If your SBA PPP-2 loan forgiveness request has been denied, it’s crucial to be well-prepared for the appeal process. In this blog, we’re providing essential tips to help guide you through the complexities of appealing an SBA PPP-2 loan denial.
1. Establishing a 25% Reduction in Gross Receipts
The first step towards a successful appeal is demonstrating a 25% reduction in your gross receipts for the year 2020 compared to 2019. The assessment involves comparing your entire year’s revenue reported in your income tax return for 2020 with that of 2019. However, if your 2020 tax return shows higher revenue, analyze each quarter to identify a 25% or greater reduction compared to the corresponding quarters of 2019. This reduction is a key factor in qualifying for PPP-2 loan forgiveness.
2. Accurate and Supported Profit Loss Statement
While filing an appeal with the Office of Hearing and Appeals (OHA), it’s essential to provide a profit and loss statement. This statement might require a CPA’s signature under penalty of perjury, as it’s an internal document that may lack third-party substantiation. Ensure this statement is meticulously prepared and supports your appeal’s claims.
3. Calculating Payroll Expenses Correctly
PPP-2 loan forgiveness calculations hinge on accurate payroll expenses. These expenses should match the same year, either 2019 or 2020. If using 2020, calculate gross wages and subtract excess compensation (amounts exceeding $100,000) for employees, shareholders, or owners. Add in employee benefits like 401(k) matching contributions and health insurance. Divide the total by 12 for the average monthly payroll expense. Multiply this average by 2.5 (or 3.5 for certain industries) to determine your PPP-2 loan amount.
4. Affiliation Considerations
Affiliation, the consideration of multiple companies as a collective unit, is a critical factor in determining PPP-2 loan eligibility. SBA defines small businesses based on factors like employee count and gross revenue. If you have affiliate companies, their employee counts and revenues might be included in your eligibility calculation. Be cautious, especially if investors or owners are connected to multiple companies, as this can impact your overall qualification.
5. Seek Professional Assistance
Navigating the PPP-2 appeal process successfully often requires professional guidance. With the rules and regulations continuously evolving, having an experienced tax attorney by your side can significantly increase your chances of a favorable outcome. They can help you understand intricate calculations, ensure compliance with affiliation rules, and provide comprehensive assistance throughout the appeal process.
Appealing an SBA PPP-2 loan denial necessitates a clear understanding of the intricate requirements involved. Ensure a 25% reduction in gross receipts, accurate payroll calculations, well-supported profit-loss statements, and a comprehensive understanding of affiliation rules. Seeking professional assistance from experts experienced in tax law and PPP appeals can be invaluable. If you have any questions or require assistance with your PPP-2 appeal, please don’t hesitate to contact us.
Applying for PPP Loan Forgiveness: A Step-by-Step Guide
As businesses move forward in 2023, loan forgiveness remains a critical aspect of PPP loans. To have your PPP loan forgiven, there are several requirements set by the SBA that you must meet. Full loan forgiveness can be obtained if you maintain employee and compensation levels, use the loan proceeds for eligible expenses (including payroll costs, protective equipment, supplier costs, employer-provided group insurance payments, property damage, and operational expenses), and spend at least 60% of the proceeds on payroll costs.
Step 1: Use the Portal (If You’re Eligible)
The SBA provides a dedicated page for PPP loan forgiveness, along with the application and instructions. If your PPP loan was $150,000 or less and you used one of the participating lenders, you can use the SBA’s Direct Forgiveness Portal to submit your forgiveness application directly. For borrowers without a participating lender, they will need to apply through their lender, who will provide them with the appropriate form.
Step 2: Get Your Paperwork Together
To support your forgiveness application, be prepared to provide documentation for both payroll and non-payroll expenses during the covered period. Payroll documentation may include bank account statements, third-party payroll service provider reports, tax forms (e.g., Form 941), and receipts documenting employer contributions to health insurance and retirement plans. Non-payroll expenses may require documentation for business mortgage interest payments, rent or lease payments, utility payments, operations expenditures, property damage costs, supplier costs, and worker protection expenditures.
Step 3: Submit the Form
Once you have gathered all the necessary documentation, submit your forgiveness application. Eligible borrowers can use the Direct Forgiveness Portal to submit the application directly to the SBA. If not eligible for the portal, borrowers should submit the application and documentation to their lender.
Step 4: Await the Decision (and Appeal, If Necessary)
After submitting your application, the SBA or your lender will notify you of their decision within 60 days. If they approve loan forgiveness, it could be for the full amount or a partial amount. In case of partial forgiveness, borrowers will be responsible for repaying the remaining amount with 1% interest over the loan term. If the SBA denies your loan forgiveness, you may be able to appeal the decision through the SBA’s Office of Hearings and Appeals (OHA) within 30 days of the decision.
At Milikowsky Tax Law, we’re dedicated to helping businesses navigate the complexities of PPP-2 loan appeals.