New P3 Remittance Guidelines Address Owner-Employee Compensation and Rent Costs
The Small Business Administration (SBA) and the U.S. Treasury on Monday released an interim final rule addressing Paycheck Protection Program (PPP) forgiveness issues related to owner-employee compensation and non-eligibility of costs. salaries.
More precisely, the provisional final rule establishes that employee-owners holding less than 5% of a stake in a C or S company are exempt from the PPP owner-employee compensation rule to determine the amount of their loan forgiveness compensation. The intention of the exemption is to cover employee owners who have no significant ability to influence decisions about how loan proceeds are allocated, according to the interim final rule.
The guidelines also detail a few rulings that the SBA and the Treasury say are designed to maintain fair treatment between a business owner who owns property in a separate entity and another who owns the property in the same entity as its operations. commercial.
In the first ruling, the SBA and the Treasury state that the amount of loan forgiveness requested for non-wage costs cannot include any amount attributable to the commercial operation of a tenant or sub-tenant of the PPP borrower. The guide illustrates this with four examples.
Example 1: A borrower rents an office building for $ 10,000 per month and sublets part of the space to other businesses for $ 2,500 per month. Only $ 7,500 per month is eligible for loan forgiveness.
Example 2: A borrower has a mortgage on an office building in which they operate and they lease part of the space to other businesses. The portion of mortgage interest that qualifies for loan forgiveness is limited to the percentage share of the fair market value (FMV) of the space that is not leased to other businesses. By way of illustration, if the leased space represents 25% of the FMV of the office building, then the borrower will only be able to claim the rebate on 75% of the mortgage interest.
Example 3: A borrower shares a rented space with another business. When determining the amount eligible for loan forgiveness, the borrower should prorate rent and utility payments in the same manner as on the borrower’s tax returns for 2019, or if s This is a new business, the borrower’s expected tax returns for 2020.
Example 4: A borrower works from his home. When determining the amount of non-salary costs eligible for loan forgiveness, the borrower may include only the portion of covered expenses that were deductible on the borrower’s tax returns for 2019, or whether it is of a new business, the borrower’s expected tax returns for 2020.
In the second ruling regarding certain non-wage costs, the ASB and the Treasury declare that rent or lease payments to a related party are eligible for loan forgiveness provided that (1) the amount of loan forgiveness requested for these payments does not exceed the amount of mortgage interest. owed on the property during the period of coverage that is attributable to the space leased by the business, and (2) the lease and mortgage were entered into before February 15, 2020.
However, mortgage interest payments to a related party are not eligible for rebate. According to the ruling, PPP loans are intended to help businesses cover non-wage costs owed to third parties, not payments to a business owner that arise due to the structure of the business.
The AICPA will provide an analysis of the Interim Final Rule during a PPP Town Hall Thursday, August 27 at 3 p.m. EDT.
PPP in brief
Congress created the PPP as part of the $ 2 trillion CARES (Aid, Relief and Economic Security) law against the coronavirus, PL 116-136. The legislation allowed the Treasury to use the SBA’s Small Business Loan Program 7 (a) to fund forgivable loans of up to $ 10 million per borrower that qualifying businesses could spend to cover payroll, mortgage interest. , rent and utilities.
The loans were available to small businesses that were in operation on Feb. 15 with 500 or fewer employees, including nonprofits, veterans organizations, tribal groups, self-employed workers, individual businesses and individuals. independent contractors. Businesses with more than 500 employees in certain industries can also apply for loans.
Congress designed the loans to support organizations facing economic hardships created by the coronavirus pandemic and help them continue to pay employee salaries. PPP loan recipients can get their loans fully canceled if the funds have been used for eligible expenses and other criteria are met. The amount of the loan forgiveness may be reduced based on the percentage of eligible costs attributed to non-salary costs, any decrease in the number of employees and decrease in wages or salaries per employee.
The PPP financed more than 5.2 million loans for a total of $ 525 billion before it stopped accepting loan applications on August 8. according to an SBA report. The program ended with almost $ 134 billion remaining.
A new, more targeted small business aid program has been the subject of speculation and discussion on Capitol Hill, but no decision is expected until Congress returns after the post-Labor Day recess.
AICPA experts discuss the latest PPP programs and other small business support programs at virtual town halls. The webcasts, which provide CPE credits, are free to AICPA members. To go to the AICPA Town Hall Series web page for more information and to register.
the AICPA Paycheck Protection Program Resources Page houses resources and tools produced by the AICPA to help cope with the economic impact of the coronavirus.
For more information and stories on the coronavirus and how CPAs can handle the challenges of the outbreak, visit the JofAof coronavirus resource page or subscribe to our email alerts for the latest P3 news.
– Jeff drew ([email protected]) is a JofA editor-in-chief.