The previously promised guidance on the appeals process for PPP borrowers who are wholly or partially denied forgiveness has been released as an interim final rule (IFR) by the Small Business Administration.[1]

The appeal will be heard by the SBA Office of Hearings and Appeals (OHA) and will involve appealing certain SBA loan review decisions.[2]

The preamble describes the items covered by the SBA loan review decision, as “an official written decision by SBA, after SBA completes a review of a PPP loan, that finds a borrower”

Was ineligible for a PPP loan;
Was ineligible for the PPP loan amount received or used the PPP loan proceeds for unauthorized uses;
Is ineligible for PPP loan forgiveness in the amount determined by the lender in its full or partial approval decision issued to SBA (except for the deduction of any Economic Injury Disaster Loan advance); and/or
Is ineligible for PPP loan forgiveness in any amount when the lender has issued a full denial decision to SBA.[3]

The appeals provisions are found in a new Subpart L of 13 CFR Part 134 added by this IFR.

Note that the process is a formal legal process, with representation of the borrower limited to attorneys. The special status granted to CPAs to practice before the IRS does not carry over to practice before the Small Business Administration.

This information is being provided not to suggest CPAs who are not licensed attorneys should be representing clients in such matters, nor providing detailed advice in the background as the client tries to handle the appeal on his/her own. Rather, a basic knowledge of these issues will help the CPA advise the client regarding actions the client would need to take if the client wishes to challenge the SBA’s decisions, and that advise will most often be to look towards obtaining legal counsel if the borrower wishes to consider moving forward with a formal appeal.

Scope of the Rules for Appeals of PPP Program Loan SBA Decisions

13 CFR §134.1201 provides the scope of the rules for this subpart. It is important to note that this appeal is only for specific decisions of the SBA—a decision of the lender is not subject to this review program.[4] Similarly, the appeals program is not available for any decision of the SBA’s Office of Inspector General.[5]

Rather, the appeals process is strictly limited to the SBA loan review decisions noted earlier.

The Appeals Petition

The IFR requires the following information be included with an appeals petition:

The basis for OHA’s jurisdiction, including, but not limited to, evidence that the appeal is timely filed in accordance with § 134.1204;
A copy of the SBA loan review decision that is being appealed, or a description of that decision if a copy is unavailable;
A full and specific statement as to why the SBA loan review decision is alleged to be erroneous, together with all factual information and legal arguments supporting the allegations;
The relief being sought;
Signed copies of payroll tax filings actually filed with the Internal Revenue Service (IRS), and State quarterly business and individual employee wage reporting and unemployment insurance tax filings actually reported to the relevant state, for the relevant periods of time, if not provided with the PPP Loan Forgiveness Application (SBA Form 3508, SBA Form 3508EZ, or lender’s equivalent), or an explanation as to why they are not relevant or not available;
Signed copies of applicable federal tax returns actually filed with the IRS with appropriate schedules (e.g., IRS Form 1040 with Schedule C/F) documenting income for self-employed individuals or partners in a partnership, if not provided with the PPP Borrower Application Form (SBA Form 2483 or lender’s equivalent), or an explanation as to why they are not relevant or not available; and
The name, address, telephone number, email address and signature of the appellant or its attorney.[6]

The petition must also meet the following format rules:

The maximum length of an appeal petition (not including attachments) is 20 pages, unless leave is sought by the appellant and granted by the Judge. A table of authorities is required only for petitions citing more than twenty cases, regulations, or statutes.[7]

The IFR requires an additional copy of the petition be filed with the SBA Associate General Counsel for Litigation:

In addition to filing an appeal with OHA in accordance with § 134.204(b), the appellant must serve a copy of the appeal petition with attachments on the Associate General Counsel for Litigation, U.S. Small Business Administration, 409 Third Street SW, Washington, DC 20416, OLITService@sba.gov.[8]

Finally, the appellant must attach a signed certificate of service:

The appellant must attach to the appeal petition a signed certificate of service meeting the requirements of § 134.204(d).[9]

Failing to provide all of the items listed above may result in the petition being dismissed, potentially with prejudice (that is, no ability to file a new petition):

An appeal petition which does not contain all of the information required by paragraphs (a) through (d) of this section may be dismissed, with or without prejudice, at the Judge's own initiative, or upon motion of SBA.[10]

The regulation also provides the SBA with the option to move to require a more definite petition, as well as allowing the Judge to do so independently:

SBA may, not later than five days after receiving an appeal petition, move for an order to the appellant to provide a more definite appeal petition or otherwise comply with this section. A Judge may order a more definite appeal petition on his or her own initiative.

(1) A motion for a more definite appeal petition stays SBA’s time for filing a response. The Judge will establish the time for filing and serving a response and will extend the close of the record as appropriate.

(2) If the appellant does not comply with the Judge’s order to provide a more definite appeal petition or otherwise fails to comply with applicable regulations, the Judge may dismiss the petition with prejudice.[11]

13 CFR 1202(g) also provides a rule for counting days for any deadline set based on a number of days:

Do not count the day the time period begins, but do count the last day of the time period. If the last day is Saturday, Sunday, or a Federal holiday, the time period ends on the next business day.[12]

Standing and Deadline to Appeal

Only a borrower on a loan for which the SBA has issued a final SBA loan review decision, as defined earlier, has standing to file an appeal with the OHA.[13]

The appeal must be filed by the borrower within 30 days after the earlier of:

The borrower’s receipt of the final SBA loan review decision, or
The borrower’s notification by the lender of the final SBA review decision.[14]

The Judge is required to dismiss the appeal petition if:

The appeal is beyond OHA’s jurisdiction as set forth in these rules;
The appellant lacks standing to appeal; or
The appeal is untimely or is premature (the SBA has not yet made a final SBA loan review decision).[15]

Process

Once an appeal is filed, the appeal will be assigned to an Administrative Judge or Administrative Law Judge. If the appeal is not dismissed, the Judge will issue a notice and order establishing a deadline for production of the administrative record.[16]

The Administrative record will be the key item to be reviewed in determining the validity of the SBA’s decision and the position advanced in the appeal. The SBA will produce that record and it is to contain:

The administrative record shall include relevant documents that SBA considered in making its final decision or that were before SBA at the time of the final decision. The administrative record need not, however, contain all documents pertaining to the appellant. In addition, SBA may claim privilege as to certain materials. The administrative record must be certified and authenticated that it is, to the best of the signatory’s knowledge, complete and correct.[17]

The borrower will be given a copy of this record at the time it is filed with the OHA.[18]

The borrower does have the right to make the following objections to the production of the record:

The appellant may object to the absence of any document from the administrative record that the appellant believes should have been included in the administrative record. An appellant also may object to any claim that documents in the administrative record are privileged. Such objections must be filed with OHA and served on SBA no later than 10 calendar days after the appellant’s receipt of the administrative record. The Judge will rule upon such objections and may direct or permit that the administrative record be supplemented.[19]

Note that the administrative record, which already exists before the appeal is filed, is generally going be the most significant portion of what the Judge will consider. The IFR provides that the Judge ordinarily “may not admit evidence beyond the written administrative record or permit any form of discovery.”[20]

A request for discovery is limited to the SBA, not the borrower, and in that case will be permitted only if the SBA has made a showing of good cause for discovery.[21]

As well, normally there will be no oral hearing, with the IFR providing:

Oral hearings will not be held on an appeal of an SBA loan review decision, unless, following the motion of a party, or at the Judge’s own initiative, the Judge orders an oral hearing upon concluding that there is a genuine dispute of material fact that cannot be resolved except by the taking of testimony and the confrontation of witnesses. If an oral hearing is ordered, the proceeding shall be conducted in accordance with §§ 134.214 and 134.222 in subpart B of this part as the Judge deems appropriate.[22]

The decision will be based entirely on the following items:

All appeals under this subpart L will be decided solely on a review of the written administrative record, the appeal petition, and response(s) filed thereto, any admitted evidence, and an oral hearing, if held.[23]

In the normal case, this means the Judge will be looking at the SBA’s administrative record, the appellate petition and the SBA’s answer, and the Judge’s decision will be based on his/her review of those items. As should be clear, it will be extremely important that the taxpayer provide complete information to the SBA as part of the initial loan review process, as well as ensure that all relevant information is included in the petition for appeal.

Decisions

The time limit for issuing the decision and content of a decision are outlined as follows:

The Judge will issue his or her decision within 45 calendar days after the close of record, as practicable. The decision will contain findings of fact and conclusions of law, the reasons for such findings and conclusions, and any relief ordered. The decision will be served on each party.[24]

The IFR outlines the following process for issuance of an original decision and when it will become final if that decision is not appealed or a reconsideration is not requested:

The Judge’s decision on the appeal is an initial decision. However, unless a request for review is filed pursuant to § 134.228(a), or a request for reconsideration is filed pursuant to paragraph (c) of this section, an initial decision shall become the final decision of SBA 30 calendar days after its service. The final OHA decision creates precedent only for appeals involving the PPP. Any OHA decision pursuant to this subpart L applies only to the PPP and does not apply to SBA’s 7(a) Loan Program generally or to any interpretation or application of the regulations in part 120 or part 121 of this title.[25]

Either party, or even the Judge, may request a reconsideration of the initial decision:

An initial decision of the Judge may be reconsidered. Either SBA or the appellant may request reconsideration by filing with the Judge and serving a petition for reconsideration within 10 calendar days after service of the written decision. The request for reconsideration must clearly show an error of fact or law material to the decision. The Judge may also reconsider a decision on his or her own initiative within 20 calendar days after service of the written decision.[26]

All parties may ask for a formal review of the Judge’s decision. Note that this step is required before a party may take the matter to the courts:

Within 30 calendar days after the service of an initial decision or a reconsidered initial decision of a Judge, any party, or SBA’s Office of General Counsel, may file and serve a request for review by the Administrator pursuant to § 134.228(a). In order for a borrower to exhaust its administrative remedies and preserve its right to seek judicial review of an SBA final decision in a federal district court, a borrower that disputes an initial decision or reconsidered initial decision must file and serve a request for review of the initial decision or reconsidered initial decision by the Administrator pursuant to § 134.228(a). If a request for review is filed pursuant to § 134.228(a), the provisions in § 134.228 will apply.[27]

The OHA can issue the following types of decisions in the appeal:

OHA may affirm, reverse, or remand an SBA loan review decision. If remanded, OHA no longer has jurisdiction over the matter unless a new appeal is filed as a result of a new SBA loan review decision.[28]

Decisions Will Be Published

The OHA’s decisions in these cases will normally become public information and, as noted earlier, will serve as precedent for later decisions on PPP loans. The IFR provides:

OHA decisions are normally published without redactions on OHA’s website. A decision may contain confidential business and financial information or personally identifiable information where that information is either decisionally significant or otherwise necessary for a comprehensible decision. Where no protective order is in place, a party may request a redacted public decision by contacting OHA. Where a protective order is in place, the Judge will usually issue the unredacted decision under the protective order and a redacted version for public release.[29]

[1] RIN 3245-AH55, Appeals of SBA Loan Review Decisions Under the Paycheck Protection Program, Small Business Administration, August 11, 2020 https://home.treasury.gov/system/files/136/PPP-IFR-Appeals-of-SBA-Loan-Review-Decisions-Under-the-PPP.pdf (retrieved August 12, 2020)

[2] RIN 3245-AH55, Appeals of SBA Loan Review Decisions Under the Paycheck Protection Program, Small Business Administration, SUPPLEMENTARY INFORMATION, Section I

[3] RIN 3245-AH55, Appeals of SBA Loan Review Decisions Under the Paycheck Protection Program, Small Business Administration, SUPPLEMENTARY INFORMATION, Section III

[4] 13 CFR §134.1201(c)

[5] 13 CFR §134.1201(d)

[6] 13 CFR §134.1202(a)

[7] 13 CFR §134.1202(b)

[8] 13 CFR §134.1202(c)

[9] 13 CFR §134.1202(d)

[10] 13 CFR §134.1202(e)

[11] 13 CFR §134.1202(f)

[12] 13 CFR §134.1202(g)

[13] 13 CFR §134.1203

[14] 13 CFR §134.1204

[15] 13 CFR §134.1205

[16] 13 CFR §134.1206

[17] 13 CFR §134.1207(a)

[18] 13 CFR §134.1207(b)

[19] 13 CFR §134.1207(c)

[20] 13 CFR §134.1209(a)

[21] 13 CFR §134.1209(b)

[22] 13 CFR §134.1209(c)

[23] 13 CFR §134.1209(d)

[24] 13 CFR §134.1213(a)

[25] 13 CFR §134.1213(b)

[26] 13 CFR §134.1213(c)

[27] 13 CFR §134.1213(d)

[28] 13 CFR §134.1214

[29] 13 CFR §134.1213(e)