The baseline rule for SBA size protests is that a business’s size (for a receipts-based size standard) is determined by looking at the average annual receipts for the last three completed fiscal years. But what if a contractor does not have a tax return on file for the most recent fiscal year?
A recent Small Business Administration (SBA) Office of Hearings & Appeals (OHA) decision answered that question in a remarkably succinct way: It Doesn’t Matter.
The decision arises out of the appeal of an SBA area office determination that a contractor exceeded the size standard for a Department of Homeland Security Program Management, Administrative, Operations, and Technical Services set-aside contract. The area office calculated the apparent-awardee’s size by looking to the contractor’s average annual receipts and utilizing tax returns from the three most recent fiscal years. Because the contractor’s average annual receipts exceeded the procurement’s $14 million size standard, the SBA determined it was not small and could not be awarded the contract.
On appeal, the contractor argued that SBA should not have relied on its most recent tax return because the return was not filed with the IRS until several months after it self-certified as small for the contract. Based on that evidence, the contractor proposed that the SBA area office should have looked to the three years’ worth of returns actually on file at the time of self-certification for its size determination.
OHA emphatically rejected the contractor’s position. The decision states that it is “settled law” that tax returns filed after the date of self-certification may be used by the area office if the returns are available at the time of the size determination.
For a contractor focused on staying below the relevant size threshold, the focus of this opinion is clear: the lack of a filed tax return will not turn back the clock.
The proper measurement of your business’s receipts is the last three completed fiscal years immediately preceding self-certification – even if there is a filing extension or other reason that the most recent tax return is not yet on file at the time of self-certification. The important question is whether the return is available at the time of the SBA’s review.
Moreover, even if a tax return is not available, the SBA area office can utilize any other available information (including regular books of account and audited financial statements) to support its size calculation.