On July 15, 2020, the Department of Justice (“DOJ”) charged Andrew Marnell with bank fraud in connection with $8.5 million worth of Paycheck Protection Program (“PPP”) loans he obtained for fake business expenses, that were then spent on gambling and stock market bets, incurring millions of dollars in losses. See United States v. Marnell, No. 2:20-mj-03313-DUTY (C.D. Cal. Jul. 15, 2020).

Most businesses who received PPP funds did so in all honesty and fairness and are now submitting documents for forgiveness. But, as with all disasters, there are those who took advantage of the situation and received money that was not meant for them (think large corporations getting the Small Business Administrations’ Payroll Protection Program funds.)

In light of the fraud protection tasked to IRS and the timing of IRS reopening its audits and investigations arm on July 15th, 2020, it is certain that IRS audits are going to be on the rise.

Chairman of the Fed. Steve Mnuchin recently announced that all SBA PPP loan recipients who got more than $2 million in PPP funds will automatically be audited, red flags or no.

As of June 30th, 2020 the overall average SBA PPP loan size is approximately $107,000. With 86.5% of all loans being for less than $150,000. Only 0.6% (not six percent, point six percent) of SBA PPP loans were for between $2M – $5M accounting for 20.7% of all loan funds disbursed.

Applications for the SBA PPP Loans are now closed, the program ended on August 8th, 2020

SBA PPP Loan Purpose

The purpose of the PPP loan was to support struggling businesses who wanted to keep employees at work during the COVID-19 closures and economic shutdown. The terms of this PPP loan are as follows, “ Catalyzed by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, enacted on March 29, 2020, the PPP provides qualifying small businesses 1% interest loans with a two-year maturity for payroll costs, interest on mortgages, rent, and utilities, with the interest and principal amount forgiven if the proceeds are spent on these expenses within a certain period of time.” Money from the PPP loan must be used in the ways stated above. If money was used for other purposes, the loan will not be forgiven. If money was used in a way that the SBA, the Fed and the IRS find to be illegal, then criminal investigations will be opened.

Criminal Investigation

Here are 5 indicators your company is at risk of a civil or criminal investigation:

You obtained government funds under false pretense
You knowingly use the funds for unauthorized purposes.
Your business was not negatively impacted by COVID
The funds were not used to retain workers and maintain payroll

With more than a decade of legal, business and tax experience, Milikowsky Tax Law is on hand to help protect you from the threat of an SBA, IRS, EDD or California State audit. When you work with Milikowsky Tax Law, you get more than an experienced tax litigation attorney. You get an experienced business owner. We understand not only how businesses run but how to best represent the ups and downs of ownership to government entities in a way that they understand, respect and can reconcile.

Call us for an assessment if you are concerned that your PPP loan may have exposed your business to investigation.