Appeal Granted by SBA OHA for Size Determination

Size Determination No. 02-2023-022

SBA No. SIZ-6285

Decided: May 17, 2024

Background

On March 31, 2023, the Area Office issued Size Determination No. 02-2023-022, finding Appellant other than small under the size standard associated with North American Industry Classification System (NAICS) code 541512, Computer Systems Design Services. The Area Office based its decision on Appellant’s 2017-2021 federal tax returns. (Size Determination No. 02-2023-022, at 2.) In reaching its decision, the Area Office commented that “SBA will rely upon the information in a concern’s tax returns to determine its annual receipts, and will give greater weight to signed, specific factual evidence rather than unsupported allegations or opinions.” (Id. (quoting Size Appeal of Stellar Innovations and Sols., Inc., SBA No. SIZ-5851, at 9 (2017)).) Appellant did not appeal Size Determination No. 02-2023-022 to OHA. However, after amending its 2020 tax return, Appellant requested recertification. On August 10, 2023, the Area Office issued Size Determination No. 02-2023-060, again finding Appellant other than small. This determination was based on Appellant’s 2018-2021 federal tax returns, and internal financial statements for 2022. (Size Determination No. 02-2023-070, at 1.) At the time Size Determination No. 02-2023-060 was issued, “[Appellant] had not yet filed its 2022 tax return nor had it received its audited financial statements from its accountant.” (Id.) Appellant did not appeal Size Determination No. 02-2023-060 to OHA. After filing its 2022 federal tax returns, Appellant again requested recertification on September 21, 2023.

Discussion

On February 6, 2024, Appellant appealed Size Determination No. 02-2023-070 to OHA. Appellant contends that the Area Office clearly erred by using financial information beyond Appellant’s tax returns to calculate Appellant’s average annual receipts. (Appeal at 2.)

Appellant highlights that, in calculating receipts, an area office must review the challenged concern’s tax returns and any amendments filed before the date of self-certification. (Id. at 8, citing 13 C.F.R. § 121.104(a)(1).) There is no authority that would enable an area office to disregard such documents in favor of unamended returns or internal financial statements. (Id.) Accordingly, the Area Office here clearly erred by relying on Appellant’s unamended 2020 tax return and 2022 internal financial statements to conclude that Appellant is not small. (Id. at 8-9.)

Appellant disputes the Area Office’s reliance on Bid Solve. (Id. at 9.) This ruling on a pretrial motion in a False Claim Act case is not controlling upon SBA or OHA. (Id.) Furthermore, district court decisions generally are not binding precedent. (Id. at 10, citing Camreta v. Greene, 563 U.S. 692, 714 fn. 7 (2011).) The Area Office should instead have followed well-established OHA precedent, which has been applied in numerous appeals to find that receipts are calculated by adding the cost of goods sold and total income as found on a concern’s federal income tax returns. (Id.) Had the Area Office done so here, Appellant would have been found small …

Decision

On January 25, 2024, the U.S. Small Business Administration (SBA) Office of Government Contracting — Area II (Area Office) issued Size Determination No. 02-2023-070, concluding that Colossal Contracting, LLC (Appellant) is not a small business under a $34 million size standard. The Area Office found that Appellant’s average annual receipts exceed the size standard, when financial information beyond Appellant’s tax returns is considered. On appeal, Appellant maintains that the size determination is clearly erroneous, and requests that SBA’s Office of Hearings and Appeals (OHA) remand the matter for a new size determination. For the reasons discussed infra, the appeal is granted.

OHA decides size determination appeals under the Small Business Act of 1958, 15 U.S.C. § 631 et seq., and 13 C.F.R. parts 121 and 134. Appellant filed the instant appeal within 15 days of receiving the size determination, so the appeal is timely. 13 C.F.R. § 134.304(a). Accordingly, this matter is properly before OHA for decision.

Read the decision here.

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