Are any individuals with an ownership stake in a business that received a PPP loan exempt from application of the PPP owner-employee compensation rule when determining the amount of their compensation that is eligible for loan forgiveness?
Yes, owner-employees with less than a five percent (5%) ownership stake in a C-Corporation or S-Corporation are not subject to the owner-employee compensation rule.
Are rent payments to a related party eligible for loan forgiveness?
Yes but limitations were just released by the U.S. Treasury Department. The amount of rent that is eligible for forgiveness when rent is paid to a related party is based on the following conditions: (1) the amount of loan forgiveness requested for rent or lease payments to a related party is no more than the amount of mortgage interest owed on the property during the Covered Period that is attributable to the space being rented by the business, and (2) the lease and the mortgage were entered into prior to February 15, 2020.
Are mortgage interest payments to a related party eligible for forgiveness?
While rent or lease payments to a related party may be eligible for forgiveness, mortgage interest payments to a related party are not eligible for forgiveness.
Are amounts attributable to the business operation of a tenant or sub-tenant of the PPP borrower eligible for forgiveness?
No, the amount of loan forgiveness requested for non-payroll costs may not include any amount attributable to the business operation of a tenant or sub-tenant of the PPP. The examples below illustrate this rule.
Example 1: A borrower rents a building for $10,000 per month and subleases out a portion 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 a building it operates out of, and it leases out a portion of the space to other businesses. The portion of mortgage interest that is eligible for loan forgiveness is limited to the percent share of the space that is not leased out to other businesses. As an illustration, if the space leased to other businesses represents 25% of the building, then the borrower may only claim forgiveness on 75% of the mortgage interest.
Example 3: A borrower shares a rented space with another business. When determining the amount that is eligible for loan forgiveness, the borrower must prorate rent and utility payments in the same manner as on the borrower’s 2019 tax filings, or if a new business, the borrower’s expected 2020 tax filings.
***The source for the four FAQs above is from the U.S. Department of the Treasury’s Interim Final Rule on Treatment of Owners and Forgiveness of Certain Non-payroll Costs, which was posted 8/24/2020
For purposes of calculating the loan forgiveness reduction required for salary/hourly wage reductions in excess of 25% for certain employees, are all forms of compensation included or only salaries and wages?
For purposes of calculating reductions in the loan forgiveness amount, the borrower should only take into account decreases in salaries or wages.
*** The source for the FAQ above is from the U.S. Department of the Treasury’s FAQ on Loan Forgiveness, which was updated 8/11/2020
Are any individuals with an ownership stake in a business that received a PPP loan exempt from application of the PPP owner-employee compensation rule when determining the amount of their compensation that is eligible for loan forgiveness?
Yes, owner-employees with less than a five percent (5%) ownership stake in a C-Corporation or S-Corporation are not subject to the owner-employee compensation rule.
Are rent payments to a related party eligible for loan forgiveness?
Yes but limitations were just released by the U.S. Treasury Department. The amount of rent that is eligible for forgiveness when rent is paid to a related party is based on the following conditions: (1) the amount of loan forgiveness requested for rent or lease payments to a related party is no more than the amount of mortgage interest owed on the property during the Covered Period that is attributable to the space being rented by the business, and (2) the lease and the mortgage were entered into prior to February 15, 2020.
Any ownership in common between the business and the property owner is a related party for these purposes. The borrower must provide its lender with mortgage interest documentation to substantiate these payments.
Are mortgage interest payments to a related party eligible for forgiveness?
While rent or lease payments to a related party may be eligible for forgiveness, mortgage interest payments to a related party are not eligible for forgiveness.
Are amounts attributable to the business operation of a tenant or sub-tenant of the PPP borrower eligible for forgiveness?
No, the amount of loan forgiveness requested for non-payroll costs may not include any amount attributable to the business operation of a tenant or sub-tenant of the PPP. The examples below illustrate this rule.
Example 1: A borrower rents a building for $10,000 per month and subleases out a portion 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 a building it operates out of, and it leases out a portion of the space to other businesses. The portion of mortgage interest that is eligible for loan forgiveness is limited to the percent share of the space that is not leased out to other businesses. As an illustration, if the space leased to other businesses represents 25% of the building, then the borrower may only claim forgiveness on 75% of the mortgage interest.
Example 3: A borrower shares a rented space with another business. When determining the amount that is eligible for loan forgiveness, the borrower must prorate rent and utility payments in the same manner as on the borrower’s 2019 tax filings, or if a new business, the borrower’s expected 2020 tax filings.
***The source for the four FAQs above is from the U.S. Department of the Treasury’s Interim Final Rule on Treatment of Owners and Forgiveness of Certain Non-payroll Costs, which was posted 8/24/2020 @ https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses
For purposes of calculating reductions in the loan forgiveness amount, the borrower should only take into account decreases in salaries or wages.
*** The source for the FAQ above is from the U.S. Department of the Treasury’s FAQ on Loan Forgiveness, which was updated 8/11/2020 @ https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses
