Report: Approximately 1.4 Million PPP Loans May Be Ineligible for Forgiveness

While the Paycheck Protection Program (PPP) served as a financial lifeline for many businesses at the height of the COVID-19 pandemic, it is now well-known that the program was also a prime target for fraud. While the U.S. Small Business Administration (SBA) has previously estimated that lenders issued as many as 70,000 fraudulent loans under the program, a recent report suggests that the real number could be as high as 1.4 million.

Although initial efforts to combat fraud under the PPP focused on targeting individuals and businesses that submitted fraudulent loan applications (and this remains a top federal law enforcement priority), today federal authorities are also targeting loan recipients that submitted fraudulent certifications for PPP loan forgiveness. According to a recent NPR article, “[v]irtually all PPP loans have been forgiven with limited scrutiny,” and the federal government has “closely scrutinized” just a small fraction of PPP loan forgiveness certifications.

What Happens If You Submit an Invalid (or “Fraudulent”) Certification for PPP Loan Forgiveness?

While relatively few PPP loan forgiveness certifications have faced scrutiny to date, enhanced awareness of the scope of the issue is almost certain to lead to enhanced enforcement activity. The Internal Revenue Service (IRS) is paying attention to the issue, and IRS Criminal Investigations (IRS CI) is pursuing criminal charges when warranted. As a result, PPP loan recipients that have not yet submitted applications for forgiveness need to be certain that they qualify, and those that have already received forgiveness should assess whether they are at risk of facing prosecution (and substantial penalties).

Improperly Certifying for PPP Loan Forgiveness Could Lead to Multiple Federal Allegations

Improperly certifying for PPP loan forgiveness presents several legal risks. Obtaining federal funds under false pretenses is a serious criminal offense, and business owners and other PPP loan recipients accused of certification fraud can face fines and imprisonment. Additionally, as the IRS has made clear that, “when a taxpayer's loan is forgiven based upon misrepresentations or omissions, the taxpayer is not eligible to exclude the forgiveness from income,” those that have submitted inaccurate tax returns could face criminal tax fraud charges as well.

Responding to IRS Audits and IRS CI Investigations Targeting PPP Loan Fraud

For U.S. taxpayers that are already facing IRS (or IRS CI) scrutiny related to their PPP loans, timely asserting a strategic defense will be critical for avoiding unnecessary consequences. While tax fraud audits and investigations present substantial risks, it will often be possible to achieve a favorable result with the right approach. Businesses and individuals targeted in audits and investigations should engage defense counsel promptly, and they should work closely with their counsel to evaluate their defense options and choose the best path forward.

Schedule an Appointment with Federal Tax Attorney Kevin E. Thorn

If you have concerns about facing IRS (or IRS CI) scrutiny in relation to a PPP loan application or forgiveness certification, we encourage you to contact us promptly. To schedule an appointment with federal tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, call 703-752-3752, email ket@thornlawgroup.com or contact us confidentially online now.