The Small Business Administration (SBA) and Treasury issued a new interim final rule on August 24, 2020 with updates regarding owner-employee compensation and forgiveness eligibility associated with Paycheck Protection Program (PPP) forgiveness. These guidelines are designed to cover owners who are unable to influence loan allocation decisions, and sustain equal treatment among business owners regardless if they hold property in a separate entity as their business operations. Clayton & McKervey has provided a summary of key updates below.
- Owners with less than a 5% ownership stake in a C Corporation or S Corporation are not subject to the owner-employee compensation rule when determining amount eligible for forgiveness. The rule was silent for LLCs and partnerships.
- Expenses attributable to the business operation of a loan recipient’s tenant or subtenant may not be forgiven. In other words, if a loan recipient subleases part of their space, they cannot include the costs incurred (rent, mortgage interest, utilities, etc.) related to the sublet space. In the case of mortgage interest, the amount required to be excluded is based on the space leased. If the leased space represents 25% of the FMV of the building, only 75% of the interest may be claimed for forgiveness.
- The amount of related party rent or lease expense claimed for forgiveness is limited to the amount of mortgage interest owed on the property during the covered period that is attributable to the space rented.
Here are more details about this recently issued interim final rule. Clayton & McKervey is here to help you navigate the PPP loan forgiveness and newly issued guidance. If you have questions about the information outlined above or need help with loan assistance support, Clayton McKervey can help. Call us at 248-208-8860 or click here to contact us. We look forward to speaking with you soon.
The above represents our best understanding and interpretation of the material covered as of the date of this post. Things are moving at a rapid pace, and as such, information is subject to change. This information is provided for informational purposes only and is not intended to be a substitute for obtaining accounting, tax, or financial advice from an accountant.
