Treasury Formalizes Data System to Police Pandemic Relief and Financial Assistance Programs

Treasury Targets Waste and Fraud with New Data System

The Treasury Department is formalizing its oversight of financial assistance programs with a new system of records, "Department of the Treasury, Departmental Offices DO .0197—Financial Assistance Programs." This formal system, established under the Privacy Act of 1974, is designed to identify and address instances of waste, fraud, and abuse within these programs, as well as to evaluate overall compliance. The system applies to Departmental Offices within the Treasury, which are distinct from the IRS but oversee several tax-adjacent relief programs funded through legislation like the American Rescue Plan Act of 2021 (ARPA). These programs have broad implications for both individual taxpayers and businesses. Recent cases, such as U.S. v. Yvonette Joseph (August 2025), involving fraudulent receipt of Emergency Rental Assistance (ERA) funds, highlight the need for increased vigilance and enforcement.

Scope of Surveillance: Which Programs Are Affected?

As a continuation of the Treasury Department's efforts to enhance oversight and accountability, the new data system consolidates information from several major financial assistance programs. This consolidation aims to provide a comprehensive view of how these massive relief efforts are being managed, facilitating more effective oversight and resource allocation. Specifically, the system will encompass data related to the following initiatives:

• Capital Projects Fund (CPF): This fund, authorized by Section 9901 of the American Rescue Plan Act of 2021 (ARPA), which added Section 604 to the Social Security Act, provides funds to states, territories, and Tribal governments for critical capital projects directly enabling work, education, and health monitoring. Mismanagement of funds can lead to the recapture of funds by the Treasury.
• Emergency Rental Assistance (ERA): This program consisted of two phases (ERA1 and ERA2). ERA1 was authorized by Section 501 of the Consolidated Appropriations Act, 2021, providing $25 billion, while ERA2 was authorized by Section 3201 of ARPA, providing $21.55 billion. While ERA payments to renters are generally excluded from gross income under the General Welfare Exclusion reflected in IRS FAQs, rental payments received by landlords are includible in gross income under IRC Section 61, which defines gross income as all income from whatever source derived.
• Homeowner Assistance Fund (HAF): Established under Section 3206 of ARPA, this fund aims to prevent mortgage delinquencies, defaults, and foreclosures by providing financial assistance to eligible homeowners. Importantly, under IRC Section 139, which excludes qualified disaster relief payments from gross income, as clarified by Revenue Procedure 2021-47, these payments are generally excluded from the homeowner's gross income. However, homeowners cannot claim a tax deduction or credit for expenses (like mortgage interest or property taxes) paid for by HAF funds, per IRC Section 139(h) which prevents "double dipping."
• RESTORE Act Programs: This includes programs established in response to the Deepwater Horizon oil spill, specifically the Direct Component and Centers of Excellence Research Grants Program. The RESTORE Act itself aims to restore and protect the natural resources, ecosystems, fisheries, marine and wildlife habitats, beaches, and coastal wetlands of the Gulf Coast region.
• SIPPRA (Social Impact Partnership to Pay for Results Act): Established as part of the Bipartisan Budget Act of 2018 (42 U.S.C. §§ 1397n–1397n-13), SIPPRA supports "pay-for-success" projects where the federal government pays only if predetermined social outcomes are achieved. The IRS has cautioned that organizations operating such investment funds must ensure their primary purpose remains charitable to avoid losing 501(c)(3) status due to private investor profit (Private Letter Ruling 202041009).
• State and Local Fiscal Recovery Funds (SLFRF): Authorized by ARPA (Sections 602 and 603 of the Social Security Act), SLFRF provides substantial funds to state, local, and Tribal governments for pandemic response and economic recovery. The Fifth Circuit Court of Appeals ruled the "tax cut ban" was unconstitutionally ambiguous (U.S. Dept. of Treasury v. West, June 2024). Grants to businesses from SLFRF are typically treated as taxable gross income unless a specific statutory exclusion applies, while payments to individuals may be excluded under IRC §139 if for reasonable and necessary personal, family, living, or funeral expenses.
• Local Assistance and Tribal Consistency Fund (LATCF): Established by Section 605 of the Social Security Act, added by Section 9901 of the American Rescue Plan Act of 2021, this fund provides general revenue enhancement to jurisdictions. Guidance released in December 2025 (Final Rule on IRC Section 139E) clarifies that benefits provided through tribal programs are excluded from a recipient's gross income if they meet general welfare criteria, as defined in IRC Section 139E (Tribal General Welfare Exclusion).
• State Small Business Credit Initiative (SSBCI): ARPA reauthorized and expanded the original 2010 initiative as SSBCI 2.0. Free services or grants provided to small businesses for legal/accounting support may be considered a benefit. Businesses must evaluate if such assistance constitutes gross income under IRC Section 61 unless specifically excluded by a disaster-relief provision (IRC 139).

Regulatory Impact and Public Comment

The establishment of this new data system, "Department of the Treasury, DO .0197—Financial Assistance Programs," marks a significant step in Treasury's oversight of financial assistance programs authorized under the American Rescue Plan Act (ARPA) and other legislation. This system, designed to consolidate records related to programs like the Capital Projects Fund (CPF) Program, Homeowner Assistance Fund (HAF) Program, and State and Local Fiscal Recovery Funds (SLFRF) Program, will enhance Treasury's ability to detect and prevent waste, fraud, and abuse. The system is authorized under 5 U.S.C. 552a(r), which requires a report to OMB and Congress on new systems of records. Tax Court's increased focus on substantiation and fraud prevention underscores the importance of accurate record-keeping for recipients of these funds.

The practical timeline for implementation is as follows:

• Effective Date: The data system is effective as of the date of publication of the Federal Register notice.
• Routine Uses Implementation: The routine uses of the system, which allow Treasury to share data for audit and program oversight purposes, will be applicable starting March 6, 2026.
• Public Comment Period: Stakeholders have until March 6, 2026, to submit written comments regarding the new system. Treasury will review these comments to determine if any changes to the system of records notice are necessary before fully implementing the routine uses.

Stakeholders wishing to provide feedback or seek further information are encouraged to contact:

• Ryan Law Deputy Assistant Secretary for Privacy, Transparency, and Records U.S. Department of the Treasury 1500 Pennsylvania Avenue NW Washington, DC 20220 Telephone: (202) 622–5710

Comments can be submitted via the Federal E-rulemaking Portal at https://www.regulations.gov or by mail to the address above. Note that all comments, including any attachments or personally identifiable information, will be made public.