Friends, felons, & tax fraud

Abstract

This case study is designed for use in an income tax, accounting ethics, or fraud examination course at the undergraduate or graduate level. The focus is on a graduate student (the protagonist) who is near graduation and is wrestling with an ethical dilemma after being asked to provide a character reference for a longtime friend. This student recently passed one of the three core sections of the CPA examination and at the end of the current semester will begin a career as a tax accountant. The recent message from a high school classmate creates a conflict between the student’s personal and professional ethics and causes her to evaluate the importance of her own goals against loyalty to the friend who has confessed to multiple felonies.

In evaluating the friend’s crimes, the student explores aspects of the fraud triangle and how it might have influenced the friend’s actions. The friend had confessed to wire fraud, bank fraud, and submitting fraudulent loan applications to financial institutions related to the Paycheck Protection Program (PPP under the CARES Act¹). The case provides a context for discussing multiple aspects of the PPP as an example of a well-intended government program that was susceptible to fraud, analyzing worker classification (employees vs. contract labor/independent contractors), considering the role of tax policy in economic stimulus, and the tradeoffs between providing timely economic relief and crafting carefully designed legislation.