PPP Update: SBA Releases Additional Guidance on Owner-Employee Compensation and Rental Costs

Blog
August 26, 2020

On August, 24, 2020, The U.S. Small Business Administration released Interim Final Rule (IFR) on Treatment of Owners and Forgiveness of Certain Nonpayroll Costs. Only 10 pages, the latest IFR provides further guidance on the following.

  • An owner-employee with less than 5% interest in a C- or S-Corporation is not subject to the owner-employee compensation limits previously released (See Part III.3.c). There is no mention of compensation caps being removed for partners in a partnership or members in an LLC (taxed as a partnership). Owner-employee compensation for the purpose of PPP loan forgiveness is capped based on 2019 compensation or a set dollar amount.
  • Excludes nonpayroll forgivable costs for rental or mortgage interest that are being reimbursed by a tenant or a sub-tenant. Also limits business operations costs from a home-based business and/or household expenses to costs deductible on the 2019 tax filing or expected tax filing if a new business in 2020.
  • Rental costs paid to related parties are eligible for loan forgiveness as long as (1) the amount for rent payments is not more than the amount of mortgage interest owned on the property during the covered period and (2) the rental agreement and the mortgage were entered into before February 15, 2020. Documentation supporting mortgage interest owed must be provided to the lender when applying for forgiveness.
  • Mortgage interest payments to a related party are not eligible for forgiveness.

For additional guidance and resources on PPP loans, visit our COVID-19 Resources Hub or contact our COVID-19 Advisory Team at 240.630.0702.