The tax community has been expecting additional Interim Final Rules (IFR’s) for the Paycheck Protection Program (PPP) loans for a long time now. The speed at which these IFRs have been released has slowed down considerably, but, lo and behold, the Small Business Administration has released a NEW IFR today, August 24, 2020.
The title of today’s IFR is Treatment of Owners and Forgiveness of Certain Nonpayroll Costs. Here is a link to the pdf of the IFR from the SBA website. You can also find all their guidance on their Paycheck Protection Program web page.
The IFR begins like all the prior guidance where they spend a few pages giving a background on the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the PPP. The meat of the information begins at the bottom of page 4, but really the top of page 5.
Owners
So the main item in the first section of the IFR addresses owners of businesses that received a PPP loan. As you recall, the initial rules limited the owner-employee’s compensation in the calculations of the amount forgiven. However, up until these rules, they never really addressed or defined what an owner-employee is. Now we know. An owner-employee is an owner of the C- or S- Corporation with a 5% or more ownership interest in the business.
Eligibility of Certain Nonpayroll Costs for Loan Forgiveness
This IFR really just addresses two items related to Nonpayroll costs.
The first question addresses expenses for rent when you rent out a portion of the office space.
As the examples show, the basic idea is that if you’re subleasing a portion of your space, you can’t include in your expenses related to the leased-out portion in your eligible expenses.
The second question addresses rent payments to a related party eligible for loan forgiveness.
There are now limitations on the amount of rent expense that can qualify for forgiveness when the payments are made to a related party. This might be a big issue for some businesses, especially if they include some extra administrative expenses in the lease expense between the businesses. If you are renting space from a related party, you’re definitely going to want to look over this section to help you calculate the correct amount for forgiveness.
OK, that’s really all that’s there. Some businesses won’t be impacted by this new IFR, but I know some will. You will definitely want to review the original pdf from the SBA and see if you need to make adjustments to the expenses you are using for your forgiveness calculations.