False Claims Act Defense Attorney

The False Claims Act (31 U.S.C. §§ 3729–3733) imposes civil liability on any person or business that knowingly submits a false or fraudulent claim for payment to the federal government. The stakes under the FCA are not modest: mandatory treble damages (three times the government's actual losses) plus civil penalties of $13,946 to $27,894 per false claim. In cases involving hundreds of transactions — such as weekly payroll reports supporting an ERC claim, or draws on a PPP loan — the per-claim penalties alone can exceed the underlying alleged fraud by orders of magnitude.

For tax and government program matters, the False Claims Act has become increasingly prominent in two specific contexts: Employee Retention Credit fraud allegations and PPP loan fraud allegations. In both cases, the government's theory is that businesses submitted false certifications or false payroll data to obtain federal funds. The DOJ has made these prosecutions a priority, and the qui tam provisions of the FCA have enabled private whistleblowers — including former employees, competitors, and ERC promoters cooperating with the government — to bring cases on the government's behalf.

A False Claims Act investigation is a serious matter that requires defense counsel with a specific combination of skills: federal civil litigation experience, criminal tax defense background, and deep familiarity with the government programs at issue. This firm has all three.

Call (619) 378-3138 to speak with a False Claims Act defense attorney today.

The FCA in the ERC and PPP Context

The vast majority of businesses that received Employee Retention Credits or PPP loans did nothing wrong. They filed in good faith, often with the help of their accountants or tax preparers, and they qualified for the funds they received. The government's fraud enforcement actions are aimed at a narrower set of cases — but the dragnet has a wide reach, and businesses with legitimate claims have found themselves under investigation because of aggressive promoters, documentation gaps, or the government's broad initial theories.

Here is how False Claims Act exposure arises in each context:

ERC and the False Claims Act

The Employee Retention Credit was paid through the tax refund system — businesses filed amended Forms 941-X claiming the credit, and the IRS issued refund checks. In the FCA context, the government's theory is that each Form 941-X (and potentially each quarterly filing supporting it) constitutes a "claim for payment" to the federal government. If the government believes the underlying eligibility was fabricated or the documentation was false, that is a potential FCA violation.

The DOJ Tax Division and the COVID-19 Fraud Enforcement Task Force have brought FCA civil suits against businesses that allegedly fabricated government order suspensions, inflated payroll numbers, or claimed the credit on behalf of employees who did not actually work for the business. The DOJ has also targeted ERC promoters and "mills" — third-party preparers who filed high volumes of claims with no genuine eligibility analysis — under FCA conspiracy theories.

The challenge for legitimate businesses is that the government's enforcement net is imprecise. An ERC claim that was prepared by an aggressive promoter, that contained certain categories of qualifying language, or that was filed on a compressed timeline alongside hundreds of identical claims from the same preparer, can attract scrutiny even when the underlying business had genuine eligibility. When the government knocks, the first question is whether the conduct was genuinely fraudulent or whether this is a documentation and methodology dispute that belongs in the administrative audit process, not in federal civil fraud enforcement.

PPP Loans and the False Claims Act

The Paycheck Protection Program required borrowers to certify that the funds would be used for permitted purposes (payroll, rent, utilities) and that they had not already received another PPP loan for the same period. Loan forgiveness applications required additional certifications about how the funds were actually spent.

FCA liability in the PPP context arises when the government alleges that: (1) the initial loan application contained false information about payroll expenses, employee headcount, or eligibility; (2) the forgiveness application falsely represented how funds were used; or (3) both. Qui tam relators in PPP cases have included former employees who saw funds spent on non-permitted purposes, bank employees, and competitors who knew the business was not operating.

The intersection of PPP and ERC creates compounded risk: businesses that received both PPP loans and ERC credits must navigate anti-double-dipping rules that prohibited using the same wages for both programs. If the government believes wages were improperly allocated between the two programs, it can pursue FCA claims on both fronts simultaneously.

The Qui Tam Mechanism — What It Means for Your Case

Unlike most civil litigation, FCA cases frequently begin not with a government investigation but with a qui tam lawsuit filed by a private whistleblower — called a "relator" — under seal. This means the lawsuit has already been filed before you know you are being sued.

The process works like this:

The lesson: if you have any reason to believe a former employee, a competitor, a disgruntled business partner, or an ERC promoter who processed your claim may have filed a qui tam complaint, the time to investigate and develop your defense is now — not after the complaint is unsealed.

False Claims Act Defenses

The FCA is a powerful statute, but it has meaningful limitations that experienced defense counsel can use. The strongest defenses depend on the specific facts of each case, but here are the most significant:

No False Statement — Substantive Eligibility

The foundational defense is that the claim was not false. In the ERC context, this means demonstrating that the business genuinely qualified — that government orders caused a full or partial suspension of operations, or that gross receipts declined by the required amount, and that the wages claimed were actual wages paid to eligible employees. In the PPP context, it means demonstrating that funds were used as certified and that the forgiveness calculations were accurate. A thoroughly documented eligibility analysis is the strongest defense against a falsity allegation.

No "Knowing" Violation — Lack of Scienter

The FCA requires that the false claim be submitted "knowingly" — meaning with actual knowledge of the falsity, in deliberate ignorance of whether it is true or false, or in reckless disregard of the truth. Acting on the advice of an accountant or tax attorney who analyzed eligibility and concluded the claim was valid is strong evidence of good faith. If the business relied on professional advice, disclosed accurate underlying facts to the preparer, and had a reasonable basis to believe the claim was legitimate, the "knowing" element is difficult for the government to establish.

Government Knowledge Defense — The Public Disclosure Bar

If the material allegations in a qui tam complaint were publicly disclosed before the relator filed — in a government audit, a news article, a congressional hearing, or another public forum — the relator may lack standing to bring the suit. The "public disclosure bar" is a threshold defense that can eliminate qui tam cases before they reach the merits.

Materiality — The Escobar Framework

Under the Supreme Court's decision in Universal Health Services v. United States ex rel. Escobar (2016), an FCA violation requires that the false statement be "material" to the government's decision to pay. Materiality is a demanding standard — the government must demonstrate that the falsehood actually influenced whether payment was made. If the government continued to pay similar claims after learning of the alleged defect, that is evidence of non-materiality. In ERC and PPP cases where the government paid tens of thousands of similar claims, materiality can be a viable defense.

Statute of Limitations

FCA civil claims must be filed within: (1) six years of the violation, or (2) three years after the government knew or reasonably should have known the facts material to the violation, whichever is later — but in no case more than ten years after the violation. For ERC claims filed in 2020 and 2021, the primary six-year limitations period runs through 2026 and 2027 respectively. Understanding the timing of when the government's knowledge accrued is an important part of the defense analysis.

First-to-File Bar

The FCA's first-to-file rule prevents multiple qui tam actions based on the same underlying conduct. If a related qui tam was already filed by a different relator and is pending, a later relator's complaint may be barred. This rule matters in large-scale ERC enforcement contexts, where multiple whistleblowers may have filed overlapping complaints.

How We Approach False Claims Act Defense

Our approach to FCA defense draws on two areas of our practice that are directly relevant: our federal tax litigation experience and our criminal tax defense practice. FCA cases involving ERC and PPP sit squarely at the intersection of both.

The first step is always a complete factual and legal analysis. We review the underlying claim — every payroll filing, every eligibility certification, every document that supported the submission — against the government's likely theory. We identify the specific statements the government will characterize as false, evaluate whether each is actually false, and assess what evidence would support or undermine the government's case.

From there, the defense strategy depends on where the case stands. If we are retained before the complaint is unsealed, we may have an opportunity to engage proactively with the government — providing factual context, offering documentation that demonstrates good faith, and potentially resolving the matter before formal litigation begins. Once the complaint is unsealed, the dynamics shift to formal civil litigation: motions practice, discovery, and ultimately trial or settlement.

Our ERC and PPP defense work also informs our FCA practice. A business that is concurrently under an IRS ERC audit and facing a potential FCA investigation needs a coordinated defense strategy — one that accounts for the fact that information produced in the administrative audit process may become available to DOJ civil attorneys. Compartmentalizing these proceedings and managing the flow of information is a critical function of defense counsel in overlapping administrative and civil enforcement contexts.

Representative Matters

Each matter is unique, and past results do not guarantee any particular outcome. The following examples are representative of the types of cases we handle.

The Parallel Risk: Criminal FCA Exposure

The False Claims Act is a civil statute, but the conduct underlying an FCA allegation can also support criminal charges under 18 U.S.C. § 287 (false claims to a federal agency), 18 U.S.C. § 1001 (false statements), or, in the tax context, 26 U.S.C. § 7206 (fraudulent tax statements). When the DOJ opens an FCA civil investigation, it routinely coordinates with the criminal division to evaluate whether the facts support a parallel criminal prosecution.

The risk of parallel civil and criminal proceedings is one of the reasons defense counsel with criminal tax experience is important in FCA matters involving ERC and PPP. Statements and documents produced in a civil proceeding can be used in a subsequent criminal case. The Fifth Amendment protections that apply in the criminal context do not automatically translate to civil discovery. Managing the interaction between parallel proceedings requires counsel who understands both.

For a complete explanation of how the False Claims Act works — the statute, the penalty structure, qui tam mechanics, and defenses — see our guide: What Is the False Claims Act?

For more on criminal tax enforcement, including how the IRS Criminal Investigation division operates and how we approach criminal tax defense, see our criminal tax defense practice page.

For businesses concerned about ERC-related criminal exposure specifically, our ERC audit defense practice addresses the full spectrum of ERC enforcement — from administrative audit through civil FCA proceedings and criminal referrals.