5 Issues that Can Trigger COVID-19 Pandemic Fraud (PPP and ERC Fraud) Investigations

Allegations of COVID-19 pandemic fraud can expose companies and individuals to significant penalties. This includes allegations of fraud under the Paycheck Protection Program (PPP) and Employee Retention Credit (ERC) program. With hundreds of billions of dollars potentially lost to fraud during the pandemic, federal authorities are now working to recoup taxpayers’ losses and hold bad actors accountable.

Several issues can trigger investigations into companies’ PPP loan applications and ERC claims. Depending on the circumstances involved, these issues may expose companies—and their owners and executives—to civil or criminal penalties. As a result, company owners and executives should address any concerns proactively and seek advice from a New Jersey tax attorney as warranted. Some examples of the issues that can trigger PPP fraud and ERC fraud investigations include:  

Issue #1: Red Flags in a PPP Loan Application or Tax Return

Red flags in PPP loan applications and tax returns can trigger both civil and criminal inquiries. The Small Business Administration’s Office of Inspector General (SBA OIG) has identified several “fraud indicators” in PPP loan applications, and IRS Criminal Investigation (IRS CI) is scrutinizing both PPP loan applications and tax returns with ERC claims for signs of fraud. While not necessarily indicative of fraud, some examples of issues that may trigger federal scrutiny include:

• Missing or incorrect identifying information
• The same identifying information linked to multiple businesses
• Identical applications or filings for multiple businesses
• Businesses filing without payroll or employees
• Failure to apply for PPP loan forgiveness

Issue #2: Red Flags in a Business’s Supporting Documentation

Federal authorities are also looking for red flags in businesses’ supporting documentation for PPP loans and ERC claims. Missing documentation, inconsistencies, evidence of falsification and other similar types of issues can all lead to further scrutiny.

Issue #3: Loan Forgiveness or Refundable Credit Calculation Errors

Calculation errors are a common trigger for COVID-19 pandemic fraud investigations. This includes both incorrectly calculating a business’s PPP loan forgiveness eligibility and incorrectly calculating the amount of a business’s refundable credit under the ERC program.

Issue #4: Inconsistencies During IRS Audits

Inconsistencies uncovered during IRS audits can lead to further scrutiny as well. If revenue agencies find evidence suggesting that a business may have improperly obtained a PPP loan, PPP loan forgiveness or a refundable employee retention credit, they may refer the matter to IRS CI for a criminal investigation.

Issue #5: Attempting to Conceal Information from the IRS

Attempting to conceal information from the IRS during an audit is a common trigger for IRS CI investigations as well. If revenue agents have reason to believe that a taxpayer is being less than forthcoming during an audit, this can also raise red flags regarding the taxpayer’s PPP loan, PPP forgiveness, and/or employee retention credit.

Request an Appointment with New Jersey Tax Attorney Kevin E. Thorn

If you have concerns about facing IRS (or IRS CI) scrutiny related to a PPP loan or employee retention credit, we encourage you to contact us for a confidential consultation. To request an appointment with New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 201-842-7696 or inquire online today.