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New SBA Guidance Addresses Safe Harbor Deadline Extension, Audits of Businesses That Receive PPP Loans; Employer Requirements When Employees Refuse Recall to Work

Last week, the Small Business Administration clarified which businesses can expect to be audited once they certify in good faith that they received Paycheck Protection Program loans based on economic need. The SBA also delivered requirements for Maryland employers whose furloughed workers refuse to accept a recall to work. Read more below.

Good Faith Certification and the Safe Harbor Deadline Extension

The goal of the Paycheck Protection Program since it was established in late March under the CARES Act has been to help businesses maintain payroll in the face of the significant economic disruption wrought by COVID-19.

Many institutions that received PPP loans in the program’s earliest days were accused, however, of receiving funds they did not need and depriving deserving businesses from receiving support. The $349 billion originally set aside for the program was depleted before all businesses that applied could receive funds. (An additional $175 billion was since made available in early May).

The SBA created a safe harbor opportunity for businesses that received PPP loans but were unsure they could prove economic need, to return those funds to avoid facing possible legal action. On Wednesday, May 13, the SBA extended the safe harbor deadline for businesses wishing to return loan funds to Monday, May 18.

The May 13 update also stated that businesses and affiliates, which received loans cumulatively totaling less than $2 million will be assumed to have performed the required certification to justify their need for the funds and that they acted in good faith.

Businesses and affiliates that cumulatively received more than $2 million in PPP loan funds may still have acted in good faith when applying for and receiving the funds but might face more scrutiny by the SBA.

The SBA statement also said that businesses which declared a certified need for the funds, but which are later found by audit to have not certified in good faith, may still return the funds without penalty in certain circumstances. If the SBA believes the business lacked an adequate basis for establishing the need for the loan request, it will inform the business of its findings and may accept repayment of the full loan amount without taking further action. Businesses found to have made false or disingenuous statements in their loan application may be liable for certain penalties.

The May 13 announcement does not specify what the SBA will review during an audit to determine if a business certified the need for PPP loan funds in good faith. This ambiguity suggests that businesses receiving more than $2 million in PPP loan funds should familiarize themselves with guidance provided by the U.S. Treasury’s Interim Final Rules on PPP as well as the business’s own internal processes and decision-making that resulted in a declaration of need for PPP loan funds to the SBA. Businesses should document as closely as possible details about its operations, review other possible sources of liquidity, and develop its conclusions and an analysis of projected need to be able to communicate as clearly as possible its decision-making process when working with the SBA during an audit.

When Employees Refuse to Return to Work (Maryland)

As economies begin to re-open, many Maryland businesses face the possibility of recalling workers who were furloughed during COVID-19 who refuse to return to their jobs. Employers who completed a Request for Separation Information for these employees (a requirement when employees apply to receive unemployment benefits from the State of Maryland) must inform the Division of Unemployment Insurance within 15 business days of the employee’s decision. The business should provide DUI with the following information: name and social security number of the employee, the business name and its Maryland unemployment insurance account number, the date the offer was made to the employee and the date of refusal. Businesses may transmit the requested information via email.

The information will be used to reconsider the employee’s level of benefits.

For further guidance on SBA’s guidance, contact CBM Tax Practice Director Richard Morris using our online contact form.

Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.   

Contact Richard E. Morris, CPA, MSTView Profile

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