June 15, 2016
SBA OHA Reaffirms 70% Threshold For Economic Dependence Affiliation
Source: SmallGovCon, Matthew Schoonover, May 18, 2016
Under the SBA’s affiliation rules, one of the many ways a small business can be deemed affiliated with another is through the economic dependence rule: where a small business derives 70% or more of its revenues from another entity, the SBA ordinarily considers it to be economically dependent upon—and thus subject to the control of—that other entity.
So it was in a recent decision from the SBA’s Office of Hearings and Appeals (“OHA”), which confirmed the so-called “70% rule” for economic dependence.
In Size Appeal of Core Recoveries, LLC, SBA No. SIZ-5723 (Mar. 21, 2016), the SBA Area Office, “acting on an anonymous complaint,” challenged Core Recoveries’ size under NAICS code 561440 (Collection Agencies), which carries a $15 million size standard. The Area Office alleged that Core Recoveries was affiliated with a large business, West Asset Management.
Core denied the Area Office’s allegations, and explained that, as of the date of the SBA’s November 19, 2015 inquiry, “West maintained only 1,616 accounts with [Core Recoveries], which represented only 1.1% of [Core’s] total account volume on that date.” Additionally, Core said that it no longer had an active contract with West. READ MORE….
Does your business appear economically dependent upon another entity? Contact your nearest PTAC for clarification about the affiliation rules.
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