If you received a letter from the SBA denying your forgiveness request for your PPP loan within the last 30 days, the clock is ticking. You have 30 days to respond and file your appeal. The timeline for SBA forgiveness appeals is inflexible. Once your initial 30-day period expires you will lose your right to appeal SBA’s denial to forgive your PPP loan.
We strongly recommend you hire an attorney to represent your company in the SBA appeal process. The ONLY individuals who can represent your company in the appeal process are: An owner, a company officer, or an attorney. CPAs are not authorized to represent borrowers in the appeal process.
Steps you must take to appeal your SBA Loan Forgiveness Denial
- Review “Final SBA Loan Review Decision Letter”
- Confirm your deadline to appeal the SBA decision
- Gather your documents & facts to identify issues to raise in your appeal
- Review SBA’s prior legal decisions & rulings
- Draft your Appeal (max 20 pages) and include exhibits (your evidence) and SBA’s Final Loan Review Decision Letter.
*You must include your legal arguments, facts, and legal authority to support your position to show SBA’s denial was “clearly erroneous” (there are additional requirements – see SBA’s website). - Create an online account at appeals.sba.gov.
- Answer all questions truthfully and completely when responding to SBA’s online questionnaire.
- Identify a legal representative for your business to handle the SBA Appeal.
- Upload your appeal, exhibits, and SBA Final Decision Letter.
Get Help With Your PPP Loan Forgiveness Appeal Now
Complete the form, and a member of our staff will contact you shortly. We strongly recommend retaining an attorney to represent your company and prepare and file your formal appeal.
SBA PPP Loan FAQs & Tips
Compliance, deductions, forgiveness, employees, the CARES Act has offered support and raised many questions. The experienced team at Milikowsky Tax Law is here to sort through all of the information and give you facts and strategies for your business as you resolve your SBA loan forgiveness.
If my PPP loan is eventually forgiven, can I deduct expenses on my tax return that I paid with my PPP loan?
Currently, IRS published Notice 2020-32 that prohibits deducting expenses if paid with a forgiven PPP loan.
Does the CARES Act exclude from payroll costs employee compensation greater than $100k?
Yes. However, the exclusion only applies to cash compensation and does not apply to all employee benefits such as contributions to a defined benefit retirement plan, group health care coverage, and payment of state/local taxes assessed on compensation.
Can a business include payments to an independent contractor or sole proprietor in the calculations of payroll costs?
No. The independent contractor or sole proprietor is itself potentially eligible for a PPP loan if it satisfies the requirements.
What rules should I rely on to ensure my business complies with the PPP requirements?
A borrower may rely on the laws, rules and guidance available when it submitted its application through the time its application was accepted.
Are there any restrictions on which employees are paid with SBA PPP loan funds?
Yes, employees need to have their “principal place of residence” in the United States.
To determine borrower eligibility for the “500-employee threshold” per the CARES Act, should a borrower count all employees or only full-time equivalent employees?
For purposes of loan eligibility, borrowers must calculate the total number of employees including part-time employees. For purposes of “loan forgiveness,” employers must use “full-time equivalent” employees to determine the extend the forgiveness amount will be reduced for workforce reductions.
Will SBA review all loans to ensure loans were provided to eligible borrowers?
Yes. SBA, in consulting with the Department of the Treasury, will review all loans greater than $2 million (as well as other loans) after a borrower submits a loan forgiveness application to ensure PPP loans were provided to eligible borrowers.
Will SBA review PPP loan of $2M or greater to ensure borrowers accurately and truthfully certified that “current economic uncertainty makes this loan request necessary to support the ongoing operations…”?
Yes. However, a safe harbor provision applies to SBA’s review of PPP loans. Borrowers with an original principal amount less than $2M are deemed to have made the required certification regarding the necessity of the loan request in good faith. Borrowers with loans greater than $2M must be able to substantiate their certification in good-faith. If SBA determines a borrower lacked adequate basis for the required certification, SBA will seek repayment. SBA indicates it may not pursue administrative enforcement or referrals to other agencies (i.e. IRS) if the loan is repaid. However, there is no guidance at this time regarding the amount of time to repay the loan once SBA determines a borrower was not eligible for the loan.
Can an individual who is a partner in a partnership or member of an LLC file a separate application for an SBA PPP loan?
No. The PPP loan must be filed by the partnership or LLC. Only individuals who are self-employed or sole proprietors who filed a Form 1040 Schedule C for 2019 are eligible to file a PPP loan application if they were in operation on February 15, 2020 and their principal place of residence was in the U.S.
What expenses can be paid with an SBA PPP loan?
Owner compensation replacement (calculate based on 2019 net profit); employee payroll costs for employees whose principal place of residence is in the U.S.); mortgage interest payments (not mortgage repayments or principal payments) on any business loan on real or personal property (i.e. warehouse or vehicle used to conduct business); business rent payments; business utility payments. For these expenses to be “permissible,” you must be entitled to claim these expenses on your Form 1040 Schedule C. Additionally, interest payments on any other business debt incurred before February 15, 2020 can be paid with PPP loan funds but these amounts are not eligible for PPP loan forgiveness.
Is there a limitation on the “allowable” use of the SBA PPP loan funds?
Yes, for self-employed individuals who file a form 1040 Schedule C, allowable uses for the funds are the type of expenses incurred and paid in 2019. The purpose for the PPP loan is to “maintain existing operations and payroll.” It is not for business expansion. Additionally, at least 75 percent of the PPP loan proceeds shall be used for payroll costs. Other restrictions and conditions may apply.
Is there a deadline to pay expenses with the PPP loan funds?
Yes, you have 8 weeks to use the loan funds starting with the date of the first disbursement of the SBA PPP loan.
Can you apply for an SBA PPP loan if you received an SBA EIDL loan from January 31, 2020 through April 3, 2020?
Yes, you can apply for a PPP loan. If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.
What amounts paid with PPP loan funds are eligible for forgiveness?
Payroll costs including salary/wages and tips up to $100k of annualized pay per employee (max $15,385 per individual for the 8 week period) including covered benefits for employees (not owners) and including health care expenses, retirement contributions, and state tax imposed on employee payroll paid by the employer (i.e. unemployment insurance premiums). Additionally, payments for owners compensation (calculated based on 2019 net profit, limited to 8 weeks worth (8/52) of 2019 net profit) excluding qualified sick leave equivalent amount where a credit is claimed under section 7002 of the Families First Coronavirus Response Act or qualified family leave equivalent amount where a credit is claimed under section 7004 of FFCRA. Lastly, the following payments are eligible for forgiveness to the extent they are deductible on Form 1040 Schedule C: i) interest on mortgage obligations on real or personal property (incurred before February 15, 2020); ii) rent business rent payments (leases in force before February 15, 2020); iii) and business utility payments (under service agreements before February 15, 2020).
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.