The SBA is moving fast on an EIDL loan default. Learn how the Treasury Offset Program is seizing refunds without a court order.
Many business owners assumed their COVID-era loans were forgotten, but the current reality has changed. In this episode, Phillip Zagotti joins me to explain the mechanics of aggressive SBA loan collection efforts. We cover what happens when non-performing loans are sent to the Treasury Department and how this affects your federal tax refunds and wages.
We break down the implications of a personal guarantee and why closing your business does not automatically erase the debt. You will also learn about the 1099-C cancellation of debt surprise and potential options like the SBA offer in compromise or Subchapter V bankruptcy. This is essential information for any business owner or tax professional managing these liabilities.
Took a COVID EIDL loan and have not thought about it in years? Check your status today. In late March the SBA moved hundreds of thousands of non-performing EIDL and PPP loans to the Treasury Department for enhanced collection, the hardship payment plans ended, and an EIDL loan default now gets collected like any other federal debt. The Treasury Offset Program can take your tax refund, administrative wage garnishment can take up to 15 percent of your paycheck, and a collection fee of roughly 30 percent gets added to the balance. No lawsuit, no day in court. In this episode of The Tax Strategy Playbook, David Wiener, Mr. Cash Flow, sits down with Phillip Zagotti, JD and CPA, founder of North Star Law Firm in Houston, to walk through what happens after an SBA loan default: who actually signed a personal guarantee, what the $25,000, $200,000 and $500,000 thresholds mean, why closing your business does not make the debt disappear, the 1099-C cancellation of debt surprise that follows EIDL loan forgiveness, the SBA offer in compromise window, and why Subchapter V bankruptcy may still be on the table even when the business is gone.
This one is for the business owner who took an EIDL loan during COVID and assumed it was forgotten, the real estate investor whose operating company or rental business carried one, and the CPAs, EAs, and tax professionals who are about to get the call when a client's refund does not show up.
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00:00 The tax refund that never shows up
01:59 Meet Phillip Zagotti, JD and CPA, North Star Law Firm
03:51 What changed in late March
06:27 The hardship payment plans that just ended
07:45 First thing to check today: your SBA portal
10:38 Who is personally on the hook: the $25K, $200K and $500K thresholds
11:59 Sole proprietors, DBAs, and the LLC that never made it onto the loan
13:16 "I closed my business." Does the EIDL debt disappear?
13:30 The lien that follows your assets into the new company
14:30 The 1099-C forgiveness surprise and the IRMAA hit two years later
15:58 Tax refund offset versus wage garnishment: two different tools
19:24 Front end built right makes the back end easier
21:03 The Playbook - 5 steps
30:13 What is at stake if you ignore it
31:56 Do not raid your 401(k) or take a HELOC to pay this
33:20 Where this is headed: 2029 to 2031
34:38 One message for every EIDL borrower
Phillip Zagotti, JD and CPA, founder of North Star Law Firm, Houston. Admitted to the U.S. Tax Court, federal courts in Texas, and the California State Bar. His contact information is in the show notes at https://www.taxstrategyplaybook.com
Nothing in this episode is tax or legal advice for your situation. Your facts are your facts and they need a professional who knows them.
Your host: David Wiener, "Mr. Cash Flow"
mailto:David.wiener@cashflowstrategies.us
770-224-8504x2
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