Criminal Defense Lawyers

Self-Employed PPP Fraud: Common Issues and Defenses

Last Updated on: 13th December 2025, 01:39 pm

Your hands are shaking. There’s a business card on you’re kitchen counter from an FBI agent who came to you’re door yesterday afternoon. You got a PPP loan back in 2020—$18,000 to keep your freelance buisness alive during COVID. You filled out the forms as carefully as you could, maybe with help from an accountant. Now their saying you commited bank fraud. Thirty years in federal prison, they said. A million dollar fine. You literally cannot breathe right now.

You’re self-employed. Your not a buisness owner with W-2 employees and payroll systems and all that. Your a sole proprietor, a freelancer, an independent contractor—someone who filled out forms based off what your accountant told you, or maybe you did it yourself using the SBA’s confusing guidence that kept changing every week. Now federal investigators are calling it fraud, and your terrified. What did you actually do wrong? Should you talk to the agent who left his card? Do you need a criminal lawyer right now, or can this wait until you see what happens next? Can you just pay the money back and make this whole nightmare dissapear?

The stakes here are—look, their not just about money. This is your freedom we’re talking about. Your career, your professional license if you have one, your family’s stability, your reputation in your community. And the next move you make, right now today, matters more then you probably realize.

What Makes Self-Employed PPP Fraud Different From Regular Business Fraud

Here’s the thing that no one explains: the Paycheck Protection Program was designed for businesses with employees. Like, the entire program was build around “payroll protection”—the idea was keeping W-2 workers on the payroll so they didn’t lose there jobs. But if your self-employed, you ARE the payroll. That’s where all the confusion starts, and its also where federal prosecutors are finding what they call “discrepencies” that they treat as fraud.

When you applied for your PPP loan as a sole proprietor, you had to use your Schedule C from your tax return. Sounds pretty straight forward, right? Except the timing was a complete mess. PPP applications opened in April 2020, but the tax deadline for 2019 returns got pushed to July 2020. So many self-employed people where applying for PPP loans based off estimated numbers or draft tax returns—because they legit hadn’t finished their 2019 taxes yet. Now in 2025, prosecutors are comparing what you put on that PPP application back in April or May 2020 to what you eventually filed with the IRS in June or July. Any difference? Their automatically calling it fraud.

This is what I call the Schedule C Trap, and it catches alot of self-employed people. You might of put $60,000 net profit on your PPP application in May 2020 because that’s what your draft return showed when you where working on it. But when you’re accountant finalized everything in June after doing more calculations, the actual number that got filed came out to $52,000. That eight thousand dollar difference? That’s not fraud—that’s an estimate made in good faith that changed when final numbers came in. But prosecutors don’t always see it that way. They see what they call a “false statement” made to get more loan money. They don’t care that you didn’t have final numbers yet.

The other major issue for self-employed applicants is owner compensation calculations. The PPP formula was 2.5 times your average monthly payroll. But what’s “payroll” when you don’t have any employees? For sole proprietors, it was supposed to be based on net profit from your Schedule C, with a cap of $100,000 annually (so maximum $20,833 for the 2.5 month period). But the SBA guidance kept changing every single week. Some lenders said use line 31 on Schedule C. Others said use line 7. Some said gross reciepts. Some said you could include health insurance and retirement contributions, others said you couldn’t. It was a complete mess, and now their treating honest confusion as criminal intent.

And here’s something alot of self-employed people don’t realize untill its to late: most of the fraud charges aren’t even about your initial loan application. Their about the forgiveness application you filed 8 to 24 months later. That’s when you had to certify under penalty of perjury that you spent the funds correctly—at least 60% on payroll costs, with the rest on eligible expenses like rent, utilities, that kind of thing. For self-employed people with no employees, that “payroll” calculation gets really tricky. If you claimed owner compensation replacement beyond the $20,833 cap, or if you used funds for personal expenses that don’t actually qualify as business expenses, that forgiveness application is what’s triggering the investigation right now.

The documentation problems for self-employed applicants is another huge issue that businesses with employees don’t face. Regular businesses have payroll services like ADP or Paychex, they got quarterly 941 forms filed with IRS, they have clear paper trails showing exactly where every dollar went. You? You might just have your tax return and bank statements, and maybe not even complete bank statements if you’ve switched banks or accounts got closed. If you can’t prove where the income numbers came from—if you’ve lost old bank records, if you’re accountant didn’t keep detailed work papers, if you did it yourself and didn’t keep notes—then it becomes a “he said, she said” situation. And let me tell you, in federal court, that usually goes real bad for the defendant.

One more thing that makes self-employed cases different from regular business cases: the aggregation risk. If you got a PPP loan AND an EIDL (Economic Injury Disaster Loan) advance or loan, federal prosecutors add those numbers together. A $15,000 PPP loan plus a $10,000 EIDL advance suddenly becomes a $25,000 fraud scheme in there eyes. Even worse, if you used different income figures on the two applications (which alot of people did, because PPP and EIDL legit had different calculation methods and asked for different information), prosecutors will argue you KNEW you where lying because you gave inconsistant information to two different government agencies. That’s when they charge conspiracy to defraud the government under 18 U.S.C. § 371, on top of the bank fraud and wire fraud charges. The conspiracy charge alone carries up to five years.

Bottom line: self-employed PPP fraud cases are completly different from regular business fraud cases because the rules where confusing from the start, the documentation requirements where unclear, and prosecutors don’t always understand (or maybe they just don’t care) that sole proprietors faced unique challenges that regular buisnesses with employees didn’t have to deal with.

The Most Common Mistakes Self-Employed People Make (And Which Ones Actually Lead to Criminal Charges)

Not every mistake on a PPP application leads to criminal charges. The SBA and federal prosecutors have limited resources—their going after cases where they think they can prove criminal intent and where the dollar amounts are significant enough to justify the expense. So which mistakes are actually getting people charged in 2025?

Income Calculation Errors

This is the number one issue I see in self-employed PPP cases. You where supposed to use your 2019 Schedule C net profit to calculate your loan amount. But alot of self-employed people made one of these errors, and now their facing investigations:

• Used gross receipts (line 1 on Schedule C) instead of net profit (line 31)—this inflates the number significantly
• Included 1099 income from one client but not others, becuase records where incomplete or you forgot about smaller clients
• Used 2020 income estimates when you should of used actual 2019 numbers from your filed tax return
• Averaged income from multiple years (like 2018, 2019, 2020) instead of using the specific year required
• Included income that wasn’t on your Schedule C at all, like spouse’s W-2 income or investment income or rental property income
• Added back business expenses to inflate net profit (prosecutors see this as manipulation)

Here’s what makes this criminal versus just an honest mistake: can you prove what you where thinking when you filled out the form? If you have emails to you’re lender asking “which line do I use on Schedule C?” or “do I use gross or net?” that shows good faith effort to comply. If you have notes or worksheets showing your calculations, that helps. If you have nothing—no questions asked, no research done, no notes kept, just a number that’s way higher then what your actual tax return shows—that’s what prosecutors call “knowingly false” and that’s what leads to criminal charges under 18 U.S.C. § 1014.

The dollar amount matters to, and this is something defense attorneys wont always tell you upfront. Based off prosecutorial economics and looking at actual cases being filed, if your self-employed and got under $20,000 in PPP funds, criminal charges are significantly less likely unless they’re are aggravating factors like prior fraud convictions, multiple PPP loans under different names, or identity theft involved. Under $20K, your way more likely to face civil investigation by the SBA—which means repayment demands plus penalties—not criminal prosecution by DOJ. But over $20K? That’s when the DOJ Criminal Fraud Section starts paying real attention, because the return on investment for prosecution makes sense.

Documentation Gaps That Lead to Charges

Prosecutors absolutely love cases where you can’t prove your numbers, because then its just your word against the government’s documents, and your word isn’t enough. These are the documentation problems that are leading to actual criminal charges:

• No bank statements showing the income you claimed on the application
• Tax return filed AFTER PPP application was submitted (creates timing discrepency that looks suspicious)
• Draft or estimated tax return used for application, but final filed return shows completly different numbers
• Can’t explain where you got the numbers from—no notes, no worksheets, no calculations, no emails, nothing
• Inconsistent information across multiple applications (PPP versus EIDL versus forgiveness)
• Records that contradict your story—like claiming $80K income but bank deposits only show $45K
• Missing or destroyed documents that you should of kept (red flag for prosecutors)

The absolute worst situation is when you’re bank records actually contradict what you claimed on the application. For example, you said you had $80,000 in self-employment income for 2019, but when investigators pull your bank records, the total deposits for 2019 only show $45,000. That’s not a calculation error or a misunderstanding of which line to use—that looks like deliberate inflation of income to get a bigger loan. The government will argue you knew the real number because its right their in your bank account, and you chose to lie on the application anyways.

Forgiveness Application Errors (The Bigger Problem)

This is where alot of self-employed people are getting in serious trouble now in 2025, and most of them don’t even realize the forgiveness application is seperate from the original loan application. The forgiveness fraud charges are actually easier for prosecutors to prove then application fraud, for several reasons:

• You had way more time to file (8-24 months after getting the loan, not rushed like the application)
• The rules where clearer by then because SBA had issued more guidance (so less “confusing rules” defense)
• You certified under penalty of perjury that everything was true (makes it a false statement under federal law)
• The forgiveness amount shows exactly how much “loss” the government suffered (easier damages calculation)
• You already got the money and spent it, so prosecutors can show you benefited from the fraud

Common forgiveness errors that are leading to criminal charges:

• Certified you spent 60% on “payroll costs” but you’re self-employed with literally no employees (so what payroll exactly?)
• Claimed owner compensation replacement beyond the $20,833 cap that applied to Schedule C filers
• Used PPP funds for personal expenses (mortgage on your house, car payments, vacations) and claimed they where business expenses
• Applied for forgiveness using completly different numbers then your original loan application
• Claimed mortgage interest or rent for a home office that you didn’t actually have or couldn’t prove
• Double-dipped by claiming the same expenses for PPP forgiveness AND for tax deductions
• Filed for forgiveness after your business had already closed (how did you use funds for payroll if business was closed?)

The forgiveness trap is very real, and I’ve personnally seen cases where the initial PPP application was completly fine—person qualified, numbers where accurate, everything was legit—but they messed up the forgiveness application 18 months later and now their facing federal charges. That’s because the forgiveness application is treated as its own seperate false statement under 18 U.S.C. § 1001, independent from the loan application itself.

Multiple Loan Aggregation (The Conspiracy Trap)

If you got both a PPP loan and an EIDL advance or loan, you need to understand that federal prosecutors will treat this as one big coordinated fraud scheme, even if you thought of them as two completly seperate programs. Even if each individual loan was under the $20K prosecution threshold, adding them together can push you way over that line. And if you used different income figures on each application—which alot of people did because PPP and EIDL legit had different calculation methods and asked for different types of information—that becomes evidence of intent in the government’s eyes.

For example: You put $70,000 on your PPP application because you used net profit from Schedule C line 31. But you put $95,000 on your EIDL application because they asked for gross receipts and you used line 1. Both numbers might be technically correct under each program’s seperate rules, but prosecutors will argue you manipulated and cherry-picked numbers to maximize your loan amounts across both programs. They’ll charge conspiracy to defraud the United States and add up the total amount from both loans—even though you didn’t actually defraud anyone if you legitimately followed each program’s different rules.

The lesson here: inconsistancy looks like intent to prosecutors, even when its not. They see different numbers and assume manipulation, not confusion about different program requirements.

What Happens When Your Under Investigation (And How to Tell Which Track Your Actually On)

Not all PPP investigations are criminal investigations. Understanding whether your on the civil track or the criminal track is absolutly crucial, because the rules are different, the lawyers you need are different, the outcomes are different, and the strategies you should use are completly different. Getting this wrong can be catastrophic.

Initial Contact Methods (What They Mean)

How you first learn about an investigation tells you alot about what kind of investigation it is:

Letter from SBA Office of Inspector General (OIG) – Could be civil or criminal, depends on the language. If the letter asks you to provide documentation and “explain discrepencies” or “clarify information,” its probably civil (administrative review). If it says “we are investigating potential criminal violations” or “this matter has been referred to DOJ,” thats obviously criminal. If it says “failure to respond may result in referral to law enforcement,” you’re on the borderline between civil and criminal.

Phone call or visit from FBI, IRS Criminal Investigation, or Secret Service – This is criminal. Period. Full stop. These agencies don’t handle civil collections or administrative reviews. If a special agent with a badge contacts you and wants to “ask a few questions” or “clear this up” or “hear your side of the story,” do NOT—and I can’t stress this enough—do NOT talk to them without a criminal defense attorney present. Anything you say, even if your genuinely trying to explain an honest mistake or provide helpful information, can and absolutly will be used against you in federal court. Federal agents are trained to gather evidence, not to help you.

Bank account freeze or levy notice – Usually this is civil (IRS or Treasury seizing funds for repayment) but it can be criminal if its part of a forfeiture action under asset forfeiture statutes. If the notice mentions “criminal investigation” or cites specific criminal statutes (18 U.S.C. sections), you’re definately in criminal territory and need a lawyer immediately.

Grand jury subpoena for documents or testimony – This is 100% criminal. A grand jury subpoena means federal prosecutors are actively gathering evidence to decide whether to indict you. You need a federal criminal defense attorney immediately, like today, not next week. Don’t try to comply with a grand jury subpoena on your own—even producing documents that seem completely innocent can hurt you if you don’t have counsel reviewing what’s being turned over and how its being turned over.

Lender denial of forgiveness with fraud referral notation – Usually starts as civil review, but if the lender reports suspected fraud to SBA OIG or directly to DOJ, it can escalate to criminal pretty quickly. The timing matters: if this happened back in 2021-2022, its probably still on the civil track. If it happened recently in 2024-2025 and you’re just now hearing about it, prosecutors might already be involved behind the scenes.

Civil Track vs. Criminal Track (Completly Different Games)

Understanding this difference is absolutly critical to protecting yourself:

Civil Track:

• Run by SBA Office of General Counsel or Treasury, not by DOJ prosecutors
• Primary goal is repayment and recovery, not putting you in prison
• Standard of proof is “preponderance of evidence” (more likely then not—basically 51%)
• You can negotiate repayment plans, settlements, reduced amounts
• Might face financial penalties but not jail time or criminal record
• Can also face False Claims Act civil lawsuit with treble damages (3x the amount) plus penalties per claim
• Lawyer needed: Civil litigation attorney, preferrably one with government contracts experience

Criminal Track:

• Run by DOJ—specifically the U.S. Attorney’s Office in your district
• Primary goal is prosecution, conviction, and prison time
• Standard of proof is “beyond a reasonable doubt” (much higher burden, like 95%+)
• Can result in federal prison (months or years), probation, massive fines, restitution orders
• Plea negotiations involve you admitting guilt to federal felonies
• Creates permanent criminal record affecting employment, professional licenses, housing, voting rights, gun ownership
• Lawyer needed: Federal criminal defense attorney with specific white collar crime experience

Here’s the dangerous part that catches alot of people: a case can START on the civil track and escalate to criminal if the investigating agency finds evidence of intent to defraud. So even if you initially just got a routine letter from SBA asking for documentation, if you respond poorly—if you lie in your response, if you destroy documents, if you refuse to cooperate or seem evasive—that civil case can turn into a criminal referral real quick. And once its criminal, you can’t go back to civil.

The Criminal Investigation Timeline (What to Expect)

If your on the criminal track, heres what the typical timeline looks like:

Initial Investigation Phase (3-9 months): Federal agents gather evidence behind the scenes. They’ll subpoena your bank records, pull your tax returns from IRS, get copies of your loan applications from SBA and your lender. They’ll interview your lender, your accountant if you had one, maybe your clients or business partners. You might not even know any of this is happening yet. This is the silent phase.

Contact/Notification Phase (varies wildly): At some point, they’ll contact you directly. Sometimes its a voluntary interview request—a letter or call saying “we’d like to hear your side of the story” or “we’d like to give you an opportunity to explain.” Sometimes its a target letter, which is formal notice that your the subject or target of a grand jury investigation. Sometimes they just show up at your door with a search warrant and agents. The method they choose usually indicates how strong they think there case is.

Grand Jury Phase (2-6 months): If prosecutors think they have enough evidence to charge you, they’ll present the case to a grand jury. The grand jury (16-23 regular citizens) hears evidence and decides whether to indict. You dont get to present a defense at this stage—its entirely one-sided, prosecutors present there case without any defense attorney present. Grand juries indict in over 99% of cases that prosecutors present to them, because the standard is so low and theres no defense.

Indictment and Arrest: If the grand jury indicts (and they almost always do), you’ll be arrested and brought to court for arraignment. For white collar cases like PPP fraud, you’ll probably be released on your own recognizance (no bail required), but with conditions like travel restrictions, passport surrender, maybe drug testing, employment requirements. The judge wants to make sure you show up for court, but your not considered a flight risk or danger to community.

Pre-Trial Phase (6-18 months): This is when your attorney negotiates with prosecutors, files pre-trial motions (to suppress evidence, dismiss charges, etc.), and prepares for trial if necessary. The vast majority of cases—like 97%—end in a plea agreement during this phase. Actually going to trial is rare and risky.

Total timeline: From initial investigation to final resolution, typically 12-24 months, sometimes longer for complex cases or if it goes to trial.

Statute of Limitations (Why 2025 Is the Critical Year)

Here’s something really important that could actually save you: PPP loans where disbursed primarily in 2020 and early 2021. For most fraud charges—wire fraud under 18 U.S.C. § 1343, bank fraud under 18 U.S.C. § 1344—the statute of limitations is five years from when the crime was committed. That means 2025 is literally the deadline year for most 2020 loans.

If you got your PPP loan in April 2020, prosecutors have untill April 2025 to charge you, and after that the statute of limitations expires and they cant bring criminal charges based on that loan application. Its completely time-barred. This is why theres been a huge surge in PPP prosecutions in late 2024 and early 2025—prosecutors are literally racing against the clock to file charges before the statute runs out.

BUT—and this is a really big but that trips people up—if you filed a forgiveness application in 2022 or 2023 or even 2024, that might be treated as a NEW and SEPARATE false statement that restarts the statute of limitations clock. So even if your original loan application is time-barred (to late to charge), criminal charges based on your forgiveness application might still be completely timely and within the statute.

Also, some charges have way longer statutes of limitations. Major fraud affecting financial institutions under 18 U.S.C. § 1344 involving $1 million or more has a 10-year statute. But for most self-employed PPP cases under $100K, the standard 5-year statute applies.

Bottom line: if you got your loan in early 2020 and you havent been contacted by now in 2025, your chances of criminal prosecution are getting lower every day. But don’t assume your completely safe, especially if you filed for forgiveness recently.

Your Defenses and What Evidence You Need Right NOW (Before Its Gone Forever)

If your facing a PPP fraud investigation—or if you think you might be investigated based on mistakes you know you made—time is literally your enemy. Evidence disappears. Memories fade and get fuzzy. Witnesses move away or become unavailable. The defenses that could save you from federal prison are only as good as the evidence you can produce to support them, and that evidence might not exist six months from now. I’m not being dramatic here—I’ve seen cases lost because critical emails where auto-deleted or bank records where purged.

Let me be really clear about something important: I’m not talking about whether your “innocent” in some philosophical or moral sense. I’m talking about whether you can PROVE lack of criminal intent in federal court, where prosecutors have basically unlimited resources, the conviction rate is 99.6%, and the standard is “beyond a reasonable doubt.” Proving your innocence (or more accurately, creating reasonable doubt about your guilt) requires actual evidence, and it requires getting that evidence NOW while it still exists.

Defense #1: Lack of Criminal Intent (The Good Faith Mistake Defense)

This is you’re primary and most important defense if your self-employed and made errors on your PPP application or forgiveness form. Federal fraud charges require specific intent—the government has to prove beyond a reasonable doubt that you KNOWINGLY and INTENTIONALLY made false statements, not just that you made mistakes or got confused by unclear guidance.

What prosecutors use to prove criminal intent:

• Emails or text messages where you discussed inflating numbers or “fudging” information
• Evidence you knew what the correct numbers where but deliberately used different ones
• Multiple inconsistant applications showing you where making up numbers as you went
• Lavish spending immediately after getting the loan (suggests you knew it was illegitimate money)
• Destroyed or altered documents after learning of investigation (consciousness of guilt)
• Lied to investigators when first confronted (shows you knew you did something wrong)
• Used a fake business or fake employees (clear fraud, no good faith possible)

What proves LACK of intent (good faith effort to comply):

• Contemporaneous questions you asked your lender, accountant, or even the SBA about how to calculate income correctly
• Research you did trying to understand confusing guidance (browser history, saved PDFs of SBA guidance)
• Draft calculations or worksheets showing you where trying to get the numbers right
• Emails to your accountant where you provided accurate information and asked them to prepare the application
• Evidence you relied on professional advice from a CPA, EA, or attorney
• Consistent information across all applications—not contradicting yourself or making stuff up
• Ordinary, reasonable spending patterns after receiving loan (using it for actual business expenses)
• Voluntary disclosure or attempts to fix errors when you discovered them

The problem—and its a huge problem—is that most self-employed people didnt keep any of these records, because at the time in 2020 they didn’t think they’d need them. You filled out the application quickly because everyone said the money would run out. Maybe you got help from an accountant or your lender walked you through it. Then you submitted it and moved on with you’re life trying to survive a pandemic. Now its 2025 and federal agents are asking “what where you thinking when you put that specific number on the application?” and you honestly can’t remember the details from five years ago.

This is why you need to preserve evidence RIGHT NOW, even if you havent been contacted yet and maybe never will be. If you realize you made mistakes on your PPP application or forgiveness application—if you know the numbers didn’t quite match your tax return, or you weren’t sure which line to use, or you included some expenses you probably shouldn’t of—don’t wait until federal investigators show up at your door. By then its to late. Start gathering evidence today:

• All emails to/from your accountant, bookkeeper, lender (search terms: “PPP” “loan” “payroll” “Schedule C” “forgiveness”)
• Any drafts or worksheets showing your calculations or thought process
• SBA guidance documents you actually reviewed at the time (save/print them now, websites change)
• Bank statements for 2019-2020 showing your actual income and expenses (get them NOW before your bank purges old records)
• Tax returns—both draft versions AND final filed versions if you have both (the differences might explain discrepancies)
• Any written communications about how to fill out the application (texts, emails, even handwritten notes)
• Questions you asked your lender or anyone else about the program rules
• Payment records showing you paid an accountant or professional to help with the application

If you can show you where genuinely trying to comply with the rules—that you asked questions, that you relied on guidance or professionals, that you did research and made good faith efforts—that’s powerful evidence of lack of criminal intent. Without that evidence, its just your word against the government’s paper trail, and your word by itself isn’t enough to create reasonable doubt.

Defense #2: Reliance on Professional Advisor

If an accountant, CPA, enrolled agent, bookkeeper, or even your lender prepared your PPP application for you, that can be a complete defense to criminal intent—but ONLY if you can actually prove it with documentation.

What you absolutly need to prove for this defense to work:

• You hired a qualified professional to prepare the application (need engagement letter or contract or payment records)
• You provided them with complete and accurate information (need emails, documents you sent them, communications showing what you told them)
• They prepared the application or specifically advised you on what numbers to use (need drafts showing there work product, not just yours)
• You followed their advice exactly without making changes (if you modified it after they prepared it, defense fails)
• You had no reason to believe their advice was incorrect or fraudulent (you trusted them reasonably)
• The professional was actually qualified—licensed CPA, EA, attorney, not just a friend who “helps people with taxes”

This defense completly fails if:

• You modified or changed the application after the professional prepared it
• You withheld material information from them (like you didn’t tell them about certain income or you exaggerated numbers)
• You ignored their advice and did something different
• You can’t actually prove you hired them (no payments, no engagement letter, no paper trail)
• The “professional” was really just a friend or family member helping out, not a licensed professional
• You hired them AFTER the application was submitted (retroactive advice doesn’t help)

The HUGE trap here is timing. If you wait until your indicted to suddenly claim “my accountant prepared everything, its there fault not mine,” prosecutors will argue—very effectively—that your just making it up to avoid responsibility. You need to preserve the evidence NOW while it still exists:

• Engagement letter or contract with the accountant showing scope of work
• Emails showing what information you provided to them before they prepared the application
• Draft versions of the application showing their work product and calculations before final submission
• Payment records proving you actually paid them (checks, credit card statements, Venmo, wire transfers)
• Notes or worksheets they prepared showing there analysis and calculations
• Communications where they advised you on specific questions or issues

And here’s the really hard part: if your accountant won’t cooperate with your defense (and many won’t, because they’re trying to protect themselves from liability), you need documentation that speaks for itself without needing them to testify. That’s why preserving emails and drafts right now is so critical—it might be your only proof.

Defense #3: Confusing and Contradictory SBA Guidance

The SBA changed the PPP rules literally multiple times between April 2020 and June 2021. Guidance that was correct one week was wrong the next week. If you relied on official SBA guidance that turned out to be incorrect or incomplete, or if different guidance documents gave contradictory instructions, that strongly supports a good faith defense.

For self-employed people specifically, the biggest areas of confusion and contradictory guidance where:

• Which line on Schedule C to use (net profit line 31 vs. gross receipts line 1 vs. gross income line 7—different guidance said different things)
• Whether to use 2019 or 2020 income (rules changed multiple times for certain applicants)
• How to calculate owner compensation replacement (the $20,833 cap wasn’t clear initially)
• What constitutes “eligible payroll costs” for a sole proprietor with no employees
• Whether Schedule C filers could include health insurance, retirement contributions, state/local taxes
• How to document self-employment income when you don’t have traditional payroll records

If you can show you where following specific SBA guidance that was actually available at the time you applied, even if it turned out to be wrong or incomplete, that’s strong evidence of good faith intent. But again, you need proof: save or print the specific guidance documents you actually relied on, because the SBA has updated there website multiple times and some of the old confusing guidance has been removed or revised.

Defense #4: Insufficient Evidence (Poking Holes in Prosecutors’ Case)

Sometimes the government just can’t prove there case beyond a reasonable doubt. Maybe they can’t definitively prove the numbers you used where false. Maybe they can’t prove you knew they where false. Maybe there key witness (your accountant, your lender) won’t cooperate or gives testimony that actually helps you instead of hurting you. Maybe there’s alternative explanations for the discrepancies that create reasonable doubt.

This defense requires seriously aggressive lawyering—challenging every single piece of the government’s evidence, filing motions to suppress illegally obtained evidence, cross-examining government witnesses effectively, presenting alternative explanations, poking holes in there case at every opportunity. But it starts with understanding exactly what evidence they actually have versus what they think they have.

Defense #5: Statute of Limitations Has Expired

If your PPP loan was disbursed in early 2020 and its now late 2025 or beyond, you might be able to argue the statute of limitations has expired and charges can’t be brought. But you need to be really careful here: the limitations period starts when the crime was “complete,” which might be when you submitted the application, when you received the funds, when you applied for forgiveness, or when forgiveness was actually granted. Different charges might have different start dates.

An experienced federal criminal defense attorney needs to analyze the specific dates in you’re case to determine if statute of limitations is actually a viable defense or not.

What Evidence Literally Disappears If You Wait (The Ticking Clock)

This part is urgent and time-sensitive. Here’s what happens to critical evidence over time:

Emails auto-delete: Many email providers (Gmail, Outlook, company email systems) automatically delete messages after 1-2 years unless you specifically archive them. If you got your PPP loan in 2020, those emails are probably already gone unless you took action to save them. Email exchanges with your accountant, lender, or business partners from 2020 might be unrecoverable now.

Bank records get purged: Online banking usually only keeps records available for 18-24 months. After that, you have to formally request paper records, which can take weeks and costs money. Some banks won’t provide records older then 7 years at all. If you need 2019 or 2020 bank statements to prove your income, get them NOW before they’re gone.

Accountant’s work files disappear: CPAs and bookkeepers typically keep client files for 3-7 years depending on state requirements and there own policies. If you’ve left them as a client, or if they retire or close there practice, those files might be destroyed. The worksheets and calculations they did for your PPP application might not exist anymore.

Your memory fades: Right now in 2025, you might still remember generally why you put a certain number on the application back in 2020. In two more years when your potentially testifying at trial, you wont remember any details at all. Prosecutors know this and they’ll use your inability to explain your thought process to argue you where lying.

Witnesses move on and become unavailable: Your accountant might retire or move out of state. Your lender contact might quit or change jobs. Your business partner might relocate. People who could potentially testify in you’re favor might be impossible to find or unwilling to get involved two years from now.

Websites and guidance change: The SBA has updated there PPP guidance webpage multiple times, removing old FAQs and interim rules. If you relied on specific guidance that was available in 2020, it might not be findable online anymore in 2025 or 2026.

Don’t wait and hope this goes away. If you think you might face a PPP fraud investigation, or if your already under investigation, start preserving evidence today—right now, before you finish reading this article. Print emails to PDF. Download all bank statements. Request copies of your accountant’s complete work files. Screenshot relevant guidance. Do it immediately, because waiting even a few months might mean critical evidence is lost forever.

Special Considerations: Professional License Risk (The Hidden Threat)

If your a licensed professional—lawyer, doctor, nurse, dentist, pharmacist, accountant, real estate agent, contractor, engineer, basically any occupation that requires a state license—you face a completely seperate threat even if the criminal charges get dropped or your acquitted at trial: state licensing board disciplinary action.

State licensing boards can revoke or suspend your professional license based purely on the allegation of fraud, using a much lower standard of proof (“preponderance of evidence”—basically 51% likelihood) instead of the criminal standard (“beyond reasonable doubt”—95%+). A PPP fraud investigation can literally end you’re career even if you’re never convicted criminally, even if charges are dismissed, even if your found not guilty at trial.

Many states require licensed professionals to report any federal criminal investigation to there licensing board within 30 days of receiving notice, or face seperate discipline for failure to report. Check your state’s rules immediately if your under investigation. You might need to hire an administrative law attorney who handles licensing board matters in addition to your criminal defense attorney, because the licensing proceeding moves on a completely seperate track with different timelines and different rules.

And here’s the absolute worst part that catches people by surprise: even if you WIN the criminal case—charges dismissed, not guilty verdict, whatever—the licensing board can still take disciplinary action against you. They’re not bound by the criminal verdict at all. They can look at the exact same evidence and reach a completly different conclusion using there much lower standard of proof. I’ve seen cases where someone beat federal charges but still lost there professional license based on the same conduct.

The IRS Parallel Track Problem (The Tax Bill No One Expects)

Here’s something almost nobody tells you untill its to late: when you got PPP loan forgiveness, that forgiven amount was tax-free income under the CARES Act—you didn’t have to pay federal or state taxes on it. But if the SBA now denies your forgiveness, or if your charged with fraud and forced to repay the loan, the IRS will retroactively reclassify that “loan” as taxable income for the year you received it.

Even if you completely avoid prison and criminal conviction, you’ll suddenly owe back taxes + penalties + interest on money you received years ago and already spent. For someone who got $20,000 in PPP funds that where forgiven in 2021, that could easily be $6,000-8,000 in federal taxes, plus state taxes if your state doesn’t conform to federal treatment, plus IRS penalties (20-40% for underreporting), plus interest compounding since 2021. And if you dont have the cash available because you spent that money years ago, the IRS can levy your bank accounts, garnish your wages or 1099 income, and put liens on your property.

This creates what I call a financial death spiral: $30K+ criminal defense attorney fees + $20K loan repayment + $8K tax bill + penalties and interest. It can be completly financially devastating even if you successfully avoid prison.

What to do about this: As soon as your contacted about any kind of PPP fraud investigation, consult with a tax attorney (not just a criminal attorney) to file protective claims and take defensive positions with the IRS. You need to prevent the IRS from automatically assessing taxes on the “fraudulent” loan while the criminal and civil cases are still pending. If you wait until after the criminal case is completely resolved, the tax assessment might already be final and you’ve lost your appeal rights with IRS.

This is another reason you need parallel representation—criminal defense attorney AND tax attorney working together on your case.

What to Do Right Now Based on Exactly Where You Are in This Process

Time to get really tactical and specific. Your next move depends entirely on where you are in this process right now today. Making the wrong move at this stage can turn a civil issue into a criminal case, or turn a case that could of been won into a guilty plea and prison time.

If You Haven’t Been Contacted Yet But You Realize You Made Mistakes

This is actually the BEST position to be in, because you still have options and some control over the situation. You got a PPP loan back in 2020 or 2021, you realize now in 2025 that you made errors on the application or forgiveness forms—maybe the numbers didn’t exactly match your tax return, maybe you weren’t totally sure which line to use on Schedule C, maybe you included some expenses that probably shouldn’t of been included. But no one has contacted you yet about any kind of investigation. What should you do?

Option A: Voluntary Disclosure + Repayment (The Safest Path)

If your errors where genuinely honest mistakes and the total amount is under $50K, voluntary repayment BEFORE any investigation starts can often prevent criminal charges from ever being filed. The SBA has formal processes for borrowers to voluntarily repay loans if they discover they didn’t qualify or made errors.

This strategy works best if:

• The errors where genuinely innocent—no intent to defraud, just confusion or mistakes
• You’re doing this proactively before any contact from investigators (shows good faith)
• No federal agents have contacted you yet about anything
• The amount involved is relatively small, under $20K-50K range
• You have the financial ability to actually repay the full amount
• Your not facing other legal or financial issues that make you a bigger target

You absolutely need an attorney to handle the voluntary disclosure process properly. If you do it wrong—if you essentially admit to fraud when describing the errors in your repayment request—you could actually create evidence that gets used against you later. An experienced attorney knows how to structure the disclosure to protect you.

Option B: Wait and See (The Calculated Risk)

If your loan was disbursed in early 2020 and its now late 2025 or early 2026, your getting very close to the statute of limitations expiring. If you havent been contacted yet despite 5 years passing, there’s a real chance prosecutors won’t prioritize your case—they’re going after the big dollar cases first. Many self-employed cases under $20K are simply not being prosecuted criminally at all.

But this is definitely a calculated risk with downsides. If they DO decide to charge you later, you’ve permanently lost the opportunity for voluntary disclosure. And if you filed for forgiveness recently, that might have reset the statute of limitations entirely. And living with this hanging over your head for years more is incredibly stressful.

Option C: Consult Attorney for Risk Assessment (The Smart Move)

The smartest move for most people is to confidentially consult with an experienced federal criminal defense attorney who specifically handles PPP fraud cases. They can review your actual application and forgiveness forms, compare them to your tax returns and bank records, assess your realistic risk level, and advise whether voluntary disclosure or waiting is the better strategy for your specific situation. Most attorneys offer confidential initial consultations.

If You’ve Received a Letter or Call from Federal Agents (Critical Moment)

This is the critical moment where everything can go right or catastrophically wrong. The next 48 hours matter way more then the next 48 months. Here’s exactly what to do and what NOT to do:

DO NOT respond without an attorney. I know the letter said they “just want to clear this up” or the agent was really nice and said they “just want to hear your side of the story.” Do NOT fall for it. Federal agents are highly trained professional investigators. They are not your friends. They are building a criminal case. Anything you say—even if your genuinely trying to be helpful and explain an honest mistake—WILL be used against you in federal court. They will put it in a detailed report, and prosecutors will read portions of that report to a jury to convict you.

DO NOT agree to a “voluntary interview” or “informal meeting.” If an agent asks to meet with you at your home or office or a coffee shop to “discuss your PPP loan” or “clarify some information,” your response should be exactly this: “I need to consult with an attorney before I can discuss this. Please provide your contact information and my attorney will reach out to you.” Then actually hire an attorney immediately.

DO NOT destroy any documents, delete any emails, or alter any records. Shredding papers, deleting emails, wiping your hard drive, destroying bank statements—that’s obstruction of justice under 18 U.S.C. § 1519. Its a completely seperate federal felony carrying up to 20 years in prison by itself. Its also treated as powerful evidence of consciousness of guilt—”he destroyed evidence because he knew he was guilty.” Do NOT do it, no matter how bad you think the documents make you look. Its always better to have bad documents then to have obstruction charges added.

DO preserve all evidence immediately. Print every relevant email to PDF. Download all bank statements and financial records. Save documents to multiple locations. Make copies. Back everything up. Your attorney is going to need absolutely everything.

DO hire an experienced federal criminal defense attorney RIGHT NOW. Not next week after you “think about it.” Not “after I see what happens.” Now. Today. The investigation is already actively happening, evidence is being gathered, decisions are being made. You need protection and you need it immediately. A good attorney who intervenes early with prosecutors can sometimes actually prevent charges from being filed at all by providing context and evidence that changes the prosecutor’s view of the case.

You probably have roughly 2-4 weeks before agents will expect some kind of response from you. Use that time wisely to get proper legal representation and develop a comprehensive strategy. Do NOT try to handle this yourself. Federal criminal cases are absolutely not DIY projects—the stakes are to high and the system is to complex.

If You’ve Been Indicted (You Need Help Yesterday)

You need legal counsel immediately if you haven’t hired someone already. You’ll be arraigned (initial court appearance) within a few days of arrest. For most PPP fraud cases, you’ll be released on you’re own recognizance without having to post bail, but the court will impose strict conditions: travel restrictions within your district, passport surrender, drug and alcohol testing possibly, employment requirements, no contact with certain witnesses.

After arraignment, the case enters the pre-trial phase which typically lasts 6-18 months. Your attorney will:

• Review all the government’s evidence in discovery (thousands of pages usually)
• Interview potential witnesses who might help your defense
• File motions to suppress illegally obtained evidence, dismiss charges on legal grounds, exclude certain evidence at trial
• Negotiate extensively with prosecutors trying to reach a favorable plea agreement
• Prepare for trial if negotiations fail and trial is the best option

The reality is that the vast majority of federal cases—approximately 97%—end in guilty plea agreements rather then trials. Going to trial is extremely risky because federal prosecutors have a conviction rate over 99.6% at trial. But sometimes the evidence is weak enough or the potential sentence is high enough that trial actually is the right strategic move. Your attorney needs to honestly assess the actual strength of the government’s case and advise you realistically.

If you plead guilty or are convicted at trial, you’ll be sentenced under the Federal Sentencing Guidelines. For PPP fraud, the sentence depends heavily on the loss amount to the government, your criminal history (or lack thereof), and whether you accept responsibility by pleading guilty early. First-time offenders with losses under $50K often get probation or relatively short prison sentences in the 6-18 month range. Losses over $150K can result in multi-year prison sentences even for first-time offenders.

Critical Timing Issue: The Early Repayment Trap (When It Helps vs. Hurts)

Many self-employed people’s first instinct is “I’ll just pay the loan back and this whole nightmare will go away.” Sometimes that strategy works really well. Sometimes it makes things significantly worse and becomes evidence against you. The timing and manner of repayment matters enormously.

When repayment helps your situation:

• Before any investigation has started—voluntary proactive disclosure and repayment
• As part of a negotiated civil settlement agreement with SBA (avoiding criminal referral)
• As part of a formal plea agreement in a criminal case (showing remorse and reducing restitution owed)
• When done with guidance from an attorney who structures it properly

When repayment seriously hurts your situation:

• AFTER federal agents have already contacted you (can be seen as “consciousness of guilt”—you paid because you knew you where guilty)
• Without consulting an attorney first about how to structure it (might be admitting fraud)
• If it completly drains your financial resources so you can’t afford proper legal representation
• If your paying back money you legitimately qualified for just out of panic

The timing, amount, and manner of any repayment has to be strategic. Don’t just panic and wire $20,000 to the SBA because your scared. Talk to an experienced attorney first. Repayment can be an incredibly powerful negotiating tool and evidence of good faith, but only if its done strategically as part of an overall comprehensive defense plan, not as a desperate panic move.

This Isn’t Just About Money—Its Literally Your Entire Life

If your self-employed and facing a PPP fraud investigation right now, I know exactly what your feeling in this moment. Your absolutely terrified. Your deeply ashamed and embarassed. You can’t tell your family or friends what’s actually happening. You can’t sleep more then a few hours. Every single time your phone rings, you think its federal agents calling back. Your constantly replaying that loan application in your mind over and over, trying desperately to remember what you where thinking back in 2020 when you filled it out, trying to figure out where it went wrong.

The stakes here aren’t just about money or paying back a loan. This is fundamentally about federal prison—months or years locked up away from your family. This is about your career and your ability to work, to earn a living, to support the people who depend on you. If your a licensed professional, its about losing the professional license you spent years and tens of thousands of dollars earning. Its about your reputation in your community and industry. Its about trying to figure out how to explain to your kids why Daddy or Mommy might have to go away for a while. Its about whether you’ll have a criminal record for the rest of your life.

And the next move you make—right now, today, in the next 24-48 hours—genuinely matters more then you probably realize. If you talk to federal agents without a lawyer present, that statement can lock you into a specific story that prosecutors will use to destroy you at trial. If you pay money back without proper legal advice, that repayment might become evidence of your guilt. If you wait around hoping this somehow goes away on its own, critical evidence that could save you might disappear forever while your waiting. If you destroy documents because your panicking, that’s a whole new federal crime.

But also—and this is really important—don’t panic so badly that you make things worse. Don’t destroy any documents or records. Don’t lie to investigators if they contact you. Don’t create brand new crimes while trying to cover up old mistakes. The federal criminal justice system is harsh and unforgiving, but its not entirely without mercy for regular people who made genuine honest errors during a pandemic when literally everyone was confused and financially desperate.

Get help. Get professional help right now, not next week or next month. Find an experienced federal criminal defense attorney who has actually handled multiple PPP fraud cases—not just white collar cases generally, but specifically PPP loan fraud cases—because the defenses, the strategies, the prosecutorial approaches are all unique to this type of case. Ask them specific questions about the statute of limitations timeline. Ask them about the Schedule C trap for self-employed applicants. Ask them how many PPP cases they’ve personally resolved and what the actual outcomes where. Ask them about there relationships with prosecutors in your specific district.

Understand exactly what defenses are available to you. Start preserving and gathering evidence immediately before its gone forever. Make strategic decisions based on where you actually are in the process and what your realistically facing, not based on panic and fear. And remember—your not alone in this situation even though it feels incredibly isolating right now. Thousands of self-employed people across the country are facing the exact same nightmare, dealing with the same confusing rules and aggressive prosecutors and terrifying potential consequences.