IRS Issues Advisory for Businesses That Improperly Received PPP Loan Forgiveness

While it has been well over a year since the federal Paycheck Protection Program (PPP) expired, the Internal Revenue Service (IRS) is continuing to target PPP loan recipients for fraud. This includes both (i) fraudulently obtaining PPP loans through falsified applications and fabricated documentation; and (ii) fraudulently obtaining PPP loan forgiveness through invalid certifications.

IRS: Businesses That Improperly Received PPP Loan Forgiveness Must Pay What They Owe

Recently, the IRS issued a News Release focusing on the latter form of PPP fraud. In the September 21, 2022 publication, the IRS advises that “when a taxpayer's loan is forgiven based upon misrepresentations or omissions, the taxpayer is not eligible to exclude the forgiveness from income and must include in income the portion of the loan proceeds that were forgiven based upon misrepresentations or omissions.” The IRS goes on to advise that taxpayers who may have improperly received PPP loan forgiveness should “take steps to come into compliance by, for example, filing amended returns that include forgiven loan proceed amounts in income.”

Conditions for PPP Loan Forgiveness

The PPP was a relief program that the federal government launched at the height of the COVID-19 pandemic. Under the program, eligible businesses could quickly gain access to capital through federally-backed loans. Eligible businesses could also have their loans forgiven if they met the program’s conditions for forgiveness:

• The loan recipient was eligible under the PPP;
• The loan recipient used the funds for eligible expenses (payroll costs, rent, mortgage interest and utilities); and,
• The loan recipient certified to compliance with the terms of the PPP.

The IRS has determined that many PPP loan recipients submitted fraudulent certifications as a result of “not meet[ing] one or more eligibility conditions.” In its News Release, the IRS quotes Commissioner Chuck Rettig as stating, “We want to make sure that those who are abusing [the PPP] are held accountable, and we will be considering all available treatment and penalty streams to address the abuses.”

What Should Business Owners Do if They Have Concerns About Their PPP Loan Forgiveness Certifications?

Business owners who have concerns about the validity of their PPP loan forgiveness certifications should consult with a tax attorney promptly. While filing an amended return as the IRS suggests may be an option, doing so could also trigger unwanted scrutiny. In many cases, business owners will likely be better off pursuing alternatives such as voluntary disclosure—which can eliminate the risk of prosecution if pursued successfully.

In any case, business owners who have concerns should not take a “wait and see” approach. The IRS is actively targeting businesses and individuals suspected of PPP loan fraud, and it is pursuing both civil and criminal charges as warranted.

Speak with Tax Attorney Kevin E. Thorn in Confidence

If you have concerns about the risk of being targeted for PPP loan fraud, we encourage you to contact us promptly for more information. To speak with tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, in confidence, please call 202-349-4033, email ket@thornlawgroup.com or request an appointment online today.