Businesses in Boston that Secured PPP Loans and Claimed the Employee Retention Tax Credit Should Be Prepared for IRS Scrutiny

The Paycheck Protection Program (PPP) and Employee Retention Tax Credit (ERTC) were federal relief programs that Congress passed at the height of the COVID-19 pandemic. While they provided much-needed relief to many small businesses, they also proved to be prime targets for fraud. The PPP produced tens of billions of dollars in fraudulent loans, and NBC published a story calling the looting of COVID-19 relief programs the “biggest fraud in a generation.”

The ERTC has been a source of substantial fraud as well. The Internal Revenue Service (IRS) has recently issued multiple news releases warning taxpayers of the risks of non-compliance. IRS Criminal Investigation (IRS CI) is prioritizing PPP and ERTC fraud enforcement, and it has publicized multiple investigations targeting loan and credit recipients in 2023.

Did Your Boston Business Receive a PPP Loan and Claim the ERTC?

All of this means that business owners who received PPP loans and claimed the ERTC should be prepared to face scrutiny from the IRS. While many businesses lawfully obtained PPP loans (and PPP loan forgiveness) and claimed the ERTC, the IRS is paying particular attention to businesses that have taken advantage of both of these programs.

When can businesses that received PPP loans and claimed the ERTC get into trouble with the IRS? Some examples of issues that can arise during IRS audits focused on these programs include:

• Claiming the ERTC Too Soon – Although the Consolidated Appropriations Act of 2021 made PPP loan recipients retroactively eligible for the ERTC, businesses that received PPP loans were initially ineligible to claim the credit. While this error itself may not lead to significant liability, it may signal to the IRS that further scrutiny is warranted.
• Using Wages Paid with PPP Funds to Claim the ERTC – Businesses that used PPP funds to pay their employees’ wages cannot use these wages for purposes of claiming the ERTC. The IRS considers this to be “double-dipping,” and it can lead to various penalties.
• Misrepresenting Eligibility for the PPP or ERTC (or Both) – Misrepresenting a business’s eligibility for the PPP or ERTC can also trigger IRS scrutiny and penalties. This is true even if the misrepresentation is unintentional, though intentional misrepresentations carry additional consequences.

Notably, while improperly obtaining a PPP loan, securing PPP loan forgiveness, or claiming the ERTC can lead to civil liability for back taxes, interest and penalties, it can also lead to criminal prosecution in some circumstances. As noted above, IRS CI is actively targeting taxpayers whose returns exhibit red flags for PPP and/or ERTC fraud. If an IRS CI investigation uncovers evidence of intentional PPP or ERTC fraud, this can lead to prosecution for tax fraud and other federal tax crimes.

Request a Confidential Consultation at Thorn Law Group in Boston

If you have questions or concerns about securing a PPP loan and claiming the ERTC, we encourage you to contact us promptly. To request a confidential consultation with tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 617-692-2989, email ket@thornlawgroup.com or inquire online today.