Let me start by saying that I’m neither a detective, nor an attorney. I’m a tax professional. However, you don’t really need to be anything special to know how government systems work, especially when it comes to money. As it pertains to the Paycheck Protection Program, the Department of Justice immediately established a fraud detection unit when the CARES Act was passed in March 2020. The Inflation Reduction Act of 2022 increased the time to prosecute PPP Loan Fraud to 10 years. That has some people shaking in their boots. With this post, I’m going to share how PPP Loan Fraud is getting caught. 

Loan amount over $2 million

When the Payroll Protection Program (PPP) was created, then Secretary of the Treasury Steve Mnuchin announced that ALL PPP loans $2 million or more WILL be audited. There was no flexibility in that statement. That’s where they started, not where they stayed. People and companies that received loans in the millions were audited. If they received loans based on fraudulent information or misused funds… #Busted!

Mismatch Schedule C

In my opinion, this is the most common way PPP scammers will get caught. PPP Loans required Sole Proprietors, Independent Contractors and Single Member LLC owners to submit the Schedule C in the loan application. In the initial round of PPP disbursements, your loan amount was based on the amount of profit you earned. The rules changed once President Biden was elected. The loan was based on the amount of gross revenue shown on the Schedule C. In either case, the max amount of the loan was based on $100,000, so that the max loan amount one could receive is $20,833. 

People were submitting Schedule Cs to the bank that had not actually been filed. Because the banks were under pressure to get the money out quickly, there just wasn’t time to verify the information at the time of the loan application. An applicant could submit a Schedule C even if they had not filed their taxes yet. PPP scammers received loans of approximately $20,000 because they claimed they earned $100,000 in income. 

One of the forms you signed to get the PPP loan was a 4506-T. This form allows certain entities to pull your transcripts from the IRS. If your Schedule C doesn’t match your application, or you don’t file a Schedule C at all… #Busted. 

Mismatch Employment Tax Returns (Form 941)

The purpose of the PPP Loan was to assist small businesses in continuing to pay their employees during the Covid Emergency. The loan was based on the amount of your payroll. People claimed fraudulent employees and created fraudulent employment tax returns (Form 941) showing employees and payroll amounts that didn’t exist. I had a caller tell me that someone on Clubhouse was advertising that they would create the fraudulent 941s for you to use to support your loan. 

Employment Tax Returns (form 941 filed quarterly) detail: wages you paid, income taxes, social security tax, and Medicare tax withheld. This report determines how much money your business should have paid to the government (Federal and State). The government compares what you claim on your 941s to what they have in their records. They look to see if they have records of 941s AND the money you claim to have paid to the government. Once the government determines that you have neither filed the returns, nor paid the withheld taxes… #Busted!

Social Media 

Social Media has to be my favorite method of the government catching thieves. These days, people can’t keep ANYTHING to themselves. They gotta flex for the ‘Gram. Oy! The government will use your Social Media posts to convict you. People were using their fraudulent PPP loan money to buy ridiculous things – expensive cars and jewelry, homes, and clothes, then posting about it on social media. There was even a guy who posted about how he was committing fraud on YouTube. What?!?! … #Busted!

Bank Secrecy Act

One of the things that PPP Loan Ballers did was take out large sums of money. The Bank Secrecy Act “requires U.S. financial institutions to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities.” 

PPP Loan fraudsters were quick to withdraw money. Any time you withdraw $10,000 or more in cash, the bank reports it to the IRS. Banks were looking at accounts getting PPP loan money and then watching the activity afterward. Guess what… #Busted!

Look, lying on loan forms or any federal form is a felony. If you have to lie on a loan form, then you really don’t qualify for the loan. You can go to prison. Many people thought that the government wouldn’t prosecute loan scammers. They also thought that if they got caught, they would just have to pay the loan back under favorable terms. Yeah… No. Just don’t lie. It’s that simple.