On August 24, the Small Business Administration and Treasury made available a new set of guidance regarding Paycheck Protection Program (PPP) forgiveness issues. The new interim final rule covers two areas: owner-employee compensation and the eligibility of non-payroll costs. A recent article from the Journal of Accountancy offers a concise summation of the new regulations.
Owner-employee compensation ‚Äì For the purposes of calculating loan forgiveness, C-corporation and S-corporation owners who hold less than a 5% stake qualify as exempt from the PPP rule regarding owner-employee compensation. This is because they are deemed to not have a meaningful ability to influence the allocation of PPP loan proceeds.
Eligibility of non-payroll costs ‚Äì The new interim rule addresses situations where a business owner holds property in a separate entity and where a business owner holds property in the same entity as its business operations. The goal of the guidance is to establish equitable treatment for these situations.
To effect equitable treatment, mortgage interest payments to a related party are not eligible for forgiveness and mortgage interest or rents paid to a third party are eligible only to the extent of such portion that is attributable the space being occupied by the business.¬†Further, eligible rent or lease payments to a related party are limited to the amount of mortgage interest owed on the property that is attributable the space being occupied by the business.
For further details, including a number of hypothetical scenarios illustrating various non-payroll cost situations, click here to read the article in full at the Journal of Accountancy.