Did Your Business Claim the Employee Retention Credit After Receiving a PPP Loan?

The federal Paycheck Protection Program (PPP) and Employee Retention Tax Credit (ERTC) provided much-needed financial lifelines to many small businesses during the COVID-19 pandemic. They also proved to be prime targets for fraud. Fraud under these programs cost U.S. taxpayers tens of billions of dollars, and now the Internal Revenue Service (IRS) and its Criminal Investigation division (IRS CI) are working to claw back as much of this money as possible.

5 Important Facts About the PPP and ERTC

While many businesses were eligible to receive PPP loans (and PPP loan forgiveness) while also claiming the ERTC, it is also clear that many businesses improperly took advantage of these COVID-19 relief programs. If your business claimed the ERTC after receiving a PPP loan, here are five important facts you need to know:

1. The Eligibility Criteria for the PPP and ERTC Were Different

The eligibility criteria for the PPP and the ERTC were different. If a business was eligible to receive a PPP loan, this does not necessarily mean that the business was also eligible to claim the ERTC. As a result, if business owners assumed that they qualified for the ERTC because they received a PPP loan, they may have claimed the ERTC improperly.

2. PPP Loan Recipients Could Not Claim the ERTC Initially

Under the CARES Act, PPP loan recipients could not claim the ERTC initially. While the Consolidated Appropriations Act of 2021 made the ERTC available to PPP loan recipients retroactively, businesses that claimed the ERTC before they were eligible to do so may be flagged for IRS audits or criminal tax fraud investigations.

3. Wages Paid with PPP Funds Do Not Qualify for the ERTC

As the IRS explains, “Wages reported as payroll costs for PPP loan forgiveness or certain other tax credits can't be claimed for the [ERTC] in any tax period.” Claiming the ERTC for wages paid with PPP funds is another example of a mistake that could lead to IRS or IRS CI scrutiny.

4. The IRS is Focused on PPP and ERTC Fraud Enforcement

Due to the high rate of fraud under the PPP and ERTC, the IRS has made PPP and ERTC fraud enforcement a priority in 2023. IRS CI is prioritizing enforcement as well, and it has already worked with the U.S. Department of Justice (DOJ) to institute multiple criminal proceedings this year.

5. Allegations of Intentional Fraud Can Lead to Criminal Charges

While inadvertent mistakes related to the PPP and ERTC can lead to civil liability, allegations of intentional fraud can lead to criminal charges. In criminal PPP and ERTC fraud cases, business owners can face fines and federal imprisonment.

Request a Confidential Consultation with Tax Attorney Kevin E. Thorn in Washington D.C.

If you have concerns about your business’s PPP loan or employee retention tax credit (or both), we encourage you to contact us promptly. To request a confidential consultation with tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, call 202-349-4033, email ket@thornlawgroup.com or inquire online today.