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SBA Releases New Interim Final Rule on PPP Loan Forgiveness Application

Joseph Most, J.D.

8.31.2020 | Client Alert – COVID-19 Update

Rather late in the game, the SBA released a new rule last week that adjusts the costs that certain PPP borrowers may claim on their loan forgiveness application. The Interim Final Rule[1], (IFR) released on August 24th contains the following rules:

  1. Previously, all owner-employees of C or S corporations were limited to $20,833 of salary that could be included in a 24-week covered period loan forgiveness application. The IFR now clarifies that this rule only applies if the owner-employee owns 5% or more of the company. Therefore, PPP borrowers can include a maximum of $46,154 in salary paid to owner-employees under the 5% threshold.
  2. The IFR clarifies that costs attributable to the operation of a tenant (or sub-tenant) of the PPP borrower are not eligible to be claimed on the landlord borrower’s forgiveness application[2].
  3. The IFR places a major restriction on the eligibility for loan forgiveness for  rent payments to related partners. Now, loan forgiveness requested for rent or lease payments to a related party are limited to the amount of mortgage interest owed on the property by the related party during the covered period. Additionally, the lease and mortgage must have been in place prior to February 15, 2020. This new rule is a surprise since now borrowers who rent from a related party who own their building outright without a mortgage will not be eligible for loan forgiveness for the rent paid to the related entity.

We recommend you review these new PPP rules and consider how they may apply to your loan forgiveness application. As always, please reach out to your Berdon Advisor if you have any questions or concerns.

Berdon LLP New York Accountants

1 https://home.treasury.gov/system/files/136/PPP–IFR–Treatment-Owners-Forgiveness-Certain-Nonpayroll-Costs.pdf
2 The IFR provides four specific examples under this rule