Oha PPP Windsor Court Hotel Partners Pfr Decision Redacted 2023
Summary
A decision of the U.S. Small Business Administration Office of Hearings and Appeals, issued September 13, 2022 by Administrative Judge Michael Breton, on the SBA's Petition for Reconsideration in the Appeal of Windsor Court Hotel Partners LLC, SBA No. PPP-5292997209, Docket No. PFR-5292997209. The decision recounts that a PPP loan of $2,000,000.00 was disbursed, that an April 11, 2022 final loan review decision denied forgiveness on the ground that ineligible payroll costs were used, and that OHA's August 22, 2022 Initial Decision reversed it. The SBA argued the hotel's workers, employed by a management company, were not the borrower's payroll costs. The judge finds the management company can be considered a similar payroll provider under SBA FAQ #10 and that the costs are includible, and denies the petition under 13 C.F.R. § 134.1211(c).
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United States Small Business Administration
Office of Hearings and Appeals
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PETITION FOR RECONSIDERATION :Issued: September 13, 2022
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SMALL BUSINESS ADMINISTRATION :Docket No. PFR-5292997209
Petitioner
Appeal of Windsor Court H otel Partners LLC,
SBA No. PPP-5292997209
APPEARANCES
Tabitha Mangano, Esq., Agency Representative, District of Columbia, for Petitioner
U.S. Small Business Administration.
Edward Bukaty, Esq. for Appellant, Windsor Court Hotel Partners, LLC.
DECISION
I. Introduction and Jurisdiction
On or about August 26, 2022, the U.S . Small Business Administrntion (SBA) Office of
Hearings and Appeals (OHA) received a Petition For Reconsideration (PFR) in the above-
captioned matter from Petitioner, the Small Business Administration. The PFR seeks OHA's
reconsideration pe1taining to a Paycheck Protection Program (PPP) Loan No. 5292997209 and
OHA's initial decision, denying the appeal of the same PPP Loan No.
OHA has jurisdiction to decide this PFR. See 13 C.F.R. Pait 134, Subpait L.
II. Background
A. Cai·es Act 2020
On March 25, 2020, in response to the econoinic distress caused by the COVID-19
pandemic, Congress passed the Coronavims Aid, Relief, and Econoinic Security (CARES) Act,
Pub. L. 116-136, 134 Stat. 281 (2020). Among other provisions, the CARES Act established the
PPP at Section 1102. The Prograin lends money to eligible small businesses to assist them in
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covering expenses and making payroll for their workers to keep them employed during the
pandemic. If the loan funds are used for certain specified expenses, the borrowers can receive full
forgiveness of the loan.
B. PPP Loan Application, Forgiveness, and Appeal
On or about March 6, 2021, Lender disbursed PPP Loan Number 5292997209 (“PPP
Loan”) in the amount of $2,000,000.00.
On or about April 29, 2021 Windsor Court Hotel Partners LLC (hereinafter referred to as
“Windsor Court”) executed a PPP Loan Forgiveness Application Form 3508 requesting
forgiveness for the full amount of the loan (Administrative Record, also referred to herein as
“AR”) pp. 2043-2045).
On or about April 11, 2022, SBA issued a final SBA loan review decision (“FLRD”),
denying Windsor Court forgiveness because it found Windsor Court was ineligible to receive a
PPP loan. SBA concluded ineligible payroll costs were used to calculate the PPP loan amount
(AR 19-20).
On May 3, 2022, Appellant filed an appeal with OHA. On June 20, 2022, OHA issued a
Notice and Order. On August 22, 2022, OHA filed its Initial Decision granting the appeal and
reversing the Final Loan Review Decision. SBA now submits its Petition For Reconsideration
seeking the reversal of the Initial Decision.
C. OHA’s Initial Decision
The Undersigned Administrative Judge found that Appellant had established that
the final SBA loan review decision was based on a clear error and thereby granted
the appeal and reversed the FLRD.
D. SBA’s PFR
The SBA argues that the Initial OHA Decision is erroneous and should be
reversed because ALJs are bound by the SBA’s regulations and SBA’s
interpretation of its governing statutes and regulations.
On August 26, 2022, SBA timely filed its petition for reconsideration within the ten (10)
day requirement.
III. Analysis
In its decision, SBA found SBA has determined that the borrower was
ineligible for the PPP loan. The reason(s) for SBA’s decision is as follows:
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After review of the documentation provided, the SBA concludes that the
borrower did not have any eligible payroll cost at the time of loan
application. When reviewing the loan origination calculation sheet, it is
noted that ineligible payroll costs were utilized to calculate the PPP Loan
Amount. Per IFR #1 – Paycheck Protection Program (section III.2.e-f);
lenders are required to calculate the applicant max loan amount utilizing
IRS forms. Utilizing the 2020 IRS 1065 Partnership Tax Return report, a
Resulting in a maximum
eligible loan amount of $0.00, which is 2.5 times the average monthly
payroll.
Windsor Court owns the Windsor Court Hotel and uses workers who are technically employed
by a management company, known as Aimbridge Hospitality (hereinafter referred to as
“Aimbridge”) to operate the Hotel. Windsor Court has a contract/Management Agreement with
Aimbridge by which Windsor Court pays all of the payroll costs associated with the employment
of Hotel employees.
The key issue in this case is the definition of “Employee”. The term “Employee” is addressed
when computing size determinations (i.e. for number of employees) and means any full-time,
part-time or any other basis (emphasis added). 15 USC Section 636(a)(36)(D)(v)). SBA shall
consider the totality of the circumstances. 13 C.F.R. § 121.106(a).
The SBA argues that these workers are independent contractors and therefore cannot be
included in the payroll costs of Windsor Court. SBA further argues that Aimbridge is not a PEO.
The SBA has issued its own guidance in this area with its Frequently Asked Questions, dated
July 29, 2021. Question No. 10 reads as follows:
10. Question:
What if an eligible borrower contracts with a third-party payer such as a payroll provider or a
Professional Employer Organization (PEO) to process payroll and report payroll taxes?
Answer:
SBA recognizes that eligible borrowers that use PEOs or similar payroll providers are required
under some state registration laws to report wage and other data on the Employer Identification
Number (EIN) of the PEO or other payroll provider. In these cases, payroll documentation
provided by the payroll provider that indicates the amount of wages and payroll taxes reported to
the IRS by the payroll provider for the borrower’s employees will be considered acceptable PPP
loan payroll documentation. Relevant information from a Schedule R (Form 941), Allocation
Schedule for Aggregate Form 941 Filers, attached to the PEO’s or other payroll provider’s Form
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941, Employer’s Quarterly Federal Tax Return, should be used if it is available; otherwise, the
eligible borrower should obtain a statement from the payroll provider documenting the amount
of wages and payroll taxes. In addition, employees of the eligible borrower will not be
considered employees of the eligible borrower’s payroll provider or PEO.
The SBA Petition For Reconsideration argues that OHA made a clear error of fact and law in the
Initial Decision by determining that the Management Agreement constituted a PEO Agreement
and by concluding that Aimbridge is a PEO (Professional Employer Organization), and thereby
misinterpreted the SBA Frequently Asked Question, #10.
Windsor Court has recently filed amended tax returns in an attempt to simplify and clarify this
issue. The fact of the matter is that Windsor Court incurred payroll costs to operate its Hotel.
The Manager, Aimbridge, technically hired the employees and was paid pursuant to the contract
with Windsor Court. Aimbridge did not and could not attempt to apply for a PPP loan for itself
and claim the employee cost as payroll expenses. Contrary to SBA’s assertion, these employees
were not independent contractors. They were employed by Aimbridge to perform work at
Windsor Court and their work is controlled by Aimbridge.
SBA argues that Aimbridge is not a PEO and relies upon IRS definitions of independent
contractors. Even if this was correct, Aimbridge can be considered a “similar payroll provider”
as set forth in SBA’s FAQ #10.
In light of the above, and considering the totality of the circumstances, I find that the leased
employees are includable as payroll costs of the business concern (Windsor Court) and that the
payroll costs associated with the leased workers is attributable to Windsor Court, who incurred
their expense and not the payroll provider/PEO. Therefore, as noted in SBA FAQ #10, these
costs are includible in Windsor Court’s maximum loan calculation and would not be includable
in any payroll costs of Aimbridge if that entity were to apply for a PPP loan.
Conclusion
For the foregoing reasons, the Petitioner, the SBA, has not met its burden of proof that
the Initial OHA Decision was erroneous and based upon a clear showing of an error of fact or
law material to the decision.
Therefore, the instant PFR is DENIED. 13 C.F.R. § 134.1211(c). Unless the SBA
Administrator elects to review this decision pursuant to 13 C.F.R. § 134.1211(c)(3) & (d), OHA’s
decision on the request for reconsideration is a reconsidered initial OHA decision and becomes
the SBA’s final decision 30 calendar days after its service. See 13 C.F.R. § 134.1211(c).
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Michael Breton
MICHAEL BRETON
Administrative Judge
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