Will PPP Loans Be Audited By The IRS?
Our guide explains which businesses will be audited, what these audits will look like, and answer some FAQs about the PPP audits.
Following the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, many small business owners received their share of billions of dollars allotted to the Paycheck Protection Program (PPP). PPP loans are forgivable loans that could be used for payroll costs, rent, mortgage interest, or utilities.
The program faced backlash when it came to light that public companies had been approved for millions of dollars in funding under the PPP. In response, Treasury Secretary Steven Mnuchin announced that before loans are forgiven, companies that received funding will be audited. This article looks at which businesses will be audited, what these audits will look like, and answer some FAQs about the PPP audits.
Table of Contents
- Will PPP Loans Be Audited?
- PPP Audit Guidelines: Preparing For Your PPP Audit
- The Bottom Line On PPP Audits
- PPP Loan Audit FAQs
Will PPP Loans Be Audited?
If you were a recipient of a PPP loan, you might be wondering if your business will be audited. The short answer? Maybe. Any business that received PPP funding may be subject to an audit by the Small Business Administration (SBA) before loans are forgiven.
Your loan amount will ultimately be the determining factor of whether or not your loan will be audited. However, the SBA has the right to audit any PPP loan of any size. Keep reading to learn more about what to expect from PPP loan audit guidelines.
PPP Audit Guidelines: Preparing For Your PPP Audit
So you’ve been audited — now what? The first step is not to panic. As long as you provided accurate information and spent your PPP funds on approved expenses, the process should be smooth and easy.
Here’s what you need to know if your PPP loan is audited:
Keep Careful Payroll & Accounting Records
To receive PPP loan forgiveness, at least 60% of funds must be spent on payroll expenses. Keeping careful payroll records is critical to verify that funds were spent properly. Making sure that payroll expenses are properly documented ensures that your loan forgiveness application is accurate and will also be used to verify any information if the SBA audits you.
You’ll also want to keep other accounting records in order, which is easiest to do with accounting software. Accurate records help verify information included in your loan application and loan forgiveness application, such as expenses covered with PPP funds.
Know What Information Will Be Needed For Your PPP Audit
According to the Treasury Secretary, payroll reports will need to be verified. It can also be safely assumed that any information provided in your PPP loan and forgiveness applications may also require verification during an audit.
Some of the documentation requirements for a PPP audit may include:
- Payroll records
- Accounting records
- Bank statements
- Voided checks, invoices, receipts, or other proof of expenses
This is by no means a comprehensive list, so just be aware that the SBA could potentially request additional information if you are audited.
Understand The PPP Audit Timeline
Unfortunately, there are no set timelines for when PPP audits will occur. Businesses that received loans exceeding $2 million are subject to an audit when seeking forgiveness, during which time the SBA can evaluate:
- The borrower’s eligibility to receive funding under SBA guidelines and the CARES Act
- The amount of the loan and use of the proceeds
- Forgiveness eligibility
Recipients of smaller loans may also be subject to an audit. Additionally, even if a loan is forgiven, the SBA can start an audit or investigation up to six years after the date of loan forgiveness.
Consider Hiring An Accountant
You don’t need an accountant to navigate your PPP audit. As long as you provide accurate information in your application and have documentation backing up your payroll expenses and how loan funds were spent, you should be fine.
Most businesses that use accounting software should be able to navigate an audit without an accountant, although having one on your side can certainly make things less stressful. An accountant can help you get your records in order and prepare your response for the audit. If you’re short on time or don’t want to take on the stress of an audit alone, you may want to consider hiring an accountant.
The word “audit” can strike fear in even the most organized business owner, but there’s no reason to fear the PPP audit. Even if you are audited, you shouldn’t have anything to worry about, provided you gave accurate information on your PPP application and put funds toward approved expenses.
Are you looking for other COVID resources? Whether you’re a sole proprietor, self-employed, or own a small business, we have a variety of resources in our COVID-19 hub to help you learn about other funding options as well as guides to surviving the financial fallout from the coronavirus.
The Bottom Line On PPP Audits
Will all PPP loans be audited? While PPP audits aren’t inevitable for every borrower, they are a possibility. But knowing what to expect and making sure that you’re prepared are key to making an audit as easy and stress-free as possible.
While you’re here, check out our other great resources for PPP borrowers, including our post, How Will PPP Loans & EIDL Advances Affect My State & Federal Taxes?, where you’ll find out everything you need to know about how your tax return is affected by your PPP loan. Good luck!