No Employees, No Credit

Regina Durkin, of New River, Arizona, pleaded guilty to one count of conspiracy to file false claims after court records indicated that she and others submitted false quarterly employment tax returns to the IRS.

The claims sought refunds based on the Employee Retention Credit and the paid sick and family leave credit, pandemic-era credits designed to help qualifying employers. According to court records, the companies were not operating at the time, had no employees, and paid no wages.

In total, Durkin and others submitted fourteen fraudulent claims requesting more than $7.7 million in tax refunds. Sentencing is scheduled for September 11, and the offense carries a maximum penalty of ten years in prison.

Jason explains the line between an unsupported ERC claim and a criminal false-claims case, why payroll records matter, how IRS-CI follows employment tax filings, and what taxpayers and tax professionals should do before a questionable refund claim becomes an IRS-CI problem.

Key Takeaways

• Payroll credits require payroll. If there are no employees and no wages, the claim fails at the foundation.
• A weak ERC claim may create a civil IRS problem. A fabricated payroll story can create criminal exposure. 
• Forms 941 and payroll records are not administrative details. They are evidence.
• Tax professionals should verify source records before preparing or supporting ERC, paid leave, or other payroll credit claims.
• If an unsupported claim has already been filed, move quickly to assess withdrawal, amendment, repayment, penalty defense, and privilege-sensitive communications.

Resources Mentioned

• DOJ case source: https://www.justice.gov/opa/pr/arizona-woman-pleads-guilty-77-million-tax-refund-fraud-s cheme
• IRC § 3134, Employee Retention Credit:[https://uscode.house.gov/view.xhtml?req=(title:26%20section:3134%20edition:prelim)](h ttps://uscode.house.gov/view.xhtml?req=(title:26%20section:3134%20edition:prelim)
• 18 U.S.C. § 286, conspiracy to defraud the government with respect to claims: https://uscode.house.gov/view.xhtml?req=(title:18%20section:286%20edition:prelim)%20 OR%20(granuleid:USC-prelim-title18-section286)&f=treesort&edition=prelim&num=0&ju mpTo=truel
• 26 U.S.C. § 7206, fraud and false statements: https://www.law.cornell.edu/uscode/text/26/7206
• IRS ERC FAQs: https://www.irs.gov/coronavirus/frequently-asked-questions-about-the-employee-retentio n-credit
• The Law Office of Jason Carr, PLLC: https://carrtaxlaw.com

Disclaimer 

This video is for informational and educational purposes only and does not constitute legal or tax advice. Viewing this video does not create an attorney-client relationship between you and The Law Office of Jason Carr, PLLC. The discussion is based on publicly available information and is not a complete analysis of any person’s legal rights, defenses, tax obligations, or case facts. Any commentary about what a taxpayer, business owner, or advisor “should have done” is general educational discussion only and may not apply to your situation. If you have a specific legal or tax question, consult a qualified attorney or tax professional licensed in your jurisdiction.

Comment Policy

Please do not post confidential, sensitive, or personally identifiable tax information in the comments. We do not provide individualized legal or tax advice in the comments or social media replies.

Transcript

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SPEAKER_01 0:06

You're listening to Final Notice. Real tax cases exposed with Jason Carr. Each week we break down real Department of Justice tax fraud prosecutions and reveal what should have been done to avoid them. And now here's your host, Jason Carr.

SPEAKER_00 0:29

14 refund claims, more than $7.7 million requested from the IRS, and the businesses behind the claims allegedly had no employees, paid no wages, and were not even operating. Today's case is about Regina Durkin from New River, Arizona. Court records indicate Durkin and others conspired to defraud the United States by submitting false quarterly employment tax returns to the IRS. The refund claims were based on two pandemic era credits, the Employee Retention Credit and the Paid Sick and Family Leave Credit. Those credits were created to help real businesses during COVID, real operations, real employees, real wages. According to the case materials, that was the problem. The companies used in this scheme were not even operating at the time. They had no employees, they paid no wages. And yet Durkin and others submitted 14 claims to the IRS seeking more than $7.7 million in tax refunds. Durkin pled guilty to one count of conspiracy to file false claims. Sentencing is scheduled for September 11, 2026, and the statutory maximum is 10 years in prison. So this one is not just another ERC story. This is the tax credit version of writing payroll on a blank piece of paper and hoping the IRS cashes the check. The scheme here starts with a legitimate program. During the pandemic, Congress created employment tax credits to help employers. The basic idea was straightforward. If a qualifying employer paid qualifying wages during the relevant period, the employer could claim credits against employment taxes. For the employee retention credit, the statute allowed a credit equal to 70% of qualified wages for each employee for each calendar quarter, subject to limits. But the words matter employer, employee, wages, business operations. Those are not decorative words. They're the foundation of the credit. According to court records, Durkin and others submitted false quarterly employment tax returns. That means this was not a case where somebody took an aggressive position on a close eligibility question. The government's theory was more basic. The companies were not even operating, had no employees, and paid no wages. That takes the case out of the gray area. The claims sought refunds tied to the employee retention credit and the paid sick and family leave credit. These are payroll-based credits. There's no payroll, the whole story collapses. And the number was not small. Fourteen fraudulent claims, more than $7.7 million requested from the IRS. This is why this case matters for business owners, tax professionals, and anyone who got swept up in the ERC rush. There are legitimate ERC claims, and then there are weak ERC claims. There are also unsupported ERC claims. And then there are claims for companies with no operations, no employees, and no wages. That last category is not a tax planning issue. That is evidence. So what made this case criminal? Not claiming a pandemic credit, not asking whether a business qualified, not even being wrong about a complicated eligibility rule. No, in this case, the line was crossed when false employment tax returns were used to request refunds for companies that, according to court records, were not operating, had no employees, and paid no payroll. That's the difference. A business owner can misunderstand the ERC rules. A business owner can also rely on bad advice. A business owner can even file a claim that later gets denied. But if the return says or implies wages were paid when no wages were actually paid, the issue changes. A bad ERC claim creates an IRS problem. A fabricated payroll story creates a DOJ problem. That is the line. This case was built around records that should exist in any real payroll credit claim. Start with the quarterly employment tax records. The government says Durkin and others submitted false quarterly employment tax returns to the IRS. Those returns were the vehicle. They were how the refund claims got placed in front of the IRS. Then look at the payroll facts behind the returns. For a legitimate claim, you should be able to show who worked, what they were paid, when they were paid, what taxes were withheld, and what quarters were involved. There should be payroll registers, bank records, forms 941, W-2s, employer records, proof that the business was actually operating. Here, the government's factual theory was that the companies were not operating, had no employees, and paid no payroll. That's the short evidentiary path. If there are no employees, there are no qualified wages. If there are no wages, there's no payroll based credit. And if there's no business operation, the return is not just wrong. It becomes an exhibit. And that is what IRSCI does very well. It follows records that either exist or should exist. Payroll credits leave a trail. If the trail ends at a company with no employees, that tells investigators something. It tells them the return is not supported by the business. It tells them that the refund claim was built on a fact pattern that did not exist. The key document here was the quarterly employment tax return. For most employers, that means Form 941. That's where employers report wages, withholding, social security, Medicare, and employment tax credits. The return mattered because it translated the scheme into a claim for money. A false story sitting in someone's files is a problem. A false story submitted to the IRS to request a refund is a federal case. The DOJ charged this as a conspiracy to file false claims. Under 18 USC Section 286, a conspiracy to defraud the United States by obtaining or helping obtain payment of a false, fictitious, or fraudulent claim can carry up to 10 years in prison. That's why the return matters. It's the bridge between bad facts and federal exposure. The tax rule behind this case is simple. Payroll credits require payroll. Now that may sound too obvious, but it is the whole episode. For the employee retention credit, the statute allowed eligible employers to claim a credit based on qualified wages. The statute also required an eligible employer to be carrying on a trade or business during the relevant quarter and to meet one or more qualifying conditions such as a suspension tied to government orders, a decline in gross receipts, or recovery startup business status. But before you get into the complicated parts, you need the basics. Was there a business? Were there employees? Were wages paid? Can you prove it? If the answer is no, the credit doesn't work. And if someone files employment tax returns claiming refunds anyway, that's where the tax rule and the criminal case meet. For tax professionals listening to this, the lesson is practical. Never ever let the credit calculation outrun the source documents. The spreadsheet is not the proof. The payroll records are the proof. This case fits a pattern we continue seeing with pandemic relief fraud. The program changes. PPP, Idle, ERC, Paid Sick Leave Credits. The pattern stays the same. A real government relief program exists. Someone takes the vocabulary of that program, attaches it to a business that does not qualify, and submits paperwork asking the government to pay. The fraud is not hidden in a suitcase. It's sitting in the application, the tax return, or the refund claim. That's why these cases are so dangerous. People think forms are administrative. Prosecutors see forms as statements. And when the form asks for government money, a false answer can become the case. At this point there were two paths. Path one, if there was a legitimate business with a legitimate ERC question, slow down. Pull the payroll records, confirm the quarter, confirm the wages, confirm the government order or gross receipts test. Document the file. If the claim was already filed and unsupported, evaluate whether to withdraw it, amend it, or respond through counsel. Path two is to file claims anyway for companies with no operations, no employees, and no wages. The second path gives prosecutors a very clean story. No employees, no wages, 14 refund claims, more than $7.7 million requested. That is not a complicated tax dispute. That's a fraud narrative. So if Regina Durkin had walked into my office before this became a criminal case, the first thing I would want to know is simple. Show me the payroll. Not the sales pitch, not the ERC calculation, not the promise from some promoter that everyone qualifies. Show me the payroll. For any ERC or paid leave credit issue, I would want the forms 941, payroll journals, bank statements showing wage payments, W-2s, employee rosters, health plan records, and the work paper showing how the credit was calculated. If those records exist, then we can look at eligibility. If those records do not exist, we're having a very different conversation. For a legitimate business that made a questionable claim, the civil path may include withdrawing an ERC claim, amending employment tax returns, responding to an IRS notice, documenting reasonable cause, and getting the taxpayer back into compliance. The goal is to solve the IRS problem while it's still an IRS problem. For a taxpayer who already submitted false information, the conversation becomes much more sensitive. This is when privilege matters. You don't want the taxpayer casually explaining facts to a preparer, bookkeeper, promoter, lender, employee, or especially an IRS agent before counsel understands what happened. And for tax professionals, this is the professional responsibility lesson. Do not file credit claims because the client wants the money. Don't rely on a promoter's calculations without seeing the source documents. Don't treat ERC work or any tax credit work as just a refund project. If a client says the business had employees, get the payroll records. If a client says wages were paid, verify them. If the business was not operating, stop. The best tax advice in an ERC case may be one sentence. We're not filing that. That sentence can save a client from penalties, audits, investigations, and in worst cases, an indictment. And if the claim has already been filed, move fast. Gather the file, preserve the records, figure out what was submitted, figure out who prepared it, figure out whether the taxpayer actually received money, then decide whether the right move is withdrawal, amendment, repayment, penalty defense, or a more formal disclosure strategy. The earlier you do that, the more options you have. Because once IRSCI is looking at false payroll returns, options go away quickly. The lesson from this case is simple. A tax credit is only as good as the facts underneath it. The employee retention credit was built around employees and wages. If the business had no employees and paid no wages, the claim does not become stronger because the refund number is bigger. It becomes easier to prove. The IRS problem starts with the form. The DOJ problem starts when the form tells a story the records cannot support. I'm Jason Carr, tax attorney. If you want to make sure you never end up on this podcast, you know where to find me. Cartaxlaw.com. Link is in the show notes. This has been Final Notice, Real Text Cases Exposed.

SPEAKER_01 11:59

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