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08/03/2021 07:16 PM
Pennsylvania State Senate
https://www.legis.state.pa.us/cfdocs/Legis/CSM/showMemoPublic.cfm?chamber=S&SPick=20210&cosponId=35622
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Senate of Pennsylvania
Session of 2021 - 2022 Regular Session

MEMORANDUM

Posted: May 11, 2021 05:29 PM
From: Senator Art Haywood
To: All Senate members
Subject: Fraud Protection for Pennsylvania Tax Credit Programs - Grand Jury Recommendations
 
In the near future, I plan to reintroduce legislation to enact the recommendations contained in a Grand Jury Report which examined the fraudulent use of Research & Development (R&D) tax credits and Keystone Innovation Zone (KIZ) tax credits. This legislation unanimously passed the Senate Finance Committee in the 2019-20 Session.

Following an 18-month probe by the 42nd Statewide Investigating Grand Jury, a husband and wife team, “Christopher” Wing-Tat Chiu and Ivy Li, created 20 fake companies between 2012 and 2017 and used them to apply for R&D tax credits and KIZ tax credits 89 times. Over this period, they submitted 62 Research & Development tax credit applications and 27 Keystone Innovation Zone tax credit applications wrought with false information. Though the use of fake Social Security Numbers, fake telephone numbers, and fictitious addresses, they were awarded $10.6 million worth of credits from Pennsylvania tax credit programs. A substantial amount of tax credits obtained by fraud were subsequently wired to their bank accounts overseas.
 
These reforms and stronger controls will aid in thwarting fraud in the sale of Pennsylvania tax credits. Among changes the grand jury advocated be made to the programs:
  • Requiring independent audits to receive KIZ or R&D tax credits.
  • Interviewing applicants face to face and require photo identification, receipts, account statements and financial records.
  • Strengthening the R&D and KIZ legislation to bolster the review process by state agencies.
  • Requiring local “KIZ coordinators” to obtain appropriate training in the roles and requiring them to conducting site visits for each applicant prior to approval to ensure that applicants are properly operating.
  • Requiring tax credit brokers get licensed by Pennsylvania authorities.
  • Requiring annual proof be submitted by applicants of how tax credits were used and if they were sold.
The statewide grand jury’s investigation examined the pair’s alleged illegal activity across Allegheny, Chester, Dauphin, Delaware, Philadelphia and Lancaster counties.

Please join us in cosponsoring this legislation aimed at protecting Pennsylvania taxpayers.  This legislation was introduced as SB 1326 by Senator John Blake and myself in the 2019-20 Legislative Session. Previous co-sponsors included Senators SANTARSIERO, TARTAGLIONE, HUGHES, COSTA, MENSCH, BROWNE, and SCHWANK. 

***This is a reintroduced memo previously circulated by Senator Blake and myself on 12/7/20. Cosponsors included Senators FONTANA, SANTARSIERO, TARTAGLIONE, MENSCH, COSTA, SCHWANK, KANE, and CAPPELLETTI. 



Introduced as SB734