On August 24, the Small Business Administration (SBA) released a new Interim Final Rule pertaining to owner compensation and non-payroll costs eligible for Paycheck Protection Program forgiveness. Highlights of the rule include:

• C-Corp or S-Corp owners with less than a 5 percent ownership stake are not subject to the owner-employee compensation rule. The SBA has made this rule because these owner-employees “have no meaningful ability to influence decisions over how loan proceeds are allocated”
• Non-payroll costs attributable to the business operations of a tenant or sub-tenant of a PPP loan borrower are not eligible for forgiveness. The SBA example: If a borrower leases its building for $10,000 per month and subleases a portion of its physical space to another business for $2,500 per month, only $7,500 per month is eligible for loan forgiveness—assuming other eligible rent criteria are met. The same applies to mortgage interest and utility payments.
• For home-based businesses, eligible non-payroll costs do not include household expenses. The SBA explains: “the borrower may include only the share of covered expenses that were deductible on the borrowers’ 2019 tax filings, or if a new business, the borrower’s expected 2020 tax filings.”
• Related party rent is eligible for loan forgiveness as long as:
  • “The amount of loan forgiveness for rent or lease payments to a related party is no more than the amount of mortgage interest owed on the property during the Covered Period that is attributable to the space being rented by the business, and
  • The lease and mortgage were entered into prior to February 15, 2020.”
  Note that any common ownership between the business and the property owner is considered related party.
• Mortgage interest payments to a related party are not eligible for loan forgiveness.

To read the full Interim Final Rule, visit https://home.treasury.gov/system/files/136/PPP–IFR–Treatment-Owners-Forgiveness-Certain-Nonpayroll-Costs.pdf.

For questions regarding your PPP loan forgiveness, please contact your HBK Advisor.

Many companies choose to pay stipends to employees as a method of compensating them for incurred business expenses. This is especially true in construction companies, where it is widely viewed as a common industry practice. While the approach of using stipends in this manner is widespread, many construction companies fail to properly plan for and/or execute them, which can result in additional taxes owed by both the company and the employee.

In the simplest terms, a stipend is a monetary advance to an employee that allows an him or her to pay for various business expenses. Depending on how the stipend is structured, it can either be taxable income to the employee, or a non-taxable reimbursement. In order to keep the stipend non-taxable, a company must implement an accountable reimbursement plan, whereby employees complete expense reports proving that all business-related expenses are being reimbursed through the payment of the stipend. If a company does not have an accountable plan, or it is not followed (e.g. expense reports are not submitted or do not provide the appropriate documentation to support the expenses claimed), then the stipend paid to the employee may be re-characterized as taxable income.

One area where companies may run into difficulties with employee reimbursement stipends is in the area use of a personal vehicle for business purposes. The easiest method to use is to base the reimbursement on the number of business miles driven multiplied by the IRS standard mileage rate, which is currently 57.5 cents per mile. If a company provides a stipend to an employee prior to the business usage of the car, the company will need to take great care in reconciling the expense report provided by the employee. If business usage is less than the stipend provided, the employee should reimburse the company for the excess funds received.

It’s clear that establishing an accountable reimbursement plan is essential for any company providing stipends to employees for business expenses. For more information, please contact Richard P. Mishock at RMishock@hbkcpa.com or reach out to your HBK advisor.

Recently, the IRS issued a warning that internet hackers have stepped up their phishing campaigns. Specifically, the hackers are increasing the usage of business email spoofing and business email compromise phishing campaigns. A common variation of this type is known as CEO Fraud or Gift Card Fraud (which HBK Risk Advisory services warned clients and colleagues earlier this month – Don’t Fall for the Phish(ing) Bait).

1. Emails impersonating company employees to Human Resources staff members requesting changes to the “employees'” payroll direct deposit bank accounts.
2. Emails impersonating company executives to the staff members responsible for wire transfers requesting a wire transfer to a specific bank account on the “CEO’s” behalf.

1. Look for clues such as poor spelling or grammar, these are common in phishing messages.
2. Don’t fall victim to the “urgent request” prompt. Unexpected messages that requires “your immediate attention” or are earmarked as “emergency” emails are often phishing scams.
3. Be VERY skeptical! Place a phone call to the requesting employee or executive to verify the request of payroll or banking account changes.

1. Implement a formal Cyber Awareness Campaign. It should include regular educational updates about the red flags of phishing email campaigns.
2. Establish an inventory of your Information Technology (IT) assets (including data mapping).
3. Implement or update IT Security Policies (including data classification).