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Can SBA Audit a PPP Loan That is Already Forgiven?

Recently, businesses have experienced an increase in inquiries from the Small Business Administration (SBA) regarding the forgiveness of Paycheck Protection Program (PPP) loans that were previously forgiven. This raises a critical question: Can the SBA go back and retract forgiveness on a PPP loan that is already forgiven?

The answer: Yes, the SBA has the authority to go back and retract forgiveness on a PPP loan that was previously forgiven. This process has become more prevalent, with numerous requests for loan re-examination and re-auditing, especially from 2021 onwards.

John Milikowsky, Founder of Milikowsky Tax Law, explains in the video below:

The Surge in SBA Requests

In the closing months of 2023, the business landscape has witnessed an unprecedented surge in requests from the Small Business Administration (SBA) compelling businesses to re-examine and re-audit previously forgiven PPP loans. This surge is not just a numerical increase; it represents a seismic shift in the SBA’s modus operandi, reflecting a strategic recalibration of its approach towards ensuring unwavering compliance with forgiveness criteria. The heightened scrutiny, particularly pronounced since the turn of 2021, has become a defining feature of the SBA’s commitment to upholding the integrity of relief programs.

This surge can be attributed to the evolving economic landscape and an intricate interplay of factors such as evolving regulatory standards, changing financial landscapes, and the imperative for meticulous oversight. Businesses find themselves navigating uncharted waters as the SBA intensifies its efforts to maintain the fidelity of the Paycheck Protection Program. It underscores the significance of staying abreast of regulatory updates and aligning financial practices with the evolving criteria set forth by the SBA.

This change in dynamics necessitates that businesses not only comply with past forgiveness requirements but also anticipate a more rigorous and comprehensive evaluation of their financial records. It serves as a clarion call for proactive measures, urging businesses to not only meet the existing standards but to surpass them, fortifying their financial standing in an environment of increasing scrutiny.

Verification and Legitimacy

In an era characterized by sophisticated financial scams and identity theft, the importance of verifying the legitimacy of a notice requesting additional records for a forgiven PPP loan cannot be overstated. The initial step transcends the routine act of confirming the contact’s identity; it necessitates the implementation of a robust verification protocol to shield businesses from potential fraudulent activities.

Scams targeting businesses have become more intricate, often mimicking official communications from financial institutions. Business owners must be equipped with a discerning eye, critically evaluating the authenticity of the request. Engaging in direct communication with the bank is not just an exercise in due diligence; it becomes a strategic move to ensure the accuracy of loan and borrower details. This direct engagement serves as a firewall against potential scams, allowing businesses to validate the legitimacy of the representative and the urgency of the request.

The onus is on businesses to establish a secure and transparent channel of communication with their financial institutions. This entails cross-referencing contact information, scrutinizing the language and tone of the notice, and verifying the authenticity of the representative reaching out. By adopting a proactive stance in verifying the legitimacy of the request, businesses not only protect themselves from potential scams but also contribute to the overall security and credibility of relief programs. It is a collective effort to fortify the financial ecosystem against the ever-present threat of fraudulent activities.

Aggregating Records and Unresolved Issues

Upon confirming the legitimacy of the request, businesses are advised to aggregate the necessary records. While these records might overlap with previous submissions, there could be unresolved issues requiring additional information. Addressing these issues promptly is essential to avoid complications in the forgiveness process.

The Two Calculations for Forgiveness

Forging the path to PPP loan forgiveness requires a nuanced understanding of the intricate calculations governing the process. The journey begins with two fundamental calculations, each playing a pivotal role in determining the eligibility and quantum of forgiveness.

The initial calculation, a cornerstone of the forgiveness process, delves into the specifics outlined in the loan application. This comprehensive assessment involves a meticulous consideration of various factors, including 2019 payroll, total payroll costs, employee benefits, and state unemployment insurance tax. The amalgamation of these elements forms the basis for the quantitative evaluation that follows, establishing the foundation upon which the business’s forgiveness claim rests.

Moving beyond the initial calculation, the second assessment becomes paramount. This stage scrutinizes how the allocated funds were utilized, emphasizing a balanced and strategic expenditure approach. According to SBA guidelines, a minimum of 60% of the PPP funds must be dedicated to payroll expenses, with the remaining 40% earmarked for other legitimate business expenses. This dual-tiered evaluation ensures that businesses not only secure forgiveness based on their financial standing but also adhere to the intended utilization of funds, promoting responsible and judicious expenditure.

Navigating these calculations demands a comprehensive grasp of the intricate details, making it imperative for businesses to align their financial records with the stipulations set forth by the SBA. The transparency and accuracy of these calculations not only determine the success of the forgiveness claim but also serve as a testament to the business’s commitment to adhering to regulatory frameworks.

Common Pitfalls and Miscalculations

As businesses embark on the forgiveness journey, they encounter a myriad of challenges, with one prevalent pitfall being miscalculations during the initial loan application. The significance of precision in aligning numbers with SBA rules cannot be overstated, as discrepancies have the potential to significantly impact the amount eligible for forgiveness.

The intricate nature of SBA guidelines necessitates a meticulous review of calculations before the submission of any records. Businesses often find themselves at risk of encountering pitfalls that may compromise the accuracy of their forgiveness claim. Whether it be an oversight in payroll calculations or inaccuracies in the assessment of additional costs, each detail demands scrutiny to ensure compliance with the stringent criteria set by the SBA.

Addressing these potential pitfalls requires a proactive approach, entailing a thorough review of all financial calculations and supporting documentation. Businesses are urged to exercise due diligence in validating the accuracy of their records, preemptively identifying and rectifying any discrepancies that may impede the smooth processing of their forgiveness claim.

Navigating the intricate landscape of forgiveness calculations necessitates a collaborative effort between businesses and financial professionals. By vigilantly addressing common pitfalls and miscalculations, businesses not only enhance their prospects of a successful forgiveness claim but also contribute to the overall integrity of the PPP program, ensuring that relief reaches those who need it most.

Multiple Businesses and Aggregation

For businesses with multiple entities, understanding the SBA rules regarding aggregation is vital. The rules differ between PPP one and PPP two, with implications for employee count, income aggregation, and a mandatory 25% reduction in income for PPP two. Clear comprehension of these rules is crucial to avoid complications in the forgiveness process.

Timely Responses and Professional Examination

Timely responses to SBA requests are paramount. Seeking professional assistance from a CPA or tax attorney with expertise in SBA rules is recommended to ensure accurate and compliant responses. A qualified professional can verify the records, providing confidence in the accuracy of the information submitted.

Final Notes

In conclusion, the SBA’s ability to retract forgiveness on a previously forgiven PPP loan underscores the importance of diligence and compliance. Businesses should respond promptly to requests, ensuring accuracy in records and calculations. Seeking professional advice can significantly contribute to a smooth and successful forgiveness process, mitigating the risk of loan denial and subsequent collection actions by the SBA. For further questions or concerns, businesses are encouraged to reach out for timely assistance.

The team at Milikowsky Tax Law has successfully appealed numerous Paycheck Protection Program Loan Forgiveness denials and we are ready to help you bring your case to the SBA for consideration. 

Learn more about our team here and how we can help you through your SBA appeal process. Our seasoned professionals have a track record of successfully navigating the intricacies of PPP loan forgiveness appeals, and we stand ready to assist you in presenting your case to the SBA for consideration.