Three sentenced to prison in COVID-19 employment tax credit fraud scheme

A U.S. District Court in the Eastern District of Tennessee sentenced three defendants to federal prison on May 15, 2026, for their participation in a scheme to defraud the IRS through false claims for COVID-19 employment tax credits.

The sentences ranged from 12 to 48 months in prison. The defendants submitted fraudulent claims totaling more than $1.2 million under the Employee Retention Credit program, which Congress created in 2020 to reimburse eligible employers for wages paid to employees during pandemic-related disruptions.

The program served millions of businesses nationwide before fraud prompted tighter IRS scrutiny and claim moratoriums.

The convictions shift the defendants from pretrial status to immediate incarceration followed by supervised release. Restitution orders require full repayment of the fraudulently claimed amounts plus interest and penalties. The sentences take effect immediately upon issuance.

The prison terms initiate collection actions by the Treasury Department, which must now pursue asset forfeiture and lien placements where applicable. Federal probation officers will monitor compliance with restitution schedules for the next three to five years.

The IRS gains concrete data points for its ongoing audit wave targeting the more than $100 billion in potentially fraudulent Employee Retention Credit claims filed during 2020-2022. Prosecutors in other districts can reference the sentencing memorandum as they pursue parallel cases under the same statutes.

This marks the latest in a series of DOJ actions against COVID-19 relief fraud. The department has pursued hundreds of cases since 2021 under the CARES Act and related tax statutes, recovering millions in restitution. The Eastern District of Tennessee has handled multiple employment tax credit prosecutions as part of a coordinated federal effort to claw back pandemic funds obtained through false employee counts and ineligible business claims.