Federal prosecutors are still actively unwinding pandemic-era relief fraud, and the Department of Justice has made clear that cases involving the Paycheck Protection Program (PPP) and unlicensed tax preparation remain a priority well into 2026. A recent sentencing out of the Northern District of Illinois is a sharp reminder that the statute of limitations on these cases has not run — and that New York residents who took PPP funds in 2020 or 2021, or who paid (or worked as) an unregistered preparer, should understand exactly where the legal lines are drawn.

At DeFreitas & Minsky LLP, CPA, we work with individuals and small business owners across New York who are facing IRS examinations, civil penalties, and in some instances criminal referrals tied to pandemic relief and preparer misconduct. This article walks through what reportedly happened in the Illinois case and, more importantly, what it means for taxpayers here at home.

What Happened

According to reports, a 37-year-old Rockford, Illinois man was sentenced on May 15, 2026 to three years in federal prison after pleading guilty in December 2025 to wire fraud, tax, and money laundering charges. Prosecutors alleged he submitted multiple PPP loan applications during 2020 and 2021 that contained false statements about his purported businesses — including misrepresentations about gross revenue, payroll obligations, and operating costs — and obtained approximately $85,401 in loan proceeds as a result.

The case also involved an alleged side operation: he reportedly held himself out as a paid tax preparer under the name “Lootland Tax Prep,” accepted fees from clients to prepare their federal returns, but did not have an IRS-issued preparer tax identification number (PTIN). He also allegedly failed to report any of that preparation income on his own 2021 and 2022 individual returns. The court entered a money judgment of $85,401 and ordered $30,866 in restitution to the IRS.

Who May Be Exposed in Cases Like This

In the IRS criminal defense context, “liability” means criminal exposure, civil tax assessments, and collateral penalties. Based on the conduct alleged in this matter, several categories of individuals could face exposure in similar fact patterns:

• PPP and EIDL applicants who may have overstated payroll, employee counts, or revenue.
• Recipients of forgiveness who may not have used funds for qualifying expenses.
• “Ghost” preparers — individuals who prepare returns for compensation without a valid PTIN and who fail to sign the returns they prepare.
• Taxpayers who used a ghost preparer and signed returns containing inflated deductions, fabricated business losses, or false credits.
• Anyone who moved fraud proceeds through personal or business accounts, which can trigger money laundering exposure under 18 U.S.C. §§ 1956–1957.

Nothing in this article should be read to suggest that every PPP recipient or independent preparer engaged in wrongdoing. The vast majority did not. But the federal government has signaled it will continue charging the cases it believes cross the line.

Legal Theories That May Apply

Federal prosecutors typically build pandemic-fraud and preparer-fraud cases around a handful of statutes. The theories below are the ones most commonly seen in matters resembling the reported facts:

• Wire Fraud (18 U.S.C. § 1343): Submitting a loan application electronically with materially false statements can be charged as wire fraud, carrying up to 20 years per count.
• Bank Fraud (18 U.S.C. § 1344): When PPP applications go through an FDIC-insured lender, bank fraud is often charged in parallel.
• False Statements to a Financial Institution (18 U.S.C. § 1014): Misrepresentations on a loan application to an insured lender are a separate federal offense.
• Aiding and Assisting the Preparation of a False Return (26 U.S.C. § 7206(2)): This is the core statute used against preparers who put false items on a client’s return.
• Tax Evasion / Filing a False Return (26 U.S.C. §§ 7201, 7206(1)): Failing to report preparation income — or any income — on a personal return can support these charges.
• Money Laundering (18 U.S.C. §§ 1956, 1957): Depositing or spending fraud proceeds in transactions over $10,000 can add years to a sentence.
• Civil Fraud Penalty (26 U.S.C. § 6663): Even without criminal charges, the IRS can impose a 75% penalty on the underpayment attributable to fraud.

Consequences and Recoveries Involved

Unlike a personal injury case, the “damages” in an IRS criminal matter typically flow toward the government — but they hit the defendant hard:

• Federal prison time, often calculated under the U.S. Sentencing Guidelines using loss amount as the primary driver.
• Restitution to the IRS for unpaid tax, as well as to the Small Business Administration or lender for PPP losses.
• Forfeiture money judgments equal to the proceeds of the offense.
• Civil tax assessments including back tax, interest, and the 75% civil fraud penalty.
• Loss of professional licenses and permanent injunctions against future tax preparation under 26 U.S.C. § 7407.
• Immigration consequences for non-citizens, since tax fraud and money laundering are typically treated as aggravated felonies.

For victims of ghost preparers, recoveries can include amended returns, abatement of accuracy-related penalties under reasonable-cause arguments, and in some instances restitution ordered as part of a criminal sentence — as appears to have occurred in the Illinois case.

Evidence That Strengthens a Defense or a Voluntary Disclosure

Whether you are defending against an investigation or proactively cleaning up a problem, documentation drives the outcome. Useful materials typically include:

• Bank statements showing actual payroll, rent, and utility payments during the PPP covered period.
• Original PPP application worksheets, 941s, and 1099/W-2 filings that support the figures certified.
• Communications with the lender or with a preparer that show good-faith reliance.
• Engagement letters, invoices, or Cash App/Zelle records identifying who actually prepared a return.
• Copies of returns showing whether a paid preparer signed in the proper block (a missing signature is a classic ghost-preparer indicator).
• Contemporaneous notes, calendars, and emails that establish intent — or the absence of it.

What to Do Next

If you have any concern about a pandemic-era loan application, a return prepared by someone who refused to sign it, or unreported preparation income, the conservative steps are:

1. Do not destroy or alter any records. Preserve emails, texts, and bank data.
2. Do not speak with IRS Criminal Investigation special agents without counsel. A polite “I’d like to have my representative present” is appropriate and protected.
3. Pull your IRS account transcripts to see what has been assessed and what has been flagged.
4. Consider whether a voluntary disclosure through the IRS Voluntary Disclosure Practice may resolve exposure before charges are filed.
5. Mind the deadlines. The general criminal tax statute of limitations is six years, and PPP-related fraud statutes were extended to ten years under the PPP and Bank Fraud Enforcement Harmonization Act.

If you or a loved one in New York is worried about a PPP application, an audit notice, or returns prepared by a so-called ghost preparer, the team at DeFreitas & Minsky LLP, CPA has spent more than seven decades guiding clients through exactly these conversations. Call (516) 689-1515 or visit https://dmaccountingfirm.com to schedule a confidential consultation. Talk to DeFreitas & Minsky for 70+ years of trusted CPA guidance — free consultation.

Frequently Asked Questions

Can the IRS still come after me for a 2020 or 2021 PPP loan?

Yes. Under the PPP and Bank Fraud Enforcement Harmonization Act of 2022, the statute of limitations for prosecuting PPP-related fraud is ten years, which means alleged 2020 and 2021 conduct generally remains chargeable through 2030 or 2031. Civil tax assessments may also remain open, particularly where fraud is alleged.

What is a “ghost preparer” and why is it a problem?

A ghost preparer is someone who prepares a federal return for compensation but refuses to sign it or provide a PTIN, leaving the return to look as if the taxpayer self-prepared it. The IRS treats this as a strong red flag, and the preparer may be exposed to criminal charges while the taxpayer is left holding the bag for any false items on the return.

I think my preparer put false deductions on my return. Am I in trouble?

You could be liable for the unpaid tax, interest, and accuracy-related penalties even if a preparer caused the error. However, taxpayers who acted in good faith and can document their reliance on a preparer often have strong arguments to reduce penalties and, in egregious cases, may be treated as victims entitled to restitution.

How do I know if I should make a voluntary disclosure to the IRS?

If there is a realistic possibility of criminal exposure — for example, knowingly false PPP figures or unreported preparation income — a voluntary disclosure made before the IRS begins an investigation may take prison off the table. This is a decision that should be made only after a privileged conversation with experienced tax counsel or a CPA working under a Kovel arrangement.

What is the difference between civil tax fraud and criminal tax fraud?

Civil fraud is proven by clear and convincing evidence and results in a 75% penalty on the fraud-related underpayment, but no jail time. Criminal fraud requires proof beyond a reasonable doubt and can carry prison, supervised release, and restitution, as the recent Illinois case illustrates.

Does it matter that I live in New York if the case is federal?

Not for the statute itself — federal tax and PPP laws apply uniformly. What does change is the U.S. Attorney’s Office handling the matter, the local IRS-CI field office, and New York State tax follow-on exposure, which is why working with a New York-based CPA firm familiar with both systems is valuable.

What should I do if IRS Criminal Investigation agents show up at my door?

Be polite, confirm your identity if asked, and respectfully decline to answer substantive questions until your representative is present. Anything you say can and will be used; even a casual conversation in your living room is a formal interview from the agents’ perspective.

Can restitution to the IRS be discharged in bankruptcy?

Generally no. Criminal restitution is non-dischargeable, and most fraud-related tax liabilities are also excepted from discharge under the Bankruptcy Code. Planning for repayment is therefore a critical part of resolving any criminal tax matter.

Original reporting: beloitdailynews.com.