The IRS Will Continue to Target Pandemic-Era Fraud in 2025

For businesses that claimed the Employee Retention Credit (ERC) or received a Paycheck Protection Program (PPP) loan or Economic Injury Disaster Loan (EIDL), facing scrutiny from the Internal Revenue Service (IRS) remains a very real concern. The IRS is continuing to aggressively target pandemic-era fraud heading into 2025—pursuing audits and investigations that can present risks for substantial fines and other penalties. Learn more from Texas tax attorney Lawrence Brown.

Pandemic-Era Fraud Potentially Cost Taxpayers Trillions of Dollars

While programs like the ERC, PPP, and EIDL were intended to serve as financial lifelines for businesses struggling during the COVID-19 pandemic, they almost immediately became prime targets for fraud. Reports of widespread abuse spread quickly, with alleged schemes ranging from filing PPP and EIDL loan applications on behalf of newly established shell companies (which did not qualify for loans) to claiming the ERC for wages paid to non-existent employees.

In some cases, well-intentioned business owners improperly claimed pandemic-era benefits as well. The eligibility criteria for the ERC, PPP, and EIDL were unclear initially, and as the eligibility criteria changed over time—particularly for the ERC—businesses that were eligible for previous filing periods became ineligible to file claims in subsequent quarters. However, many business owners were not aware of these changes. As a result, many businesses unintentionally filed PPP or EIDL loan applications or claimed the ERC despite being ineligible to do so.

This combination of factors potentially cost taxpayers trillions of dollars in the span of just a few years.

In 2022, the federal Pandemic Response Accountability Committee (PRAC) reported that fraudulent claims under the ERC alone surpassed the trillion-dollar threshold. As the PRAC wrote on November 16, 2022:

“[T]he IRS didn’t have time after the CARES Act was passed to make necessary programming changes because the tax filing season was already underway. So, tax returns were not initially screened to identify potentially fraudulent ERCs. The IRS subsequently identified 11,096 suspicious returns indicating potential identity theft for more than $2 trillion in credits claimed.”

Separately, the U.S. Small Business Administration (SBA) estimated in 2023 that it had “disbursed over $200 billion in potentially fraudulent COVID-19 EIDLs, EIDL Targeted Advances, Supplemental Targeted Advances, and PPP loans” during the COVID-19 pandemic. This figure represents approximately one-sixth of the total loans issued under these programs.

While the PPP and EIDL programs both closed during the pandemic, the IRS has continued accepting ERC claims for the 2020 and 2021 tax years. The deadline to file for credits to be retroactively applied to the 2020 tax year was April 15, 2024, while the deadline for the 2021 tax year is April 15, 2025. Given that this is the case, the total volume of fraudulent claims under the ERC program is almost certainly far higher than it was when the PRAC issued its report more than two years ago.

Uncovering ERC, PPP and EIDL Fraud Remains a Top IRS Enforcement Priority

Due to the substantial volume of fraud under the ERC, PPP, and EIDL programs, uncovering and prosecuting pandemic-era fraud remains one of the IRS’s top enforcement priorities as we head into 2025. Not only is the IRS conducting audits focused on taxpayers’ ERC claims, PPP and EIDL loans, and PPP loan forgiveness certifications, but IRS Criminal Investigation (IRS CI) is pursuing criminal charges for pandemic-era fraud as well. In criminal enforcement cases, not only can businesses face substantial monetary penalties, but business owners and executives can potentially face fines and prison time as well.

Addressing ERC, PPP and EIDL-Related Concerns in 2025

With this in mind, for those that have not yet faced scrutiny from the IRS or IRS CI related to their ERC, PPP or EIDL filings, now is a good time to work with an experienced Texas tax attorney to assess their risk and take any remedial action that may be necessary. As we move into 2025, those who have concerns may want to take steps including (but not limited to):

1. Locate All Relevant Business Records and Other Substantiating Documentation

Business owners or executives who have concerns should locate all documents used to prepare their businesses’ ERC claims, PPP and EIDL loan applications, and PPP forgiveness certifications. This includes business records (i.e., payroll records and accounting records) and any other documentation used to substantiate their filings.

2. Locate All Relevant Application Forms, Certification Forms and Tax Filings

Business owners or executives who have concerns should locate all relevant application forms, certification forms and tax filings as well. With regard to PPP and EIDL loans, the IRS is scrutinizing both successful and unsuccessful applications, so it is important to assess your risk regardless of whether your business received a loan.

3. Work with Experienced Tax Counsel to Assess IRS (or IRS CI) Enforcement Risk

After locating all relevant documentation, business owners and executives who have concerns should work with experienced tax counsel to assess their risk of facing civil or criminal penalties. Making this assessment requires an in-depth understanding of the relevant program eligibility criteria and applicable tax laws, so experienced legal representation is essential.

4. Take Appropriate Remedial Action as Necessary

For those who improperly applied for a PPP loan or EIDL loan, improperly filed for PPP loan forgiveness, or improperly claimed the ERC, it will be important to promptly take appropriate remedial action. What is necessary in any particular case will depend on the specific circumstances involved.

5. Document All Efforts to Come Into Compliance and Remain Prepared for IRS Scrutiny

Business owners and executives who need to remedy ERC, PPP, and EIDL-related mistakes should also work with their tax counsel to document their efforts to come into compliance. This will help ensure that they are prepared to withstand scrutiny from the IRS (or IRS CI) should this become necessary.

Request a Confidential Consultation with Texas Tax Attorney Lawrence Brown

If you have ERC, PPP, or EIDL-related concerns heading into 2025, we invite you to get in touch. To request a confidential consultation with Texas tax attorney Lawrence Brown, please call 888-870-0025 or inquire online today.