By Ian Berger, JD
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Remember coronavirus-related distributions, or “CRDs”? Passed as part of the CARES Act in March 2020, CRDs were special distributions designed to help people who contracted COVID or had financial hardship caused by the pandemic. IRA owners or company plan participants who qualified as “affected individuals” could take CRDs of up to a total of $100,000 anytime during 2020.
There were three tax advantages to CRDs. First, if the person taking the CRD was under 59 ½, the 10% early distribution penalty was waived. Second, the federal income tax on the distribution could be spread over three years (2020-2022). Finally, the CRD could be repaid over a three-year period.
So why I am rehashing this unpleasant memory from the early days of the pandemic? Well, last week a federal court jury found that Baltimore’s ex-top prosecutor, Marilyn Mosby, lied on the application form when she requested two CRDs totaling $80,000 from the city’s 457(b) plan in 2020. She was convicted of two counts of perjury and faces up to 10 years of prison.
The plan’s CRD application required applicants to certify, under penalties of perjury, that they were adversely affected by COVID-19 (in other words, they were “affected individuals”). Mosby signed the application and certified she had suffered adverse financial consequences due to the virus.
At the trial, Mosby’s attorneys claimed she qualified because a travel business she opened while in office lost money due to COVID. But that defense was undermined by Mosby herself. Once word got out in 2020 that Mosby had started a side business while serving in elected office, she told a Baltimore online publication that her business actually had never gotten off the ground, had no clients or revenue, and wouldn’t really open until after she left office. (Mosby was voted out of office in 2022.) The prosecution argued that Mosby could not have claimed to have suffered adverse financial consequences as a result of a downturn in a travel business that she admitted had never even opened for business. Evidence was also introduced showing that Mosby’s annual salary went up in 2020 from $238,000 to $248,000.
The prosecution also established that Mosby had really taken the withdrawals to help with the purchase of two vacation properties in Florida. Her attorneys (correctly) pointed out that IRS guidance said that CRDs could be used for any purpose and didn’t have to be used to alleviate financial hardship. But it’s hard to believe the jury wasn’t offended by her use of the CRDs.
This is the only instance we have heard about of an individual being prosecuted for lying on a CRD application. The great irony is that this happened to a former prosecutor, who more than anybody, should have known what it means to certify a statement “under penalties of perjury.”