Coronavirus - Paycheck Protection Program SBA 7A Loan

PPP Forgiveness: “Interim Final Rule” Addresses Compensation and Non-Payroll Costs

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.

About the Author(s)
Amy Reynallt is a Manager with the HBK Manufacturing Solutions group in the Youngstown, Ohio office of HBK CPAs & Consultants. She is experienced in navigating the strategic and financial matters associated with manufacturing and works closely with manufacturers to help them plan, execute, and meet their short- and long-term financial goals. Amy can be reached at 330-758-8613 or by email at areynallt@hbkcpa.com.
Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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