New Jersey Tax Preparer Charged in COVID-19 Employment Tax Credit Scheme

A federal grand jury in Newark, New Jersey, returned an indictment today charging a New Jersey tax preparer with fraudulently seeking more than $150 million from the IRS by filing more than 1,600 false tax returns for himself and his clients that claimed COVID-19-related employment tax credits.   

Leon Haynes, of Teaneck, New Jersey, was charged with 55 counts of aiding and assisting in the preparation of false tax returns, five counts of mail fraud, one count of aggravated identity theft and two counts of tax evasion. Haynes was previously charged by complaint in relation to the same scheme.

In response to the COVID-19 pandemic and its economic impact, Congress authorized an employee retention tax credit that an eligible small business could use to reduce the employment tax it owed to the IRS, also known as the “employee retention credit” or ERC.

Congress also authorized a credit that a business could take against employment taxes to reimburse businesses for the wages paid to employees who were on sick or family leave and could not work because of COVID-19. This “paid sick and family leave credit” was equal to the wages the business paid the employees during their leave.

As charged in the indictment, from November 2020 to May 2023, Haynes repeatedly exploited these programs that were intended to help small businesses impacted by the COVID-19 pandemic. Acting as a tax preparer, Haynes allegedly filed more than 1,600 false employment tax returns with the IRS claiming COVID-related tax credits on behalf of himself and his clients.

Haynes allegedly falsely told his clients that the government was giving out COVID-relief money for businesses and that they were eligible for it simply because they had a business. Haynes allegedly submitted forms to the IRS on behalf of his client’s businesses, often without consulting his clients, that grossly overstated the number of employees and the amount of wages paid to fraudulently claim these COVID-related tax credits. Haynes allegedly submitted similarly false forms for four of his own companies.

According to the indictment, based on these and other misrepresentations, Haynes fraudulently sought more than $150 million in tax refunds on behalf of his companies and numerous other businesses in his clients’ names. 

The IRS allegedly disbursed at least $40 million in tax refunds to Haynes’ clients based on the false tax forms that Haynes filed.  Haynes allegedly collected a percentage of the tax refunds the client received from the IRS as a fee. At Haynes’ request, many clients allegedly paid him those fees in cash. Haynes allegedly did not report on his or his businesses’ tax returns some of the income he received from clients as his share of the fraudulent obtained tax refunds. The IRS also allegedly directly mailed Haynes multiple tax refund checks totaling $1,428,592 based on false claims he submitted relating to his businesses.

If convicted, Haynes faces a maximum penalty of 20 years in prison for each mail fraud charge, a maximum penalty of five years in prison for each tax evasion charge, three years in prison for aiding and assisting in the preparation of false return charge and two years in prison for the aggravated identity theft charge. A federal district court judge will determine the sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division and U.S. Attorney Phillip R. Sellinger for the District of New Jersey made the announcement.

IRS Criminal Investigation, the Social Security Administration’s Office of the Inspector General and the U.S. Postal Service are investigating the case.

Trial Attorney Sam Bean of the Justice Department’s Tax Division and Assistant U.S. Attorney Fatime Cano for the District of New Jersey are prosecuting the case.   

An indictment is merely an allegation. All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.