By Alan K. Ota

Law360 (April 9, 2020, 1:57 PM EDT) -- The Internal Revenue Service is juggling resource needs to best position itself to launch investigations into fraudulent claims for COVID-19 economic relief payments, the head of the agency's Criminal Investigation Division told Law360.

In the middle of an extended tax filing season, the IRS is assessing whether there is a need for new staff members or reassignments to handle probes into fraudulent claims for recently enacted virus relief payments of $1,200 per adult and $500 per child, Don Fort, chief of the Criminal Investigation Division, told Law360 in an interview. 

Under the newly enacted COVID-19 rescue law,  the Coronavirus Aid, Relief and Economic Security Act, Congress provided the IRS with $500 million to implement the payments through fiscal 2021, including an increase of about $37.2 million, or about 0.7%, in enforcement funding.

"What we are doing right now — because obviously the payments have not gone out yet — is kind of marshaling our resources, understanding how the money is going to go out and what the other agencies are doing," Fort said.

Fort said the CI division — including 2,100 special agents and about 800 other professional employees — likely would also have a role in dealing with fraudulent claims for small business loans from the rescue law's $350 billion Paycheck Protection Program. The division would also work with the U.S. Department of Justice on investigations of purveyors of fake virus treatments or drugs. 

He said special agents were on the job either teleworking or conducting field investigations, with leeway to have face-to-face interviews if needed in states where they are not prevented by virus restrictions like those in effect in New York.

"We are also spending this time doing liaison with the Department of Justice, with our federal law enforcement partners. There are a number of task forces forming in judicial districts. It's the best anyone can do in a remote environment," Fort said.

While the division gears up to conduct such investigations, Fort said that it is participating in IRS public education efforts aimed at warning taxpayers about potential payment fraud schemes. The agency's efforts could be prolonged, as lawmakers in both parties are exploring additional impact payments and additional tax incentives and funding for loans for small businesses in the next virus relief package.

Rep. Mike Quigley, D-Ill., a House Appropriations subcommittee chairman whose purview includes the IRS budget, said he would be checking to see whether additional funding is needed to help CI handle new virus-related responsibilities and continue efforts to reduce the nation's $381 billion annual tax gap. He referred to past IRS funding cuts and a somewhat reduced number of CI special agents, which is down from a high of more than 3,000 in the late 1990s.

"I've been concerned about insufficiency of enforcement dollars for a long time," Quigley told Law360.

Other lawmakers have voiced concerns about whether sufficient safeguards are in place to prevent fraudulent claims for payments. For example, Rep. Jodey Arrington, R-Texas, a tax writer on the House Ways and Means Committee, has argued against including another round of similar payments in a potential new relief package, pointing to potential scams.

"Moving this quickly and throwing this much money at the problem, there's going to be an increase in waste, fraud and abuse," he told Law360.

Former IRS Commissioner John Koskinen told Law360 that CI investigators likely would look for certain red flags as they try to winnow fraudulent claims from legitimate ones. For example, the agency probably would take a closer look at filings for economic impact payments from so-called nonfilers, those with no recent tax returns, he said.

"You will need to have protection systems in place. If someone has never filed before, you will need to take a hard look at them," Koskinen said.

Although the payments were called "recovery rebates" in the rescue law, the agency has settled on an official moniker: economic impact payments. The IRS warned that scammers may make inaccurate references in email, text or social media to a "stimulus check" or "stimulus payment," along with offers to speed up payments or attempts to obtain endorsed payment checks.

IRS and U.S. Department of the Treasury officials plan to send payments by check unless taxpayers already have direct deposit information on file with the IRS or provide such data at a secure portal to be set up for that purpose on the agency's website by mid-April. The IRS has warned there could be phishing emails or text messages that appear to come from the IRS, which carry malicious software designed to steal personal data.

As the agency lays groundwork for the delivery of payments, certain recipients of Social Security benefits, who do not usually file tax returns, have been singled out by the IRS as a group that requires cautious oversight but also some latitude to eliminate paperwork.

Treasury Secretary Steven Mnuchin said April 1 he would waive for such beneficiaries a requirement for an abbreviated tax return to obtain an economic impact payment. The move came after requests for such action from Ways and Means Chairman Richard Neal, D-Mass., and from many Senate Democrats.

In lieu of requiring the paperwork, the IRS simply issued a public notice warning that retirees were "potential targets" for scammers. The notice said the agency would not contact retirees and advised that "no additional action or information on their part is needed" to receive payments.

But Mnuchin has not agreed, as yet, to grant a request from Neal and other Democrats for the automatic delivery of impact statements to recipients of Supplemental Security Income and Veterans Affairs benefits, whether or not they have filed a recent tax return.

Fort declined to comment on whether additional filing waivers would help or hinder efforts to prevent and investigate payment fraud. Regardless, he made clear he would look for ways to focus resources on particular types of scams and hot spots in different geographic areas. And he said the division would look to use technology to help it set priorities.

"Once the money starts going out, if we start to identify some patterns and schemes, that's when we deploy different data analytics tools," he said.

--Editing by Robert Rudinger and Neil Cohen.

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