Month: October 2010

Special Licenses Requirements within the SBA 8a Application

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If any special licenses are required for the industry in which the business concern operates, such as a General Contractors license, Professional Engineers (PE) license, Plumbing license, etc. has a copy been provided?

Is the license current and in the name of the business concern with the Applicant for 8a Certification as the holder/qualifier?

If the license holder/qualifier is not the Applicant, is the license holder/qualifier an equity owner within the business concern? If so, the SBA will determine that this individual has the ability to impact the control of the business concern, therefore the business concerns 8a Application will most likely be denied.

If the license holder/qualifier is the Applicant, and the license holder/qualifier has NO equity with the business concern, the Applicant and business concern must be able to prove that they have ultimate managerial and supervisory control of this individual.

 

Can 8a Contracts be Protested?

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The size status of the apparent successful offeror for competitive 8a procurement may be protested.

The size status of the participant for a sole source 8a procurement may not be protested by another 8a participant or any other business.

The eligibility of a 8a participant for a sole source or competitive 8a procurement cannot be challenged by another 8a participant or any other business.

An 8a participant cannot appeal the SBA’s determination not to award it a specific 8a contract because the concern lacks an element of responsibility or is ineligible for the contract other than to request a formal size determination where SBA cannot verify it to be small.

The NAICS code assigned to a sole source 8a procurement may not be challenged by another 8a participant or any other business. In connection with a competitive 8a procurement, any business concern who has been adversely affected by a NAICS code designation may appeal the designation to the SBA’s Office of Hearings and Appeals.

For more information on the SBA 8a Program, visit cloveer.com

How does the SBA review the business concern’s tax returns during the 8a Application review process?

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The SBA will verify the following:

a. Have you provided complete copies of the business concern’s Federal business tax returns for the last three years. If the business concern is a sole proprietor, you must submit the Schedule C for the last three years?

– 1120 or 1120s for Corporations

– 1065 for Multiple Member LLCs

– Schedule C for Sole Proprietors or Single Member LLCs

DO NOT SUBMIT COPIES OF THE BUSINESS CONCERNS STATE TAX RETURNS

b. Have all schedules and additional statements that are mentioned within the business tax returns been included?

c. Do you have any questionable items on the schedules or statements that require additional explanations? If so, we suggest you address these items within your 8a Application paperwork to be provided.

d. Do the tax returns indicate that the business concern has been operating in its primary industry (NAICS) code for at least the last two years? Your tax return should identify the six digit NAICS code which is identified as your primary NAICS code on your 8a Application paperwork. If the NAICS code identified on the tax return is different than the primary NAICS code identified on your 8a Application paperwork you must include a NAICS code explanation letter within your 8a Application.

e. Does the business tax information correspond with the financial statements (Balance Sheet and Income Statement) included within your 8a Application paperwork?

f. Can the salaries, wages and distributions of the 8a applicant, officers or partners be verified?

g. Does the percentage of ownership identified on the tax returns correspond with the 8a Application paperwork?

h. If the business concern has elected to be treated as an S-Corporation, have you provided copies of all K-1s.

i. Have you included copies of the cancelled check, bank statement or IRS account balance transcript to show payment for all amounts indicated on the “Amount Owed” line of the tax return?

j. What trend do the tax returns show? (i.e. downward trend in income, substantial gain in income, etc.) If the business concern’s tax returns show a significant downward trend or increase in sales you should be prepared to respond to potential SBA questions as to why?

View the related article on “How does the SBA review the Individual’s tax returns during the 8a Application review process?”

 

Unconditional Ownership Requirements for 8a Certification

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The business concern that is applying for 8a Program Certification must be at least 51% unconditionally and directly owned by one or more economically and socially disadvantaged individuals who are US citizens.

Unconditional ownership is defined as ownership that is not subject to conditions precedent, conditions subsequent, executory agreements, voting agreements, restrictions on or assignments of voting rights or other arrangements causing or potentially causing ownership to go to another (other than after death or incapacity).

As stated above, ownership must be direct and cannot be owned by another business entity or by a trust that is in turn owned and controlled by one or more economically and socially disadvantaged individuals.  However, in the case of ownership by a trust, such as a living trust, ownership will be treated as direct where the trust is revocable, and the disadvantaged individual is the grantor, a trustee, and the sole current beneficiary of the trust.

In the case of a Partnership, at least 51% of every class of partnership interest must be unconditionally owned by one or more of disadvantaged individuals.

In the case of a Limited Liability Company, at least 51% of each class of member interest must be unconditionally owned by one or more of disadvantaged individuals.

In the case of a Corporation, at least 51% of every class of voting stock outstanding and 51% of the aggregate of all stock outstanding must be unconditionally owned by one or more of disadvantaged individuals.

The SBA will disregard any unexercised stock options or similar agreements held by the disadvantaged individuals. However, any unexercised stock options or similar agreements held by anyone other than a disadvantaged individual will be treated as exercised.

The pledge or encumbrance of stock or other ownership interest as collateral, including seller financed transactions, does not affect the unconditional nature of ownership if the terms follow normal commercial practices and the disadvantaged persons retain control absent violations of the terms.

These are just a few of the requirements that must be met to ensure unconditional ownership. Please contact Cloveer.com to discuss your unique business circumstances to ensure you meet all unconditional ownership requirements.

How does the SBA determine if an 8a applicant business concern is defined as a Small Business?

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The 8a applicant business concern must define their primary North American Industry Classification System (NAICS) code with the 8a Application paperwork. The primary NAICS code is the six digit code in which the business concern earned its largest segment of annual receipts or total income, in the most recently completed fiscal or taxable year.

For example, a business concern that earned its largest segment of total income engaged in commercial or institutional building construction would have a primary NAICS code of 236220.

To begin determining if the business concern is defined as a Small Business, the SBA will lookup the size standard for the NAICS code.

For example, the size standard threshold for NAICS code 236220 is $33.5M.

The SBA will then add the amounts reported on the business concerns “Gross Receipts or Sales” line of their business tax return for the last three taxable years and determine its three year total income.

Finally, the SBA will take the three year total income and divide this amount by three to determine its three year average total income.  The three year average income amount is the amount used to determine if the business concern is below the size standard threshold for their primary NAICS code.

In our example, if the business concern’s three year average income is less than $33.5M, the business concern will be classified by the SBA as a “Small Business”.

*Important*

When the SBA examines the size of the business concern they will look for any possible issues involving affiliation. Affiliation arises when the business concern controls another firm or another firm controls the business concern. It can also arise when one individual has the power to control both the business concern and another firm (e.g. this individual owns more than one firm) or there are identical or substantially identical business or economic interests, such as family members, persons with common investments or firms that are economically dependent through contractual or other relationships. The SBA will also consider ownership, management, previous relationships with or ties to another firm, and contractual relationships in determining whether affiliation exists.

If you suspect that you may possibly have an affiliation with another firm, contact Cloveer for further assistance.

How does the SBA review the Individual Tax returns during the 8a Application review process?

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The SBA will verify the following:

a. Have you provided complete copies of the personal Federal tax returns for the last three years from all required individuals. Federal tax returns are required from each 8a applicant and each officer, director, partner, member and anyone who holds more than 10% ownership interest in the business concern.

DO NOT SUBMIT COPIES OF THE INDIVIDUALS STATE TAX RETURNS

b. If any of these Individuals are married and have filed taxes separately, have you submitted the personal tax returns for each spouse?

c. Have you included all W-2 forms and do they add up to the wages reported on the personal tax returns?

d. Have all schedules and attachments identified been included?

e. Do the 8a applicant’s tax returns verify that they devote full-time to the 8a applicant business concern?

If not, has the 8a applicant provided a letter from each past employer indicating their last date of employment?

f. Does the 8a applicant’s tax return show that he or she is the highest compensated individual within the business concern?

If not, has proof been included that verifies that the 8a applicant is the highest compensated individual?

g. Have all tax returns been signed?

h. Have you included copies of the cancelled check, bank statement or IRS account balance transcript to show payment for all amounts indicated on the “Amount you Owe” line of the tax return?

View the related article on  “How does the SBA review the business concern’s tax returns during the 8a Application review process?”

What is the impact of an Arrest Record on an 8a Application?

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What is the impact of an Arrest Record on an 8a Application?

Any individual who has an arrest record must indicate this on their SBA Form 912 within the 8a Application.

What is the impact:

The impact of an arrest record can be a denial of the participants 8a Application or a delay in its processing.

If the individual is currently on parole, probation or has been convicted of a major crime  (for example, rape, child molestation, murder, tax evasion, financial fraud, etc.) there is a high likelihood that the 8a Application will be denied for failing to meet the SBA’s Good Character requirement.

If the individual has an arrest record, is not on parole, probation or has not been convicted of a major crime the SBA will freeze the 90 day 8a application processing clock. A copy of the individuals SBA Form 912 and completed fingerprint card is subsequently forwarded to the FBI for review. A delay in the processing and determination in the amount of 3-6 months is not out the question when there is an arrest indicated within an 8a Application.

What must be provided to the SBA:

The individual who has identified an arrest record must:

a. Submit a completed SBA specific FD-258 Fingerprint Card. An SBA specific FD-258 may be obtained from your local SBA district office. The card provided cannot have any holes, staples, additional marking or any alterations and must be completed in black ink.

It is the individuals responsibility to go to local law enforcement agencies to obtain legible fingerprints.

b. Provide details of the arrest (i.e., fines paid, jail time, probation served)

c. Include copies of all court disposition papers

If you have additional questions or concerns, please contact cloveer for more information.