Day: November 6, 2020

Businesses that obtained Paycheck Protection (“PPP”) Act refundable loans above $2 million may soon find themselves in the unenviable position of defending themselves against potential federal criminal prosecution.

The Small Business Administration, which administered the PPP, quietly submitted “Loan Necessity Questionnaires”, including a “liquidity assessment”, to the Office of Management and Budget (“OMB”) for approval in late October. The forms demand very specific financial data about access to funds at the time the loan was made, to allow “SBA loan reviewers to evaluate the good-faith certification that (the Borrower) made on (its) PPP Borrower Application (SBA Form 2483 or Lender’s equivalent form) that economic uncertainty made the loan request necessary”.

The new questions even ask about such normally confidential business matters as revenue declines and shutdowns of the business by government order (in connection with the Pandemic). In addition, PPP recipients must describe their spending to control the spread of COVID-19, and even capital spending plans.

The draft form also asks the PPP borrower to identify for each question whether a response is “customarily kept confidential”.  However, that designation now appears moot, after the SBA was ordered to reveal all details of its major stimulus loan programs by a federal judge, including specific borrowers and loan amounts.  https://bankingjournal.aba.com/2020/11/court-orders-disclosure-of-all-ppp-eidl-loan-recipients-by-nov-19/

Although the SBA has not yet posted the forms itself (presumably pending OMB approval), you can easily find both versions of the form (3509 for for-profit firms, and 3510 for nonprofits) by searching the internet by the form numbers.

In addition, draft versions of the 9 page forms mentioned in the Federal Register notice about them (https://www.govinfo.gov/content/pkg/FR-2020-10-26/pdf/2020-23594.pdf) are now available on the news site www.politico.com, at https://www.politico.com/f/?id=00000175-7c07-d665-a1ff-fe0fd5390000.

A tax site also provides a lengthy description of the forms.  (https://www.currentfederaltaxdevelopments.com/blog/2020/10/31/sba-announces-will-create-questionnaire-to-determine-need-for-ppp-loans-purported-copies-being-circulated-online)

Although the SBA has not announced its rationale for requiring this form – nor does it have to – the “fund now, ask questions later” strategy of the initial PPP rollout likely provides an explanation.  https://www.sgrvlaw.com/the-paycheck-protection-program-what-a-long-strange-trip-its-been/

To inject cash into the economy at the start of the shutdown, quickly, the SBA simply required borrowers to certify that the “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant”.  No further justification – or financial data – was required.

In my experience, small businesses accustomed to providing extensive financial information to bank lenders were skeptical about getting significant funding without comparable documentation.  It now seems that they were correct – the request was just delayed.

Unfortunately, the ease of applying for PPP funding led to many well publicized abuses by recipients, which likely explains the new forms.  However, one study found such potentially fraudulent loans represented only 0.01 percent of all PPP funding.  https://cepr.net/new-york-times-reports-that-0-01-percent-of-the-paycheck-protection-program-was-fraudulently-spent/

Formally, the SBA will issue requests for the new forms to lenders who submit forgiveness applications – suggesting another reason for borrowers to consider delaying a forgiveness application.

Despite the uncertainty about this enforcement effort, the detailed accounting questions on the draft forms provide a roadmap for planning your defense now with your CPA, before the prosecutor calls – especially since a response will be due just ten days after you receive the request for the form.

  • Assemble information on how the PPP funds were used, particularly for preserve jobs.
  • Document your expenses and other sources of cash, if any, at the time you applied for the PPP loan.

Since no specifics are yet available about this program – it was discovered only through the request for approval of the “necessity” certification  forms – monitoring online sources remains the best way to stay current (as it has been throughout all the Pandemic relief programs).

Unfortunately, the latest PPP twist confirms the old adage (and small business common sense), “There’s no such thing as free money”.

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SGRV has been selected by U.S. News & World Report and Best Lawyers® to the 2021 list of  “Best Law Firms.”  SGRV received a metropolitan tier ranking for Employment Law – Individuals; Litigation – Labor & Employment; and Environmental Law.

Firms included in the 2021 Edition of U.S. News – Best Lawyers “Best Law Firms” are recognized for professional excellence with consistently impressive ratings from clients and peers. To be eligible for a ranking, a firm must first have a lawyer recognized in The Best Lawyers in America©, which recognizes 5% of lawyers practicing in the United States. Achieving a tiered ranking signals a unique combination of quality law practice and breadth of legal expertise.

“U.S. News has more than three decades of experience evaluating key institutions in society and their service to consumers,” said Tim Smart, executive editor at U.S. News. “Law firms perform a vital role, and ranking them is a key extension of our overall mission to help individuals and companies alike make important decisions.”

The 2021 rankings are based on the highest lawyer and firm participation on record, incorporating 8.3 million evaluations of more than 110,000 individual leading lawyers from more than 22,000 firms.

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Ranked firms, presented in three tiers, are recognized on a national and regional-based scale. Firms that received a tier designation reflect the highest level of respect a firm can earn among other leading lawyers and clients from the same communities and practice areas.

Awards were given in 75 national practice areas and 127 metropolitan practice areas. Additionally, one “Law Firm of the Year” was named in each nationally-ranked practice area.

National and metropolitan tier 1 rankings will be featured in the physical edition of U.S. News – Best Lawyers “Best Law Firms”, which will be distributed to more than 30,000 in-house counsel.

The U.S. News – Best Lawyers “Best Law Firms” rankings are based on a rigorous evaluation process that includes the collection of client and lawyer evaluations, peer review from leading attorneys in the field, and review of additional information provided by law firms as part of the formal submission process. To be eligible for a 2021 ranking, a law firm must have at least one lawyer recognized in the 26th Edition of The Best Lawyers in America list for that particular location and specialty.

U.S. News & World Report is the global leader in quality rankings that empower people to make better, more informed decisions about important issues affecting their lives. A digital news and information company focused on Education, Health, Money, Travel, Cars and Civic, USNews.com provides consumer advice, rankings and analysis to serve people making complex decisions throughout all stages of life. More than 40 million people visit USNews.com each month for research and guidance. Founded in 1933, U.S. News is headquartered in Washington, D.C.

Best Lawyers is the oldest and most respected lawyer ranking service in the world. For almost 40 years, Best Lawyers has assisted those in need of legal services to identify the lawyers best qualified to represent them in distant jurisdictions or unfamiliar specialties. Best Lawyers rankings are published in leading local, regional, and national publications across the globe.

Spector Gadon Rosen Vinci PC has represented clients nationally and internationally for 45 years and provides counsel and expertise across the entire spectrum of legal practice, from complex litigation to sophisticated transactional and corporate matters.  The firm has offices in Philadelphia, New Jersey, Florida, New York and Atlanta.

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In these troubled times, this seems like a not unreasonable statement and it is oft-expressed. Particularly when some heartless retailers charged Pennsylvania sales tax on face masks and other personal protective equipment that INNOCENT and VIRTUOUS CITIZENS acquired to protect THEMSELVES and OTHERS, truly ALL OTHERS, in this pandemic. And so, consistent with the sentiment above, SUE THE BASTARDS!!

Which is what has happened: Garcia v. American Eagle Outfitters Inc. et al., recently filed in the Court of Common Pleas for Allegheny County.

Garcia is not a tax case, strictly speaking. It was brought as a class action under the Pennsylvania Unfair Trade Practices and Consumer Protection Law (the “UTPCPL”). The claim is that the retail sellers of face masks and other PPE should have known that these items were (or had been declared) exempt from the sales tax (the substantive quality of this premise will be considered below), and thus when they charged sales tax, they engaged in activity prohibited by the UTPCPL. Recoverable damages under the UTPCPL include $100 per violation (which may be trebled in extreme cases) and attorneys’ fees.

The UTPCPL specifies twenty acts defined as unfair trade practices. They all fall in the category of false, deceptive, misleading, or intentionally confusing claims. None of the specified acts can be reasonably be stretched to cover a retailer that overcharges sales tac. However, the UTPCPL has a catch-all prohibition of “any other fraudulent or deceptive conduct which creates likelihood of confusion or of misunderstanding.

At this point, I, a mere tax lawyer, have a little trouble completing a summary of the plaintiff’s claims that would begin “In other words…” I would think that the false, misleading, deceptive or confusing statements, in order to be actionable under the UTPCPL, would have to create some unfair advantage to the seller, to make a sale more likely than would have been the case had the consumer been fully and fairly informed. The argument has to be that the seller, knowing that sales tac was being overcharged, mislead the consumer by concealing this fact and thus made the sale more likely than if the consumer had been aware of the overcharging. But I still have trouble in figuring out what’s in it for the retailor carrying out this deception. I assume that the retailor, having collected the sales tax, simply paid it over to the Department of Revenue in the ordinary course, if not the retailor has a world of trouble with the department, and we would be talking about a run-of—the-mill, grimy sales tax case. Surely, the retailor is marginally better off being truthful if the items are exempt from the sales tac, since the total price to the consumer would be less and thus the sale should be marginally more likely.

What interests me, as a tax lawyer, is looking at it from the point of view of the duties that are imposed upon the “taxpayer” and how the law is administered. In the case of the sales tax, I had to put taxpayer in quotes because the consumer is the taxpayer, but all of his duties are imposed on the retailer. That’s where the action is. The retailor has to collect the tax, account for it and report to the Commonwealth, and pay the collected taxes over to the Department of Revenue. A misstep, mistake. Or intentional malfeasance with respect to any of this results in the retailor (and perhaps its owners and others personally) being responsible for the tax, penalties, interest, possible loss of its sales tax license, banishment to outer darkness.

From the point of view of the consumer, the taxpayer, the sales tac is pretty simple. The consumer may have some vague understanding that certain purchases are sales tax exempt, but in general, the consumer simply has to pay the price for the desired goods.

From the point of view of the retailor, the tax collector, the sales tax can be mindlessly complicated. There are hundreds of published sales tac cases in Pennsylvania law books, and few if any deal with the consumer. They deal with the collector.

The sales tax applies to tens of millions of transactions in Pennsylvania annually. In the vast majority, it is easy to.  Identify the transaction as a “sale at retail” (which is the legal incidence of sales tax) and the only complication is whether only the state-level 6% rate applies, or there is an additional county-level tax. But when we get to exclusions it can get tricky. To navigate this trickiness, we obviously have to delve into what the law (in its grand generality) provides, and we have to determine what we mean by “the law” This may risk getting a little boring at times, you really were not expecting a civics lesson, but stick with me. I will try to keep it interesting, after all, if we are going to concede that the Government can impose duties on its citizens, we ought to be able to determine pretty clearly how, with reference.

Consider: Did the plaintiffs sue the department to recover the sales tax? Nah, $100 per violation, maybe trebled, plus attorneys’ fees, is more than a couple of bucks of sales tac (and good luck trying to get the tax back. From the Department, by the way) Did the plaintiffs sue the Department for failing to issue guidance that it arguably could have done? Nah, Did the plaintiffs sue the Governor for issuing a vague executive order, or failing to issue one at all? Nah.

But I’m just a tax lawyer.

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