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ICYMI: California Inmate’s ERTC Fraud Scheme Underlines Need for Repeal

March 21, 2024

WASHINGTON, D.C. – A California inmate reportedly defrauded U.S. taxpayers out of over $550 million by falsely claiming COVID-era Employee Retention Tax Credits (ERTC), according to the Internal Revenue Service (IRS). The complex scheme is the latest example of abuse of the ERTC program and underlines the need to pass the Tax Relief for American Families and Workers Act, which saves taxpayers over $70 billion by ending the program.

According to the IRS, Kern Valley State Prison inmate, Kristopher Thomas, and his co-conspirators filed hundreds of payroll tax returns while incarcerated, claiming ERTC benefits for ineligible and nonexistent companies. Thomas went on to use the millions of dollars he stole from taxpayers to finance personal expenditures and lavish trips for his friends and family, including a party at a luxury penthouse in Las Vegas and a flight on a private jet.

During a Ways and Means Subcommittee on Oversight hearing last year, Ways and Means Committee Chairman Jason Smith (MO-08) underscored his concern with fraud in the ERTC program:

“We also know the Employee Retention Tax Credit program has been an easy and convenient target for criminals seeking to defraud the government as well as small businesses – to such an extent that as was discussed at our Oversight hearing in July, the ERTC program is on the IRS’ ‘Dirty Dozen’ list of worst scams in the country. In fact, as of the end of July, the IRS has initiated 252 investigations covering over $2.8 billion of potentially fraudulent ERTC claims from 2020 to 2022.”

At the time of the ERTC’s creation, the Congressional Budget Office (CBO) projected the program would cost taxpayers $55 billion. However, as of last year, the program has cost taxpayers more than $230 billion – over four times CBO’s original projection. The nonpartisan Joint Committee on Taxation (JCT) estimates the ERTC repeal included in the Tax Relief for American Families and Workers Act will save the federal government an estimated $77 billion, while failing to act will cost taxpayers nearly $1 billion per day.

READ: Tax Relief for American Families and Workers Act Ends COVID Program Rife with Fraud, Saving Taxpayers Over $70 Billion