IRS CI Continues Targeting PPP Loan Fraud in 2023

According to data cited in a recent NPR article, as much as $64 billion of the $800 billion in forgivable loans issued under the Paycheck Protection Program (PPP) may have gone to applicants that didn’t deserve it. As the article also notes, the federal government has up to 10 years to prosecute pandemic-related fraud. Federal authorities are continuing to target PPP loan recipients in 2023, and, as IRS Criminal Investigation’s (IRS CI) recent press releases show, combatting PPP fraud remains among the agency’s top law enforcement priorities.

A Look Back at the History of the Paycheck Protection Program (PPP)

The Paycheck Protection Program was designed to provide a financial lifeline to businesses that were struggling to keep their employees onboard due to the economic impacts of the COVID-19 pandemic in 2020 and 2021. The federal government rolled out the program at lightning speed, and it encouraged originating lenders to process applications as quickly as possible.

But, while the federal government rolled out the PPP quickly, in doing so, it failed to provide much in the way of guidance to applicants. As the NPR article notes, the Small Business Administration (SBA) issued FAQs in a piecemeal fashion and either supplemented or reversed its prior guidance in several instances.

Even so, PPP applicants were expected to comply with the terms of the program and only seek the funds (if any) that they were eligible to receive. As subsequent investigations have revealed, however, the PPP became a prime target for fraud, and the SBA estimates that as many as 70,000 PPP loans may be fraudulent.

What Constitutes PPP Loan Fraud?

But this raises a fundamental question: What constitutes PPP loan fraud? Broadly, the PPP loan fraud cases being investigated by IRS CI and other federal authorities fall into two categories:

1. Fraudulent PPP Loan Applications

First, federal authorities are targeting companies and individuals for submitting fraudulent PPP loan applications. While the PPP may have turned into a “chaotic free-for-all” (as described by NPR), the program was intended specifically to help struggling businesses during the height of the pandemic. As a result, not all businesses qualified to apply for loans, and those that did qualify were required to submit substantiating documentation with their applications (i.e., tax returns and payroll records).

Investigations conducted by IRS CI and other agencies have uncovered evidence of various forms of fraud during the PPP loan application process. This includes evidence of unlawful acts such as:

• Filing PPP loan applications on behalf of newly-formed or non-existent businesses
• Inflating employee numbers and payroll expenses
• Falsifying tax returns and other supporting documents

While IRS CI and other agencies are reviewing PPP loan applications for various “red flags,” such as loan applications submitted on behalf of multiple businesses with the same address, they are also focusing on large loans and relying on tips received from the public, lenders and other sources. Notably, federal authorities are also targeting tax preparers and other professionals who are alleged to have assisted PPP loan applicants with submitting fraudulent documents.

For example, on January 4, 2023, IRS CI announced that a tax prepared in Texas pled guilty to submitting a fraudulent PPP loan application (along with committing other federal tax crimes). There have been several other cases of IRS CI and the U.S. Department of Justice (DOJ) targeting tax preparers—and their clients—for PPP loan fraud as well.

2. Fraudulent PPP Loan Forgiveness Certifications

Federal authorities are also targeting companies and individuals for submitting fraudulent PPP loan forgiveness certifications. While PPP loans are forgivable under the CARES Act, they are only forgivable if obtained lawfully—and only if the funds are used for authorized purposes. When seeking forgiveness, loan recipients were (and are) required to self-certify that they qualify.

In many cases, IRS CI is targeting individuals and businesses for fraudulently certifying that they qualify for PPP loan forgiveness. While some loan recipients are struggling to obtain the forgiveness to which they are lawfully entitled under the CARES Act (including many who used FinTech companies to file their applications), many others have secured forgiveness despite being ineligible.

What Are the Penalties for PPP Loan Fraud?

When prosecuted as a criminal offense, PPP loan fraud carries substantial penalties. The DOJ has the option to pursue a laundry list of charges against individuals and businesses suspected of fraud under the PPP—from bank fraud (which carries up to a $1 million fine and 30 years in prison) to making false statements to the SBA (which carries the same penalties.

What Should I Do if I Have Concerns About My (or My Business’) PPP Loan?

With these risks in mind, if you are concerned about your (or your business’s) PPP loan or forgiveness certification for any reason, it is important that you consult with an experienced federal tax lawyer promptly. While you may have options available, taxpayers must generally pursue their options before facing scrutiny from IRS CI.

What Should I Do if I Have Been Contacted by IRS CI About My PPP Loan?

What if you are already facing scrutiny from IRS CI? In this scenario, you will need to work closely with an experienced federal tax lawyer to avoid a COVID-related tax fraud conviction. While PPP loan fraud investigations can lead to charges and prosecution, it is also possible to avoid an indictment in many cases. This is true even for taxpayers that improperly secured PPP loans or loan forgiveness. But, avoiding an indictment requires a strategic and proactive approach, and it is imperative to ensure that you are making informed decisions based on the advice of counsel.

Speak with an Experienced Federal Tax Lawyer at Brown Tax, P.C.

If you need to know more about protecting yourself (or your company) against allegations of PPP loan fraud, we encourage you to contact us promptly for more information. We represent individuals and companies throughout Texas. To arrange a confidential initial consultation with an experienced federal tax lawyer at Brown Tax, P.C., please call 888-870-0025 or request an appointment online today.