The Small Business Administration (SBA) and the Treasury Department recently released an interim final rule entitled, “Treatment of Owners and Forgiveness of Certain Non payroll Costs.” This rule addresses important guidance related to PPP loan expenses eligible for forgiveness, owner-employee compensation, the eligibility of non payroll costs, including related party rents, and rent-related costs.
The newly released rule includes the following three clarifications regarding previous guidance impacting PPP loan borrowers:
1. Certain individuals are exempt from owner-employee compensation limits. This applies to owner-employees with less than a 5% ownership stake in a C- or S-Corporation are not subject to the owner-employee compensation rule.
2. Having tenants or sub-tenants can impact the eligibility of certain non-payroll costs. This applies to:
- A borrower renting an office building and subleases a portion of the space to another business.
- A borrower has a mortgage on an office building they work out of and leases a portion of space to another business.
- A borrower sharing rented space with another business.
- A borrower working out of their home.
3. Limitations on related party rent when applying for loan forgiveness. While rent or lease payments to a related party may be eligible for forgiveness, mortgage interest payments to a related party are not eligible for forgiveness.
In addition, the guidance includes several decisions that are designed to maintain equitable treatment between a business owner that holds property in a separate entity and one that holds the property in the same entity as its business operations.
We are continually monitoring the PPP rules, tax-related legislation and regulations in order to provide assistance to our clients to help them navigate through compliance requirements of the loan forgiveness program. Should you have any questions, concerns or issues, we are here to help, so please reach out to us via email or phone.