In a groundbreaking development on February 1, 2023, a federal grand jury in Salt Lake City, Utah, handed down an indictment that has sent shockwaves through the accounting world. The defendants named in the indictment are Zachary Bassett, Mason Warr, and their firm COS Accounting & Tax LLC, operating under the alias 1099 Tax Pros. This indictment marks a historic moment as it is believed to be the first-ever criminal charge brought forth in relation to the Employee Retention Credit (ERC).
The charges leveled against the accused are extensive, including conspiracy to defraud the United States, wire fraud, and aiding and abetting the filing of false tax returns. According to the Department of Justice, the defendants engaged in a meticulously planned scheme over a span of 16 months, preparing and submitting more than 1,000 Forms 941 and Forms 7200. These submissions fraudulently claimed over $11 million in employee retention credits.
The alleged modus operandi involved targeting single member LLCs, ranging from independent contractors to rideshare drivers and sole proprietors, persuading them to convert their businesses into LLCs taxed as S corporations to illegitimately claim the ERC. The indictment also accuses the defendants of artificially inflating the credit amounts by falsely claiming the maximum allowable wage per employee, irrespective of whether it was actually paid.
Furthermore, prosecutors claim that the defendants resorted to unscrupulous tactics like listing spouses of married single-member LLC owners as employees, even when they had no legitimate role in the business. This tactic aimed to increase the amount of ERC fraudulently claimed. Additionally, the defendants allegedly filed for sick and family leave wages without ensuring that the employees had qualifying events for such leaves.
Perhaps one of the most shocking allegations in the indictment is that the defendants forged their clients’ signatures on certain tax returns, further compounding their fraudulent activities.
Each defendant now faces a staggering twenty-five criminal counts, and the government is not stopping there. They are actively pursuing the forfeiture of property purchased with the ill-gotten gains, which could include real estate, luxury cars, valuable jewelry, and any other assets derived from the preparation and filing of fraudulent tax returns.
This landmark indictment sends a clear message to tax credit promoters and taxpayers alike. With President Joe Biden’s administration taking a firm stance against pandemic-related fraud, it is highly anticipated that the IRS and the Department of Justice will intensify their efforts, leading to more criminal charges in the future against individuals involved in ERC fraud. As this case unfolds, it serves as a stark reminder of the consequences awaiting those who attempt to exploit government programs for personal gain, at the expense of honest taxpayers and the nation’s financial integrity.
