The fraudulent fallout of the pandemic-era Paycheck Protection Program (PPP) rolls on as law enforcement continues pursuing those who received loans under false pretenses. If this is you, you might find the following important.
What is PPP Fraud?
According to the U.S. government, 11.5 million PPP loans were made for a total of $796.8 billion. This was a federal program intended to provide relief to small businesses in order to keep the lights on. The money went toward mortgages, rent, health care payments, and most importantly, retaining employees during the downturn. While the program is credited with saving millions of jobs and preserving businesses, it also became a payday for fraudsters.
To qualify for the program, individuals and businesses that would not otherwise have been eligible engaged in a variety of fraudulent schemes, including creating fictitious businesses, inflating employee counts, overstating expenses, and generating false documentation.
The Small Business Administration (SBA) Office of Inspector General estimated in 2023 that more than $200 billion in potentially fraudulent funds were disbursed across the PPP and COVID-19 Economic Injury Disaster Loan (EIDL) programs combined, representing at least 17 percent of the funds disbursed through both programs.
What is Happening Right Now?
In September, the SBA announced that the Internal Revenue Service (IRS) had identified eligibility issues with approximately $100 billion in PPP loans. As a result, the SBA, IRS, Department of Justice (DOJ), and Treasury are collaborating to continue investigating these loans.
The U.S. Attorney's Office for the Northern District of Ohio announced that the “summer surge” to pursue fraudulent PPP loans had resulted in enforcement actions involving more than 160 criminal defendants and approximately $245 million in intended losses. SBA Administrator Kelly Loeffler said, “This announcement represents the largest-ever action against perpetrators of SBA fraud, with 870,000 suspended borrowers tied to $39 billion in suspected fraudulent PPP and COVID EIDL activity.”
One of the defendants in the broader PPP fraud enforcement effort was tax preparer Araceli Benitez, who prepared and filed a false tax return using figures that differed from those provided by her client. She also forged the client’s signature on a PPP loan application and submitted it without the client’s review. Benitez also falsified her own employer payroll taxes, leading to a tax refund of more than $52,000. She is currently awaiting sentencing after pleading guilty. If you are interested in understanding more about employment tax fraud, take a look at our resource guide, Employment Tax Fraud: What Every Business Owner Needs to Know.
What Should You Do If You Are Concerned About PPP Fraud?
If you knowingly submitted false information to obtain a PPP loan, or are concerned that your loan may not have met program requirements, speak with a tax lawyer before responding to inquiries from the IRS, SBA, or another enforcement partner, employee, or whistleblower. Civil and criminal penalties may apply, including fines and potential imprisonment. Preserve your loan documentation and consult legal counsel about any repayment obligations or government deadlines. If you receive a demand letter from the government, respond promptly with the guidance of your tax counsel to help protect your rights and meet applicable deadlines. Taking action early may help you better understand your options.
Concerned About the Eligibility of Your PPP Loan? We Can Help
With decades of experience assisting clients with compliance, tax litigation, and criminal tax allegations, our tax lawyers provide strategic legal guidance. Call us at 440-250-9709 or set up a consultation to discuss your PPP situation. From offices in Cleveland and Chicago, our tax group serves clients across the country and abroad.
