SBA issues final interim rules providing PPP guidance

The Small Business Administration (SBA) released two new interim final rules on the Paycheck Protection Program (PPP). One set covers the requirements for loan forgiveness, confirming and expanding upon the previously released loan forgiveness form and instructions; the other addresses the SBA’s procedures for reviewing applications for loans and loan forgiveness. Key takeaways from both sets of rules are below. The guidance is effective immediately.

Separately, the House and Senate introduced bipartisan bills to amend the PPP. Both bills propose to expand the covered periods in which borrowers can use loan proceeds and qualify for forgiveness, and remove the limit on the amount of non-payroll costs that can be forgiven. The Senate bill would also allow expenses funded with forgiven loan proceeds to be deductible, overriding Notice 2020-32 previously issued by the IRS. While numerous members of the House indicated support for such a provision, the House bill does not include a similar provision. The House is expected to vote on its bill this week, but timing for the Senate is less certain at this time.

Key takeaways

Requirements for loan forgiveness

• Cash compensation eligible for forgiveness is generally limited to $15,385 per employee over the eight-week covered period in 2020 ($100,000 limit multiplied by (eight-week covered period divided by 52-week year)), however, the interim rule imposes an additional limit on “owner-employees,” being the lesser of $15,385, or 8/52 of 2019 compensation in total, across all businesses. The “across all business” requirement may come as a surprise to many and may serve to further limit the amount of owner compensation eligible for forgiveness.
  
  Unfortunately, the term “owner-employees” is not defined for this purpose. It presumably includes S corporation shareholders in accordance with general tax principles. This additional limitation could render substantial amounts paid by borrowers under previous guidance no longer eligible for forgiveness. It is also unknown whether attribution rules will apply to pull in related-party salaries into a single limitation. Consider a family business taxed as an S corporation. If the business has a sole equity shareholder whose family members are salaried employees, it is unclear whether attribution rules would apply and additionally limit the forgiveness of the amounts paid to the family members.