Baldwin Haspel Burke & Mayer LLC

BHBM Tax Law Alert | Additional PPP Loan Forgiveness Rules

Posted on by Baldwin, Haspel, Burke & Mayer


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U.S. Small Business Administration Provides Additional PPP Guidance Regarding Owner Compensation and Forgiveness of Non-Payroll Expenses

On August 24, 2020, the U.S. Small Business Administration issued guidance in the form of an interim final rule (the “Rule”) regarding Paycheck Protection Program (“PPP”) loans. The PPP was established as part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which became law on March 27, 2020, and was intended to provide aid to U.S. businesses dealing with the COVID-19 pandemic.

Specifically, the Rule poses and answers three questions:

1. Are any individuals with an ownership stake in a PPP borrower exempt from application of the PPP owner-employee compensation rule when determining the amount of their compensation that is eligible for loan forgiveness?

Yes. The Loan Forgiveness Rule caps the amount of loan forgiveness for payroll compensation attributable to an owner-employee, and there is no exception in the rule based on the owner-employee’s percentage of ownership. To address the situations of owner-employees who have no meaningful ability to influence decisions over how loan proceeds are allocated, the Rule provides that owner-employees with less than a 5 percent ownership stake in a C- or S- Corporation are not subject to the owner-employee compensation rule.

2. Are amounts attributable to the business operation of a tenant or sub-tenant of the PPP borrower or, in the context of home-based businesses, household expenses, eligible for forgiveness?

No. The Rule provides that the amount of loan forgiveness requested for non-payroll costs may not include any amount attributable to the business operation of a tenant or sub-tenant of the PPP borrower or, for home-based businesses, household expenses. For example, a borrower who rents an office building for $10,000 per month and subleases out a portion of the space to other businesses for $2,500 per month is only eligible to receive $7,500 per month in loan forgiveness for that non-payroll expense.

3. Are rent payments to a related party eligible for loan forgiveness?

Yes. The Rule provides that such rent payments may be forgiven if (1) the amount of loan forgiveness requested 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 (2) the lease and the mortgage were entered into prior to February 15, 2020.

Please contact us at 504.569.2900 with any questions regarding the PPP loan forgiveness application process.

To visit our COVID-19 Business Resource Center, including our previous Tax Law Alerts, click here.

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The information contained within this newsletter does not constitute legal advice and is not intended to create an attorney-client relationship. You should consult an attorney for individual advice regarding your own particular situation.



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