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How Could My PPP Loan Have Exposed My Company to Criminal Liability?

Court of Law

How could my PPP loan have exposed my company to criminal liability? 

Now that your small business has a PPP Loan, it is time to consider how this may have exposed your company to criminal liability. Since the US government does not give out loan money without a loan audit plan in place. The CARES Act allows the federal government flexibility to audit any borrowers under the PPP loan. This flexibility comes from two positions that were created under the CARES Act:

  • Special Inspector General for Pandemic Recovery 
  • Pandemic Response Accountability Committee. 

Together they are known as supervisory entities. Following is an overview of the ways these entities play a role in your exposure to criminal liability. 

The Supervisory Entities 

These roles are in place for preventing and detecting fraud, waste and abuse of these loans under the CARES Act. Therefore, they will work together to review all relevant documents of small business owners whose loan application numbers do not match their payroll tax numbers or Federal tax declarations for 2019. In the same way, if you have discrepancies on your taxes, whether through intentional misrepresentation or simple oversight, you could face serious repercussions.

Some key factors that will be examined during an audit:

(i) the size of the business

(ii) whether the business has an actual need for the funds

(iii) whether the funds were properly spent on the business expenses specified in Section 1109 of the CARES Act

(iv) whether the loans are used for forgivable purposes

(v) whether employee and compensation levels are maintained as per the conditions for loan forgiveness.

Types of Criminal Liability 

While discrepancies are the most obvious road to criminal exposure there are other vulnerabilities for businesses who received PPP< EIDL or other CARES funds. The federal government has a wide berth in pursuing businesses they feel have acted in bad faith. Furthermore, you could face fraudulent conduct in connection with the CARES Act by the following: 

  1. Mail fraud
  2. Wire fraud
  3. Bank fraud 
  4. False statements to the United States government.

If you are a small business owner and you receive an SBA PPP loan, especially an amount over $2 million you must prepare for an audit. 

If you have concern about your business upcoming audit, reach out to our experts in Criminal exposure at Milikowsky Tax Law. Moreover, we will help to mitigate any criminal liability and prepare you for your upcoming audit.  We have extensive experience in Criminal Tax audits and representing businesses to the IRS.