Can companies reduce their annual revenue to remain a small business (e.g., by the SBA standards) by changing their fiscal year?

Asked almost 3 years ago - Omaha, NE

Some government contracting companies prefer to stay small.

By shorten their fiscal year, I mean adjust the start and stop month. If they do it in a convenient manner, they will effectively end their fiscal year sooner. Then the revenue they would have captured in the final months would be put into a new fiscal year. This way a company could continue to bid on certain small contracts with the Federal government by staying under a revenue limit. Could they keep doing this each year? Is it unfair competition or fraud? If it is illegal, is it criminal (how would I report it to?) or would it be merely actionable for a competing company to sue a company for this?

Attorney answers (1)

  1. Jon W Van Horne

    Contributor Level 9

    2

    Lawyers agree

    Answered . First of all, not all business types are measured by gross revenue. Some are measured by the number of employees. Then, the revenue used to determine small business status is not just the current year, but the average of the last three years. Also, I suspect (but don't know for sure) that there would be serious tax consequences for trying to do this. Finally, to do this intentionally for the purpose of claiming small business status when it is not justified and to use that phony status as a basis for obtaining contracts or other benefits from the federal government would be fraud.

    Beyond the fact that attempting to defraud the federal government is a really dumb idea given the financial and criminal penalties, a company's small business status is something that can be challenged by its competitors in a federal procurement. The competitor can protest to the contracting officer. The contracting office then refers the matter to the Small Business Administration which investigates. Of course, if the whole matter starts smelling of fraud, the FBI is likely to get involved.

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