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COVID-19 Update: Interim Final Rule Regarding Owners Compensation and Limitations on Forgiveness Eligibility

access_time Posted on: August 27th, 2020

What ownership percentage triggers the PPP owner compensation rule?

The Treasury released a new Interim Final Rule (IFR) regarding owners compensation and limitations on forgiveness eligibility (see link below).

IFR Highlights:

  • Owner Compensation. Owner-employees with less than a 5% ownership interest in a C or S-corp are not subject to the owner-employee compensation rules.   There are no exceptions to this rule, since the Treasury has determined that owners with less than 5% ownership have no “meaningful ability to influence decisions over how loan proceeds are allocated”.
  • Compensation Limitations. The amount of loan forgiveness requested may not include business operations of a tenant or sub-tenant of the PPP borrower or the household expenses of a home-based business. (Examples are given in the IFR which illustrate this rule.)
  • Limitations on Forgiveness. Also included is a more restrictive requirement on related party rentals, which previously had no limitations. The IFR states that related party rentals are eligible for forgiveness if rent payments are no more than the mortgage interest owed on the property used by the PPP borrower during the covered period. (Note: Rent or lease payments to a related party are eligible for forgiveness, but mortgage interest payments to a related party are not.)

Clarification Still Needed

Note: Not yet finalized are the President’s Executive Order for employee payroll tax deferral (intended to begin September 1st), another round of stimulus funding, and PPP clarifications; however, Congress is expected to take action on these items when they resume session in September. 

Additional Information

Additional information on this IFR and other notices are posted on the Small Business Administration’s website at www.sba.gov. Specific questions may be directed to the Lender Relations Specialist in the local SBA Field Office found at https://www.sba.gov/tools/local-assistance/districtoffices.

CGA Law Firm Can Help

For more articles and informationto assist your business during the pandemic, please visit the CGA COVID-19 Business Resource Page.

If you’re interested in learning more about the forgiveness process or need assistance, please contact a CGA Business Law attorney.


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