Beware of the SBA Challenging Your PPP Loan Forgiveness

Many companies who have submitted documentation to the Small Business Association (SBA) and have had their Paycheck Protection Program (PPP) loans forgiven may think they are home free. However, the SBA has the right, for up to 10 years from the time of forgiveness, to audit the documentation and challenge some, if not all, of the forgiveness if they find the documentation lacking.

The SBA is in the midst of auditing the documentation submitted by many companies and, in many cases, challenging the accuracy and completeness of their documentation. In these situations, the SBA will send a letter, via the intermediary bank, to the company requesting additional documentation, challenging the accuracy of the calculations submitted, or otherwise challenging the forgiveness. Companies must respond to these letters in a timely fashion. Failure to do so, or failure to satisfactorily address the questions raised by the SBA, will result in partial or full denial of the forgiveness. And depending upon the nature of the forgiveness denial, the company may be required to repay the full amount of the loan immediately.

Denial of forgiveness can result in other headaches for the company in addition to having to repay the loan. The loan forgiveness may have been used by the company’s owners as a basis to deduct losses or to receive tax-free distributions. In the event there were any ownership/equity transactions prior to the denial of forgiveness, the basis may have been included in the calculation of gain on the sale. As a result, the denial of forgiveness may have significant adverse tax ramifications.

Denial of forgiveness will also reduce the company’s equity on its financial statements and may necessitate a restatement of previously issued financial statements.

If your company receives one of these letters from the SBA, please feel free to contact us at Anchin, and we can assist you in responding to the letter and preparing amended PPP claims if warranted. We can also assist you in dealing with the tax ramifications of the potential loss of basis and the impact on the company’s financial statements. We are available to answer any questions you may have regarding these matters. For more information, please reach out to Joe Zeller, Phil Ross, Joe Molloy, or your Anchin Relationship Partner.