgiven, critics are concerned that billions of taxpayer dollars were treated as free money for business owners while their employees went without pay.
Calls for IRS Action Come From Multiple Angles
Taxpayers and members of Congress have all been leaning on the IRS to do something about the issue in an attempt to recover the money lost as well as provide consequences for the fraudulent activity.
Nerves Mount as Businesses Await Investigation
If found accountable, small business owners could be in big trouble. Impending audits have some nervous about what happens if the IRS takes legal action against them.
Some Owners May Have Assumed Use of Funds Would Be Overlooked
It seems that some percentage of business owners who received relief funds thought that the loans would not be scrutinized and, therefore, felt justified in using the funds however they saw fit.
Public Watches to See How Investigation is Managed
Financial experts expect that how the IRS handles such a massive investigation will impact the overall public opinion of the agency and the federal government as a whole.
As businesses are held responsible for any fraud they may have committed, many questions still remain about what will happen with recovered funds.
Concern About Recovered Funds
Some wonder if the employees who originally should have received the funds should be compensated.
Others, whose distrust of the IRS has been well documented, worry that any recouped funds would not be regulated once received.
Distrust in Government Drives Fears
Other concerns have farther-reaching economic impacts, like whether the relief funds were used to line the pockets of investors who may have used that money to buy up real estate – inflating the market and putting homeownership out of reach for more Americans than ever.
Investigation to Take Years
Taxpayers can expect the investigation to take a significant amount of time. It will probably be years before any action is taken, as the IRS taskforce has to follow a specific set of rules.
IRS Advises Care with Government Funds
Until then, the IRS urges recipients of any government-backed funds to proceed with caution and familiarize themselves with any conditions of using the funds.
Government Determined to Recover Funds
The stakes are high for the investigation, and the federal government is motivated to hold anyone who committed fraud accountable.
There’s a high probability that consequences will be serious as the IRS sends a message about the severity of the situation.
IRS Cites Example of Convicted Fraudster
The IRS notes on its website that obtaining CARES Act funds under false pretenses or using the funds in unauthorized ways is illegal.
The website details an example of a Rhode Island man who was caught fraudulently obtaining funds from the Paycheck Protection Program.
Jail Time a Possibility for Perpetrators
After being caught, the man was prosecuted and now has to serve nearly five years in a federal prison. As more fraud is revealed in the investigation, it is highly likely that more people will face the same punishment.
The post IRS Cracks Down on COVID Relief Fund Fraud by Small Businesses, Targets Misused Funds first appeared on Swift Feed.
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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.