PPP Loan Fraud
If you are the target of an investigation for PPP Fraud or have been charged with offenses relating to PPP Fraud, you should seek legal counsel immediately. Federal charges are extremely serious, and decisions you make early on can make or break your case.
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PPP Audits – What You Need to Know
If you received a PPP loan, you might be audited or reviewed by the SBA. Many businesses were approved for loans they didn't need, so the SBA is stepping up efforts to make sure every loan went to the right business, for the right amount, and for the right purpose
Who Will get audited?
Any business that receives a PPP loan may be audited. As part of the loan conditions, you allowed the lender to share tax information with the SBA for loan compliance and SBA loan reviews. On April 28, Treasury Secretary Steven Mnuchin stated that any business receiving more than $2 million in PPP loans would be fully audited, and spot checks would be made for smaller loans.
What Items will be audited?
The SBA's Office of Inspector General will verify that the certifications you made when applying for the PPP were accurate and made in good faith. The auditor will be looking for proof that your application was accurate and truthful. Your business/PPP loan could be audited at any point of the loan process: during the application, after getting approved, while applying for forgiveness, or after the loan is fully paid off or forgiven.
Three items the SBA will focus on
Borrower eligibility: was the borrower actually eligible for the PPP loan based on the rules and guidance available at the time of application?
Loan amount and loan use: did the borrower receive the correct amount they were eligible for, and did the borrower use the loan funds for allowed expenses?
Loan forgiveness: is the borrower eligible for forgiveness on the claimed amount?
Types of PPP Fraud
The laws surrounding PPP fraud are still developing, but for now the laws concerning PPP loans fall under three main categories:
1. Application Fraud: There are various acts and practices concerning whether a business presents honest and accurate information when applying for a PPP loan. When it comes to federal funds under the PPP program, only companies that qualify as having “small business concerns” under the Small Business Act, 15 U.S.C. § 632 are eligible for funds. The program also specifies that applications must be based on need due to “the uncertainty of current economic conditions making necessary the loan request to support the ongoing operations of the eligible recipient.”
2. Fradulent use of loan Funds: Funds obtained through a PPP loan may only be used for (1) payroll expenses, (2) interest and rent payments under pre-existing obligations, (3) insurance premiums and (4) utility costs. Use of the loan funds for any other purposes can be investigated as fraud.
3. Loan Forgiveness Certification Fraud: Some businesses can qualify to not have to repay their PPP loans, but they must first certify that they have complied with all the requirements of the program. If a company submits a false certification, including one with incomplete information, this could be considered PPP loan fraud.
PPP Fraud Charges
PPP Loan Fraud Charges Under each of the above categories, there are a variety of possible charges business owners can face, some of which have very serious consequences. Some allegations you can be charged with include, but are not limited to:
* Aggravated Identity Theft: If an individual is accused of using another company or individual’s information to obtain a PPP loan, they can face charges for identity theft under 18 U.S.C. § 1028A. This typically coincides with an underlying fraud offense (i.e. Bank Fraud), and entails additional years of federal prison time served after fraud penalties if convicted.
* Bank Fraud: Under 18 U.S.C. § 1344, individuals and companies that submit fraudulent loan applications can also face charges for bank fraud. The penalty for bank fraud can be up to a $1 million fine and 30 years of federal imprisonment for knowingly defrauding or attempting to defraud a financial institution by means of false pretenses, representations or promises.
* Conspiracy: Conspiring to commit PPP loan fraud is also considered a federal offense, under 18 U.S.C. § 371 and 18 U.S.C. § 1349. It can even lead up including the same penalties placed on successfully committing a PPP loan fraud offense.
* False Claims Act Violations: The False Claims act (31 U.S.C. §§ 3729 – 373) prohibits submitting any false claim for payment under a federal benefit program. Submitting false information in a PPP loan application or in a PPP loan forgiveness certification both carry potential to lead to false claims charges.
* Making False Statements to Federal Agents: When targeted for fraud investigation, individuals must be extremely cautious when sharing information, because sharing false information can lead to federal prosecution under 18 U.S.C. § 1001. Prosecution carries fines up to $250,000 for individuals or $500,000 for corporations and up to five years in federal prison. In general, it’s essential when facing any federal investigation to contact an experienced lawyer immediately to avoid giving federal agents any incriminating testimonies.
* Making False Statements to the Small Business Administration (SBA): As the SBA is the agency responsible for administering PPP loans, it is also a federal violation to knowingly make any false statements to them, in accordance with 18 U.S.C. § 1014.
* Tax Evasion: Charges for tax evasion can be filed against anyone who is accused of fraudulently obtaining PPP loans, as a result of unlawful use of loan funds. For example, claiming deductions for expenses paid with PPP funds can lead to federal tax evasion charges, under 26 U.S.C. § 7201. Federal tax evasion prosecution entails fines of up to $100,000 for individuals and $500,000 for corporations, and up to five years in federal prison.
* Wire Fraud: Fradulent activity that involves internet communication or activity over the internet can be charged as wire fraud under 18 U.S.C. § 1343. As PPP applications are largely submitted online, wire fraud charges can be easily tagged onto other charges for PPP loan fraud.
What to Do if You are Targeted for Audit
PPP Loan audits are a serious matter. It is in your best interest to hire experienced fraud defense attorneys who can work diligently to help eliminate or reduce the many charges the federal government can file against you.
Freeman Tax Law Can Help
Why do people choose Freeman Tax Law?
- Straight-Forward, Easy to Understand Style
- Years of Experience Handling Cases of All Sizes and Types
- Will Handle All Communication with the IRS on Your Behalf
- Free, No-Obligation Initial Consultation
“The client is the most important person at our firm….it is our job to understand their facts, clearly explain all options to resolving a problem, treat them with integrity and provide the highest level of representation.”
— Jeffrey S. Freeman, J.D., LL.M., Attorney and Counselor
Let us help you navigate through the PPP process with a free, no-obligation consultationCall: 855-935-5945
Jeffrey S. Freeman, Esq. has personally represented and counseled hundreds of clients with regard to their tax matters. During his early career, Mr. Freeman worked for a large international tax firm specializing in international tax issues. He has extensive experience representing Fortune 100 clients and high net worth families. By combining large firm training and attention to detail, with a boutique firm approach and a personal focus on resolving complex tax matters efficiently, creatively and strategically, Mr. Freeman’s priority is always to provide his clients with the highest level of representation.
Mr. Freeman holds a Masters of Law in Taxation (LL.M.) from Georgetown University Law Center in Washington, D.C. and Juris Doctor, Cum Laude, from the Detroit College of Law at Michigan State University and a Bachelor of Arts in Accounting, with honor, from Michigan State University.