SBA issues new rules for appeals of contested PPP audits – Accounting and Auditing
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PPP loans under the CARES Act are currently being audited by the SBA. All PPP loans over $ 2 million will be audited, and many others under $ 2 million will also be audited. Asking for a PPP loan forgiveness increases the likelihood of an audit.
An SBA audit or “review” of a borrower and its PPP loan may result in a determination by the SBA that the borrower (1) was not eligible for a PPP loan; (2) was not eligible for the PPP loan amount received or used the PPP loan proceeds for unauthorized purposes; (3) is not eligible for a PPP loan discount for the amount determined by the lender in its full or partial approval decision issued to the SBA (except for the deduction of any loan advance in the event of economic disaster in accordance with Article 1110 (e) (6) of the CARES Act); and / or (4) is not eligible for a PPP loan remission regardless of amount when the lender has issued a total denial decision to the SBA (each and collectively an “SBA Loan Review Decision” ).
A borrower can administratively challenge and appeal an SBA loan review decision under new rules announced by the SBA. However, the following actions are not considered an “SBA loan review decision” and are not appealable under these new rules: (1) any decision or determination by a lender regarding an PPP loan; (2) any decision of the Office of the Inspector General of the SBA; and (3) any decision of the SBA on any Section 7 (a) loan other than a PPP loan.
Only the borrower, not the lender or other parties, can appeal an SBA loan review decision. An appeal must be in writing and filed with the SBA Office of Hearings and Appeals (“OHA”) within 30 days of the borrower’s receipt of the SBA’s loan review decision, or notification by the lender of the SBA loan review decision (whichever comes first). The appeal should also be served on the SBA Deputy General Counsel for Litigation.
An appeal of an SBA loan review decision must include the following: (1) the basis for the jurisdiction of the OHA, including, but not limited to, evidence that the appeal is timely; (2) a copy of the SBA loan review decision being appealed, or a description of that decision if a copy is not available; (3) a complete and accurate statement as to why the SBA’s loan review decision is alleged to be erroneous, together with all factual information and legal arguments supporting the allegations; (4) the relief requested; (5) signed copies of federal income tax returns actually filed with the IRS (for example, Forms 941 and 940) and quarterly business and individual employee tax returns and Unemployment Insurance tax returns actually filed with the relevant state, for the relevant periods (e.g. SUTA returns), if not provided with the PPP loan forgiveness request (SBA 3508 form, SBA 3508EZ form or the lender’s equivalent ), or an explanation of why they are not relevant or available; (6) signed copies of applicable federal income tax returns actually filed with the IRS with appropriate schedules (for example, IRS Form 1040 with Annex C / F) documenting the income of self-employed persons or partners in a partnership, if not provided with the PPP borrower application form (SBA form 2483 or the lender’s equivalent), or an explanation of why they are not relevant or not available; and (7) The name, address, telephone number, e-mail address and signature of the appellant or his lawyer.
Appeals from an SBA loan review decision filed with the OHA will go to a Federal Administrative Law Judge (“ALJ”) for decision. The decision will generally be rendered within 45 days of the closure of the appeal case, and will be based on administrative documents and information contained in the PPP loan case, or “administrative case”. The assigned ALJ can order the borrower to provide additional information and authorize the inclusion of documents and information outside the administrative file. The ALJ may order a trial or hearing if necessary because of disputed testimony and / or other evidence.
When reviewing the administrative record and other evidence, if any, the ALJ is required to consider whether an adverse decision by the SBA regarding the borrower’s PPP loan was based on a manifest error of fact or of law, and when the borrower has the burden of clearly proving errors of fact and of law, and by a preponderance of proof.
Once the ALJ has rendered its decision on appeal, the decision will become final within 30 days; however, the borrower and the SBA may request a review of the ALJ’s decision within 10 days of the ALJ’s decision and, if applicable, the ALJ’s decision is stayed until the ‘ALJ rules on the request for reconsideration. After the ALJ’s decision, initial and reviewed as appropriate, the borrower and the SBA may also request a new review from the SBA administrator (and who further suspends the ALJ’s decision). The borrower and the SBA can also appeal unfavorable PPP lending decisions to federal courts; however, the borrower (and not the SBA) is required to seek further review by the SBA administrator before the borrower can bring such legal action.
These new SBA PPP audit appeal rules do not allow borrowers to recover their legal fees, even if they are successful on appeal. In addition, borrowers (and the SBA) will present confidential information through the PPP audit appeal process, including tax information, and new SBA rules provide that a borrower can apply for and receive a payment order. protection for this confidential information.
Thousands of PPP borrowers and their PPP loans will be audited by the SBA, and the SBA will issue audit decisions denying the benefits of the CARES Act to many borrowers. Many of these SBA audit decisions will be in error and should be appealed. Borrowers should consult a knowledgeable legal advisor to discuss their PPP loans and prepare beforeverification begins.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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