WASHINGTON, D.C. — The Internal Revenue Service has opened examinations stemming from discrepancies tied to about $100 billion in pandemic-era small-business loans, expanding federal scrutiny of suspected Paycheck Protection Program and COVID Economic Injury Disaster Loan fraud into potential tax liabilities and penalties.
The examinations follow the Small Business Administration’s referral earlier this year of more than $200 billion in suspected PPP and COVID EIDL fraud to the IRS. The tax agency compared information borrowers supplied in loan applications with information reported to the IRS and identified discrepancies associated with approximately $100 billion in loans.
The IRS is examining those cases to determine whether borrowers owe additional taxes or penalties, including fraud penalties. The agencies said individual cases will be evaluated based on their facts and applicable law, meaning the discrepancies themselves are not findings that each borrower committed fraud.
“The IRS’s review of referrals by the SBA showed discrepancies involving $100 billion in loans,” IRS Chief Executive Officer Frank J. Bisignano said. “The IRS has opened investigations because of SBA’s referrals and will pursue penalties for tax fraud.”
The $200 billion figure originated with a June 2023 estimate by the independent SBA Office of Inspector General. The watchdog estimated that more than $200 billion — at least 17% of approximately $1.2 trillion disbursed through the pandemic EIDL and PPP programs — potentially went to fraudulent actors.
That estimate was based on investigative casework, previous oversight findings, and data analytics. The inspector general cautioned in its original report that loans identified as potentially fraudulent warranted investigation, rather than treating the estimate as a determination that all of the flagged assistance involved proven fraud.
The IRS action broadens an enforcement effort that has also restricted borrowers’ access to federal programs. The SBA earlier this month suspended 870,000 borrowers associated with an estimated $39 billion in suspected PPP and COVID EIDL fraud.
Including previous actions, the SBA said it has suspended approximately 1 million borrowers associated with about $49 billion in suspected pandemic-era fraud. Suspended borrowers are barred from future SBA lending and programs including the 8(a) federal contracting program.
Separately, the SBA has referred approximately $22 billion in suspected fraudulent PPP and COVID EIDL loans to the Treasury Department for collection. That amount represents outstanding balances owed by specific borrowers and is separate from the more than $200 billion referred to the IRS for tax analysis.
The SBA and IRS are coordinating with the Treasury Department, Justice Department, SBA inspector general and other federal partners on potential administrative, civil and criminal enforcement actions and efforts to recover taxpayer funds.
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