Employee Retention Credit Tax Scheme Lands Philadelphia Man in Federal Prison for Three Years

WILMINGTON, Del. - Julianne E. Murray, U.S. Attorney for the District of Delaware, announced that Carnell Ragan, 59, of Philadelphia, Pennsylvania, was sentenced today to three years in federal prison for assisting in the filing of false tax forms. Ragan was also ordered to pay over $1.6 million in restitution to the Internal Revenue Service (IRS). Chief U.S. District Judge Colm F. Connolly pronounced the sentence.

Congress created the Employee Retention Credit (ERC) to provide emergency financial assistance in connection with the economic effects of the COVID-19 pandemic. The ERC was introduced in 2020 to incentivize businesses to continue paying employees by providing, at first, for a 50% credit on up to $10,000 in wages paid to each employee for the calendar year for businesses closed by government order or who had a 50% drop in gross receipts due to the pandemic. By 2021, the percentage credit increased to 70% per employee per quarter. To obtain ERC, entities had to file an IRS Form 941 setting forth their eligibility for ERC

According to court documents, Ragan recruited over 20 people to take part in his ERC scheme. Each of those people maintained a business entity that was not entitled to ERC because the relevant business was either non-operational or did not have paid employees during the COVID-19 pandemic. Ragan knew those people and entities were not entitled to ERC but nonetheless used their information to file false Forms 941 with the IRS seeking over $20 million in ERC. Based on those false tax filings, the IRS issued checks worth over $1.6 million to entities, including over $800,000 to a Delaware registered business, that were not entitled to those funds.

U.S. Attorney Murray commented on the case, "Ragan took advantage of pandemic relief funds that were intended to help those harmed most by the pandemic. He shamelessly enriched himself and his friends at the expense of the American taxpayer. My office and our law enforcement partners will continue to investigate and hold responsible all those who stole COVID-19 pandemic relief funds that were intended to help hard working Americans cope with the financial fallout from the pandemic."

"Today's sentencing is a strong reminder that those who find ways to fraudulently benefit from government programs meant to help struggling businesses will be brought to justice," said Yury Kruty, Special Agent in Charge, Philadelphia Field office, IRS Criminal Investigation. "Those who line their pockets with profits from these schemes should know they will not go undetected and will be held accountable."

This case was investigated by IRS-CI and prosecuted by Assistant U.S. Attorney Jesse S. Wenger.

A copy of this press release is located on the website of the U.S. Attorney's Office for the District of Delaware. Related court documents and information is located on the website of the District Court for the District of Delaware or on PACER by searching for Case No. 25-CR-0009-CFC.