How Should You Respond to an IRS Inquiry About PPP or ERC Fraud?

The U.S. Department of Justice (DOJ) recently provided an update on its ongoing efforts to prosecute pandemic-era fraud, including fraud under the Paycheck Protection Program (PPP) and Employee Retention Credit (ERC) programs. The DOJ is working alongside the Internal Revenue Service (IRS) to uncover instances of PPP and ERC fraud, and, in many cases, DOJ prosecutions are flowing from IRS audits and investigations. Learn more from Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group:

IRS Audits and Investigations Targeting PPP and ERC Fraud Present Substantial Risks

The DOJ’s update highlights its efforts to prosecute the individuals involved in several multi-million-dollar PPP fraud schemes. While the DOJ’s latest update does not mention ERC fraud, uncovering companies’ and individuals’ efforts to improperly claim tax credits both during and after the pandemic remains a top federal law enforcement priority.

With this in mind, companies that are facing scrutiny from the IRS related to their PPP loans or ERC claims should:

1. Quickly Assess Their Liability Exposure

Any time a company faces scrutiny from the IRS, it is critical to quickly assess its liability exposure. In this scenario, conducting this assessment will involve reviewing all relevant documents to determine whether they may serve as evidence of PPP fraud or ERC fraud.

2. Preserve and Protect All Relevant Documents

In addition to reviewing all relevant documents, companies facing IRS scrutiny related to their PPP loans or ERC claims should also preserve and protect them. Deleting or destroying relevant documents, even in the ordinary course of business, can have negative ramifications during a federal inquiry.

3. Make Informed Decisions About Communicating with the IRS

Companies facing audits and investigations need to make informed decisions about how and when to communicate with the IRS. All communications should flow through a single point of contact, which should generally be the company’s legal counsel.

4. Prepare for the Possibility of Receiving a Search Warrant or Subpoena

Companies that are facing IRS scrutiny related to their PPP loans or ERC claims should also prepare for the possibility of receiving a search warrant or subpoena. Search warrants and subpoenas can pose varied and substantial risks, and responding effectively can be critical to protecting the company’s ability to mount a successful defense.

5. Work with Their Defense Counsel to Target a Favorable Resolution

When assessing their liability exposure in responding to search warrants and subpoenas, companies facing PPP- or ERC-related scrutiny should work closely with their defense counsel throughout the process. While facing prosecution by the DOJ is a possibility, it will also be possible to secure a favorable resolution that avoids formal charges in many cases.

Request a Confidential Consultation with Washington D.C. Tax Lawyer Kevin E. Thorn

If you need more information on responding to an IRS inquiry into PPP or ERC fraud, we encourage you to contact us promptly. Call 202-349-4033 or contact us confidentially online to request an appointment with Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group.