In suit with implications for law firms, US is accused of raising bar on PPP loan forgiveness
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A lawsuit filed Tuesday alleges that the U.S. Small Business Administration appears to be making it more difficult for companies to gain forgiveness of paycheck protection loans intended to help businesses survive during the COVID-19 pandemic.
The suit, filed on behalf of the Associated General Contractors of America, says applicants for the loans were required to certify that, at the time that they applied, the loan was needed to continue ongoing operations. The loans were to be forgiven if they were used for expenses such as payroll, employee benefits and leave, mortgage interest, rent, debt refinancing and utilities.
But a new questionnaire for businesses seeking forgiveness asks for information about financial circumstances after they received the loans. The questionnaire asks for a comparison of second quarter revenue in 2020 and 2019, for current bank statements, and for other information about liquidity.
”In short, although SBA purports (as contemplated by the CARES Act) to be interested in evaluating the borrower’s certification made back in the spring amidst great uncertainty and tumult, the questionnaire focuses exclusively on later events,” says the suit, filed in the U.S. District Court for the District of Columbia.
Crowell & Moring filed the suit on behalf of the general contractors group, Law.com reports. The suit seeks to ban the Small Business Administration from basing decisions on later financial information.
The Small Business Administration is scrutinizing Paycheck Protection Program loans above $2 million. According to Law.com, the suit has implications for the 613 law firms in the United States that borrowed $2 million or more.
In a second story, Law.com reports that the loan program is causing headaches for law firm leaders who are trying to close their books for 2020 without knowing whether PPP loans will be forgiven.
A Nov. 18 IRS rule bans deduction of business expenses covered by forgivable PPP loans. Uncertainty over loan forgiveness and tax implications is making it difficult to determine partner distributions.
“Do you hold the loan amount in the bank while waiting to hear from the government—or include that amount in compensation disbursements? It’s getting to year-end so we need to know,” one law firm leader said. “And, if some amount is released to partners, what are the tax implications?”
