IRS Continues to Aggressively Target PPP and ERC Fraud in 2026

The Internal Revenue Service (IRS) is continuing to aggressively target businesses suspected of Paycheck Protection Program (PPP) and Employee Retention Credit (ERC) fraud in 2026. While the PPP and ERC were pandemic-era programs, widespread fraud has resulted in ongoing enforcement—including criminal enforcement in many cases.

Exposing fraud under the pandemic-era Paycheck Protection Program (PPP) and Employee Retention Credit (ERC) program remains a top priority for the Internal Revenue Service (IRS) in 2026. Estimates put the total cost of fraud under these programs in the tens of billions—and potentially hundreds of billions—of dollars, and the IRS is working to claw back as much of this money as possible. For businesses targeted in PPP and ERC fraud investigations, promptly engaging an experienced Texas IRS lawyer is a key first step toward avoiding unnecessary consequences.

What Constitutes Paycheck Protection Program (PPP) Fraud?

The IRS is pursuing fraud investigations targeting false claims and other unlawful conduct at all stages of the PPP loan process. This includes targeting both successful and unsuccessful loan applicants. Common allegations in PPP fraud cases include:

• Submitting false information to secure (or attempt to secure) PPP loans
• Improperly obtaining PPP loans from multiple lenders
• Using PPP loan funds for unauthorized purposes
• Diverting PPP loan funds for personal use
• Falsely certifying eligibility for PPP loan forgiveness

These allegations (among others) can result from both targeted scrutiny and the IRS’s ongoing automated review of PPP loan applications, disbursements and certification forms. If the IRS has reason to suspect that a business (or a business’s owners or executives) engaged in PPP fraud, it can open an investigation focused on pursuing possible criminal charges at the entity or individual level (or both).

What Constitutes Employee Retention Credit (ERC) Fraud?

The IRS can also open criminal investigations in cases involving suspicions of ERC fraud. Some examples of potential allegations in these cases include:

• Improperly claiming ERC credits for ineligible businesses
• Improperly claiming ERC credits for non-existent businesses
• Improperly calculating ERC credits
• Claiming the same credit amount repeatedly despite changes in the eligibility criteria
• Falsifying payroll records and other documentation to substantiate fraudulent ERC claims

Allegations of ERC fraud can (and do) take other forms as well. For targeted businesses (and individuals), building and executing an effective defense strategy starts with gaining a clear understanding of the allegations at issue. Targets of ERC fraud investigations should promptly assess the possibility of facing additional allegations, as evidence uncovered during an investigation can cause the IRS to expand the scope of its inquiry.

How is the IRS Targeting PPP and ERC Fraud in 2026?

The IRS is relying heavily on its investigative powers to target PPP and ERC fraud in 2026. The IRS’s Criminal Investigation division (IRS CI) has the authority to issue administrative summonses, conduct raids based on judicial subpoenas, and gather evidence through various other means. If revenue agents uncover evidence (or apparent evidence) of PPP or ERC fraud during an audit, they can refer the matter to IRS CI for further investigation.

What are the Penalties for PPP and ERC Fraud?

The penalties for PPP and ERC fraud vary depending on the specific circumstances involved. In civil enforcement cases, targets can face liability for back taxes, interest, and penalties (as applicable). In criminal enforcement cases, IRS CI can work with the U.S. Department of Justice (DOJ) to pursue a wide range of criminal charges—and many of these charges carry substantial fines and prison time.

FAQs: Facing PPP or ERC-Related Scrutiny from the IRS

What should businesses do when facing PPP or ERC-related scrutiny from the IRS?

Businesses that are facing PPP or ERC-related scrutiny from the IRS should engage experienced defense counsel promptly. Allegations of PPP and ERC fraud carry significant risks, and avoiding unnecessary consequences requires an informed, strategic, and proactive defense.

What if my business isn’t facing scrutiny but I have concerns about compliance?

If your business isn’t yet facing PPP- or ERC-related scrutiny but you have concerns about compliance, you should engage experienced tax counsel promptly. While businesses have various options for voluntarily coming into compliance, these options go away once the IRS opens an audit or investigation.

How does the IRS uncover evidence of PPP and ERC fraud?

The IRS can uncover evidence of PPP and ERC fraud through various means. This includes issuing administrative summonses, conducting interviews, and using other investigative methods to obtain evidence directly from businesses (and individuals) suspected of fraud. It also includes issuing formal requests and demands to financial institutions, accounting firms, and other third parties.

How Brown PC Helps Targets of PPP and ERC Fraud Investigations in Texas

Our law firm provides experienced legal representation for businesses (and individuals) facing PPP and ERC fraud investigations in Texas. In these cases, our services include:

• Conducting comprehensive and attorney-client privileged PPP and ERC compliance assessments
• Thoroughly assessing the IRS’s allegations and any possible additional allegations of fraud
• Challenging invalid subpoenas and other improper means of investigation
• Targeting a favorable resolution that avoids a federal grand jury indictment
• Providing defense representation in federal court or pursuing a settlement with the IRS or DOJ when necessary

If the IRS is looking into your business’s PPP or ERC-related practices, time is of the essence. The sooner you contact us, the more we can do to help. Once engaged, we can intervene in the IRS’ investigation promptly and begin communicating with federal agents on your behalf while working to steer the inquiry toward a favorable resolution.

Request a Confidential Consultation with Texas IRS Lawyer Lawrence Brown

At Brown PC, we provide experienced legal representation for high-stakes federal tax controversies. To request a confidential consultation with Texas IRS lawyer Lawrence Brown, contact us today. Call us at 888-870-0025, or tell us how we can get in touch online, and we will be in touch as soon as possible.