Attorney General Calls for Changes to Tax Credit Programs to Combat Fraud

Attorney General Josh Shapiro said changes need to be made in the Keystone Innovation Zone (KIZ) and Pennsylvania Research and Development (R&D) tax credit programs after scams netted a Hong Kong couple millions.

The tax credits are designed to reduce tax liabilities for Pennsylvania companies. A couple is accused of obtaining $10.6 million in tax credits between 2012 and 2017 and pulling in $6.3 million in cash by selling them before their scheme was discovered. The couple set up 21 companies deemed suspicious. Only one of the 20 was legitimate, with two of them having addresses that did not exist, Shapiro said in a statement.

A grand jury indicted Christopher Wing-Tat Chiu and Ivy Li with multiple charges, including theft by deception, misapplication of entrusted property, tampering with public records or information, dealing in proceeds of unlawful activities, filing fraudulent returns, criminal attempt and criminal conspiracy, according to a statement from Shapiro. The couple is believed to have returned to Hong Kong where the proceeds of their scheme were deposited into a Hong Kong bank.

The 18-month grand jury investigation led to a long list of recommendations for the tax credit programs, including an independent audit for KIZ and R&D tax credits. Other include:

• Requiring face-to-face interviews with applications and photo IDs.
• Verifying IP addresses to make sure the applications are coming from Pennsylvania businesses.
• Giving regulators more time to review applications.
• Requiring unscheduled site visits for applicants.
• Adding a requirement that anyone who receives the credit should give proof of how it was used or if it was sold.

Revenue Secretary Dan Hassell said his office spotted the scheme and reported it to law enforcement. He supports the recommendations.

“Since that time, we have taken many steps to improve our review process and create a system that is better equipped to detect fraudulent applications,” Hassell said. “We agree with the Grand Jury’s recommendations and are willing to meet with lawmakers to discuss legislation that would address weaknesses in the current law.”

Rep. Seth Grove, R-York, said the tax credit systems have failed to help the state’s economy, calling them “corporate welfare.”

“Let me be blunt, these are special interest giveaways and nothing else,” Grove said in a statement. “Pennsylvania needs to stop using corporate welfare as its economic policy because it simply fails. We need broad-based tax restructuring to lower the tax burden on Pennsylvanians and drive real economic gains.”

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