Lessons from the $170 Million Haynes ERC Conviction
A six-day jury trial in November 2025 produced the clearest lesson yet about how the federal government treats Employee Retention Credit fraud. Leon Haynes, 52, a tax preparer from Teaneck, New Jersey, was convicted of 15 counts of aiding and assisting in the preparation of false tax returns, one count of mail fraud, and two counts of tax evasion. Prosecutors described it as the largest COVID-19 tax relief fraud case ever tried in the United States. Haynes orchestrated a scheme that sought more than $170 million in fraudulent tax refunds, causing the government to pay out over $55 million before the fraud unraveled. In April 2026, U.S. District Judge William J. Martini sentenced him to 144 months in federal prison and ordered him to pay more than $55 million in restitution. For every business owner, accountant, or promoter who touched an ERC claim between 2020 and 2023, this case deserves careful attention.
What the ERC Was and Why it Attracted Fraud
Congress authorized the Employee Retention Credit under the CARES Act to help small businesses retain employees during the COVID-19 pandemic. Eligible businesses could claim a refundable payroll tax credit against qualified wages paid to employees during periods of government-ordered suspension or significant revenue decline. The credit was generous: for 2021, up to 70 percent of qualified wages, capped at $7,000 per employee per quarter. The problem was complexity. Eligibility required actual employees, qualified wages, and a qualifying reason tied to the COVID-19 impact. A business did not qualify simply because it existed during the pandemic. Promoters, including Haynes, exploited that complexity by misrepresenting what the law required and filing claims for businesses that had no basis to receive them.
What Haynes Actually Did and What the Jury Saw
From November 2020 to May 2023, Haynes filed more than 1,900 false employment tax returns for his own businesses and his clients, claiming ERC and paid sick and family leave credits to which neither he nor his clients were entitled. He told clients they qualified “simply because they had a business,” a statement he knew to be false. He filed returns without consulting clients, grossly overstating the number of employees and the amount of wages paid. Many of the returns he filed either claimed credits above the statutory maximum, counted the same wages for both the ERC and the sick and family leave credit simultaneously, or both. He charged clients fees of up to 15 percent of the refunds they received, specifically requesting cash to avoid documentation. He collected more than $1.8 million in cash fees and reported none of it on his tax returns, resulting in two counts of personal tax evasion. When an HVAC contractor client who received refund checks he had not authorized raised concerns, Haynes told the man’s spouse to burn any undeposited checks and told the contractor to keep quiet. That single text message, recovered and presented at trial, encapsulates everything prosecutors needed to prove willfulness.
The Five Willfulness Signals That Made This Case
The Haynes conviction demonstrates exactly how prosecutors build a willfulness case in the ERC context. Each of the following elements featured in the evidence at trial and each independently addresses the question of whether the conduct was knowing and deliberate or an innocent mistake about a complex law.
First, scale and pattern. Willfulness becomes easier to prove when 1,900 returns show the same systematic errors rather than isolated mistakes. Claiming above the maximum credit, double-counting wages, and filing returns without eligibility analysis are not one-time oversights. They are a methodology.
Second, personal financial benefit. Haynes did not file false returns for clients out of misguided generosity. He charged contingency fees of up to 15 percent of refunds received, collected those fees in cash, and filed false returns for his own companies. When the person filing false returns also personally benefits from the inflation, the inference of willfulness is nearly inescapable.
Third, concealment conduct. Requesting cash instead of checks, failing to report fee income on his own returns, and telling a client to destroy refund checks are not the behaviors of someone who believed the claims were legitimate. Concealment is a separate category of evidence that courts and juries treat as powerful circumstantial proof of knowing wrongdoing. The eggshell audit that initially appears civil becomes criminal precisely when concealment conduct exists.
Fourth, filing without authorization. Haynes filed returns for clients without consulting them and, in at least some instances, signed their authorization forms himself. A preparer who genuinely believes a client qualifies has no reason to file without their knowledge. One who knows the claim is fraudulent has every reason to minimize client awareness.
Fifth, false eligibility statements. Telling clients they qualified “simply because they had a business” is not a mistake about a nuanced eligibility rule. Haynes knew the law required actual employees and a qualifying COVID-19 impact. Misrepresenting that requirement to clients was not confusing. It was the mechanism of the fraud.
What Separates Civil ERC Errors From Criminal Tax Exposure
Not every ERC claim that the IRS disallows becomes a criminal tax case. The IRS has issued approximately 28,000 disallowance notices targeting $5 billion in ERC claims it determined to be high risk. Many of those businesses were promoted by individuals who misrepresented eligibility and now face civil examination, repayment, penalties, and interest, not prison. The IRS Criminal Investigation Division has initiated more than 500 investigations into ERC claims covering billions in suspected fraud. The cases that cross into criminal tax territory share the same pattern the Haynes case illustrates: deliberate inflation of employee counts or wages, fabricated eligibility bases, filing for businesses with no qualifying employees, contingency fees designed to maximize fraudulent claims, and conduct designed to conceal the fraud from the IRS, the client, or both.
Under 26 U.S.C. Section 7206(2), a preparer who willfully aids or assists in the preparation of any false tax return faces up to three years imprisonment and a $250,000 fine per count. A business owner who signed and filed a false ERC return, knowing the claim was inflated, faces potential exposure under Section 7206(1) for the false return and under Section 7201 for tax evasion if the credit offsets tax owed. A business owner who did not know their preparer filed false numbers occupies a different position, but only if the facts genuinely support that conclusion.
What Business Owners Who Claimed Through Promoters Must Understand
The Haynes case involved clients who ranged from those who knew the participants to those who never authorized the returns filed on their behalf. The IRS and DOJ recognize that distinction, but it does not automatically protect business owners who received large refunds, ignored obvious red flags, or accepted claims they knew or should have known were implausible. A business with no employees that received an ERC refund based on fabricated wage data may face a civil examination, a disallowance demand, and interest and penalties. A business owner who knew the claims were inflated, participated in the scheme, or took steps to conceal the refunds may face the same analysis as the promoter. In both situations, retaining a voluntary disclosure review with experienced civil and criminal tax counsel before the IRS makes contact is the most strategically sound first step.
The Correct Response to ERC Exposure in 2026
The Haynes conviction does not mean that every business that received ERC will face prosecution. It means the government has identified, tried, and convicted the largest case in the country, and it is not finished. IRS-CI investigations of ERC fraud remain active. DOJ’s National Fraud Enforcement Division has made COVID relief fraud a sustained enforcement priority. Business owners who claimed ERC through promoters, received unexpectedly large refunds, used refund proceeds for personal spending, or never reviewed what their preparer actually filed on their behalf should not wait for an IRS notice to find out where they stand. The voluntary disclosure window closes the moment IRS-CI opens an investigation or receives third-party information about the specific noncompliance. Engaging experienced civil and criminal tax defense counsel now, before the government maps out your particular claim, is the only strategy that preserves all available options.
At the Tax Law Offices of David W. Klasing, we are happy to provide a reduced-rate initial consultation, which you can arrange by calling (800) 681-1295 or by clicking HERE to schedule online.
Contact the Tax Law Offices of David W. Klasing
At the Tax Law Offices of David W. Klasing, our dual-licensed Civil and Criminal Tax Defense Attorneys and CPAs represent business owners, tax preparers, accountants, investors, and promoters facing IRS examination, disallowance notices, IRS-CI investigations, and potential criminal exposure arising from ERC claims, sick and family leave credits, and other COVID-19 relief programs. We analyze ERC eligibility, wage documentation, government-ordered suspension analysis, gross receipts decline documentation, promoter communications, refund disposition, and voluntary disclosure options through both civil and criminal tax defense lenses.
Where the facts support a civil correction, and the taxpayer qualifies for the IRS voluntary disclosure program, we, at the Tax Law Offices of David W. Klasing pursue the safest available path before IRS-CI gets there first. Where the facts are potentially criminal, our focus shifts immediately to damage control, privilege-sensitive investigation, and, where possible, preventing the matter from progressing to criminal tax prosecution. We are happy to provide a reduced-rate initial consultation, which you can arrange by calling the Tax Law Offices of David W. Klasing at (800) 681-1295 or by clicking HERE to schedule online. The Haynes sentence is twelve years. The restitution is $55 million. Neither will be forgiven. For anyone with ERC exposure, the time to act is before the government determines whether your claim belongs on the same list.
