New PPP Forgiveness Guidance on Owner-employee Compensation, Rent-related Costs

The U.S. Small Business Administration (SBA) and Treasury issued an interim final rule Monday, August 24, addressing Paycheck Protection Program (PPP) forgiveness issues related to owner-employee compensation and the eligibility of nonpayroll costs.

The purpose of this interim final rule is to provide additional guidance concerning the ownership percentage that triggers the applicability of the owner compensation rule for forgiveness purposes and limitations on the eligibility of certain nonpayroll costs for forgiveness. You can find the full interim final rule here.

They have provided guidance on the questions below.

1.  Owners – 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, 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. Eligibility of Certain Nonpayroll Costs for Loan Forgiveness

A. 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 amount of loan forgiveness requested for nonpayroll 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.

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

Yes, as long as (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.

At Windham Brannon, we are dedicated to keeping you up to date with the latest Covid-19 activity in our Covid-19 Resource Center. Our team is working around the clock to ensure we stay up to date on the latest guidance and information to assist you and your business during this unique time. For further assistance, please do not hesitate to reach out to your Windham Brannon advisor or email us at covid19advisory@windhambrannon.com

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