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PPP Loan Forgiveness Was Denied. Can You Appeal?

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What You Need to Know

  • Small-business clients who are unhappy with how their PPP loans have been treated may have the option of appealing the decision.
  • They may be entitled to defer payments until they’ve received a final decision on their appeal.
  • Borrowers can also appeal decisions about loan forgiveness eligibility.

Now that most small-business clients have received and spent their Paycheck Protection Program (PPP) loan proceeds, the time has come to determine whether the Small Business Administration (SBA) will grant loan forgiveness or approve the initial loan terms. Unfortunately, some clients aren’t happy with the answers they have received. As with the program itself, the SBA has released guidance on appealing decisions on a rolling basis.

Small-business clients who are unhappy with how their PPP loans have been treated should be advised that they may have the option of appealing the decision — and, under new guidance, that they may also be entitled to defer payments until they’ve received a final decision on their appeal. 

The SBA Appeals Process: Basics

Generally speaking, a PPP borrower files a loan forgiveness application with the lender, the lender makes a decision and the SBA reviews that decision or submits the forgiven amount to the lender. Under new rules, borrowers with PPP loans equal to $150,000 or less apply directly to the SBA for forgiveness (as of Aug. 4, 2021).

An SBA interim final rule (IFR) outlines the scenarios in which a taxpayer is entitled to file an appeal and request reconsideration of the decisions made during this process. Only the borrower on the loan is entitled to file an appeal — individual owners of a borrower-entity do not have standing to file individual appeals.

Under the IFR, the borrower may appeal if the SBA has provided a final written decision that the borrower was ineligible for a PPP loan or was ineligible for the loan amount received. Borrowers can also appeal if the SBA finds that the borrower used the PPP loan proceeds for inappropriate or unauthorized expenses.

Borrowers can also appeal decisions about loan forgiveness eligibility. If the lender issued a full denial decision to the SBA, the borrower can appeal if it was found they were ineligible for any amount of forgiveness. Borrowers can appeal if the borrower was found ineligible for PPP loan forgiveness in the amount determined by the lender in a full or partial approval decision issued to the SBA.

The SBA has generally been clear that only final SBA loan decisions can be appealed to the SBA Office of Hearings and Appeals (OHA). But borrowers are also entitled to request that the SBA review a decision made by the actual lender (but those requests are not directed to the OHA).

How Does a Borrower File an Appeal?

Appeals to the OHA must generally be made within 30 days after the earlier of the date when (1) the borrower receives the SBA’s written decision or (2) notification by the lender of the final SBA decision. The petition must be no longer than 20 pages (not including attachments) and must include specific information, including basic contact information, a copy of the SBA written decision and a full description of why the borrower believes the decision is incorrect.

More on this topic

The petition must include signed copies of payroll tax forms that were filed with the IRS and the state, tax filings (such as Form 1040 or Schedule C), and quarterly business and individual unemployment insurance tax and employee wage reporting statements reported to the state for the time period in question (if they haven’t already been provided). If those forms aren’t relevant, the borrower should include an explanation for why they are irrelevant.

The petition must also outline the basis for the OHA’s jurisdiction over the appeal (including a statement about why the petition is timely) and the relief requested.

After the petition is granted, the OHA will request relevant documentation from the SBA. The borrower will receive a copy of that administrative record and have an opportunity to object to any documents that may be missing or incorrect.

Under prior law, the appeals process did not extend the borrower’s deferral period. The most recent guidance, however, contained a taxpayer-friendly rule so that small-business clients can continue to defer PPP loan payments until the OHA issues a final decision on appeal. The borrower should inform the lender about the appeal to ensure that the deferral period is extended (this new change applies to petitions filed after July 28, 2021, and to any petitions where a final order has not been received by that effective date).

Appeals will generally be decided within 45 days after the administrative record has been closed. Importantly, however, borrowers will be unable to appeal if they repay the PPP loan forgiveness amounts to the lender, so the borrower may be required to begin repaying the balance.

Conclusion

Small-business clients should be advised that an initial unfavorable decision by the SBA or lender isn’t necessarily final. To maximize the tax benefits of the PPP loan program, advisors should carefully review these decisions and their client’s circumstances to determine whether an appeal is appropriate.

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