New PPP Guidance Issued
The SBA recently issued another Interim Final Rule regarding PPP loans. The newest guidance, linked below in this alert, clarifies some issues for related-parties and provides relief for some minor shareholder-employees of S or C corporations. The new guidance is discussed below.
Under the rules issued by the SBA, parties are “related parties” if there is any common ownership between the entities.
- Rent payments from a lessee to a related-party lessor are eligible for loan forgiveness up to the mortgage interest that the lessor entity owed during the Covered Period that is attributable to the space being rented, so long as the lease and mortgage were entered into prior to February 15, 2020.
- Note, however, that if both related-parties received PPP loans, the lessor entity cannot request forgiveness for the amount described above for which the lessee applies for forgiveness. The lessee must provide its lender with mortgage interest documentation of the lessor entity to establish forgiveness for related-party rent payments by the lessee entity;
- Mortgage payments to a related party are not eligible for forgiveness
Tenant or Sub-Tenant Non-Payroll Costs
This guidance relates to the amount of forgivable non-payroll costs for a Borrower who leases or sub-leases space to a tenant or sub-tenant, or for Borrowers that operate a business out of their home.
- Loan forgiveness is not permitted for non-payroll costs attributable to the business operation of a tenant or sub-tenant. For example, if a Borrower leases space for $5,000 per month and sub-leases out a portion of that space for $1,000 per month, then the Borrower would only be allowed to request forgiveness for $4,000 per month. Mortgage interest forgiveness is similarly limited.
- Borrowers that operate a home-based business may not receive forgiveness for household expenses. A home-based business may only request forgiveness for the share of covered expenses that were deductible on the Borrower’s 2019 tax filings, or, if a new business, the Borrower’s expected 2020 tax filings
Minor Shareholders of S- or C-Corporations
- The SBA created a de minimis exception to the owner-employee compensation rule for an employee-shareholder that owns less than 5% of a C- or S-Corporation (a “Minor Shareholder”);
- Under the new rule, a Minor Shareholder’s compensation is not limited to the Minor Shareholder’s pro-rated portion of 2019 compensation;
- The new rule does not expressly address whether the Minor Shareholder safety-valve is limited to payroll compensation, or whether it also applies to retirement contributions
There are still many unanswered PPP Loan forgiveness questions. Please contact a MacDonald Illig attorney if you have any questions as the process of applying for loan forgiveness begins. In the meantime, we will continue to keep you updated on new guidance as it comes out on the issues impacting you, our clients, as we all navigate through the COVID pandemic together.