Paycheck Protection Program—Treatment of Owners and Forgiveness of Certain Nonpayroll Costs, RIN 3245-AH56 — Federal Register Vol. 85, No. 167, August 27, 2020

Summary

A page of the Federal Register, Vol. 85, No. 167, Thursday, August 27, 2020, p. 52881, carrying a Small Business Administration interim final rule. It states that the rule addresses the ownership percentage that triggers the applicability of owner compensation rules for forgiveness purposes. It states that the rule also addresses limitations on the eligibility of certain nonpayroll costs for forgiveness. It states that section 1106 of the CARES Act provides for forgiveness of up to the full principal amount of qualifying loans.

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52881

Rules and Regulations

Federal Register
Vol. 85, No. 167
Thursday, August 27, 2020

This section of the FEDERAL REGISTER
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents.

SMALL BUSINESS ADMINISTRATION
13 CFR Part 120
[Docket Number SBA–2020–0044]
RIN 3245–AH56

Business Loan Program Temporary
Changes; Paycheck Protection
Program—Treatment of Owners and
Forgiveness of Certain Nonpayroll
Costs
AGENCY: U.S. Small Business

Administration.
ACTION: Interim final rule.

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SUMMARY: On April 2, 2020, the U.S.

Small Business Administration (SBA)
posted on its website an interim final
rule relating to the implementation of
Sections 1102 and 1106 of the
Coronavirus Aid, Relief, and Economic
Security Act (CARES Act or the Act)
(published in the Federal Register on
April 15, 2020). Section 1102 of the Act
temporarily adds a new product, titled
the ‘‘Paycheck Protection Program,’’ to
the U.S. Small Business
Administration’s (SBA’s) 7(a) Loan
Program. Subsequently, SBA issued a
number of interim final rules
implementing the Paycheck Protection
Program. This interim final rule
supplements the previously posted
interim final rules by providing
additional guidance on treatment of
owners and forgiveness of certain
nonpayroll costs.
DATES:
Effective date: The provisions in this
interim final rule are effective August
25, 2020.
Comment date: Comments must be
received on or before September 28,
2020.
ADDRESSES: You may submit comments,
identified by number SBA–2020–0044
through the Federal eRulemaking Portal:
http://www.regulations.gov. Follow the
instructions for submitting comments.
SBA will post all comments on
www.regulations.gov. If you wish to

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submit confidential business
information (CBI) as defined in the User
Notice at www.regulations.gov, please
send an email to ppp-ifr@sba.gov.
Highlight the information that you
consider to be CBI and explain why you
believe SBA should hold this
information as confidential. SBA will
review the information and make the
final determination whether it will
publish the information.
FOR FURTHER INFORMATION CONTACT: A
Call Center Representative at 833–572–
0502, or the local SBA Field Office; the
list of offices can be found at https://
www.sba.gov/tools/local-assistance/
districtoffices.
SUPPLEMENTARY INFORMATION:
I. Background Information
On March 13, 2020, President Trump
declared the ongoing Coronavirus
Disease 2019 (COVID–19) pandemic of
sufficient severity and magnitude to
warrant an emergency declaration for all
States, territories, and the District of
Columbia. With the COVID–19
emergency, many small businesses
nationwide are experiencing economic
hardship as a direct result of the
Federal, State, tribal, and local public
health measures that are being taken to
minimize the public’s exposure to the
virus. These measures, some of which
are government-mandated, have been
implemented nationwide and include
the closures of restaurants, bars, and
gyms. In addition, based on the advice
of public health officials, other
measures, such as keeping a safe
distance from others or even stay-athome orders, have been implemented,
resulting in a dramatic decrease in
economic activity as the public avoids
malls, retail stores, and other
businesses.
On March 27, 2020, the President
signed the Coronavirus Aid, Relief, and
Economic Security Act (the CARES Act)
(Pub. L. 116–136) to provide emergency
assistance and health care response for
individuals, families, and businesses
affected by the coronavirus pandemic.
The Small Business Administration
(SBA) received funding and authority
through the CARES Act to modify
existing loan programs and establish a
new loan program to assist small
businesses nationwide adversely
impacted by the COVID–19 emergency.
Section 1102 of the CARES Act
temporarily permits SBA to guarantee

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100 percent of 7(a) loans under a new
program titled the ‘‘Paycheck Protection
Program.’’ Section 1106 of the CARES
Act provides for forgiveness of up to the
full principal amount of qualifying
loans guaranteed under the Paycheck
Protection Program (PPP).
On April 24, 2020, the President
signed the Paycheck Protection Program
and Health Care Enhancement Act (Pub.
L. 116–139), which provided additional
funding and authority for the PPP. On
June 5, 2020, the President signed the
Paycheck Protection Program Flexibility
Act of 2020 (Flexibility Act) (Pub. L.
116–142), which changed provisions of
the PPP relating to the maturity of PPP
loans, the deferral of PPP loan
payments, and the forgiveness of PPP
loans. On July 4, 2020, the President
signed into law S. 4116, which
reauthorized lending under the PPP
through August 8, 2020 (Pub. L. 116–
147).
This interim final rule addresses the
ownership percentage that triggers the
applicability of owner compensation
rules for forgiveness purposes. This
interim final rule also addresses
limitations on the eligibility of certain
nonpayroll costs for forgiveness.
II. Comments and Immediate Effective
Date
This interim final rule is effective
without advance notice and public
comment because Section 1114 of the
CARES Act authorizes SBA to issue
regulations to implement Title I of the
Act without regard to notice
requirements. In addition, SBA has
determined that there is good cause for
dispensing with advance public notice
and comment on the grounds that it
would be contrary to the public interest.
Specifically, advance public notice and
comment would defeat the purpose of
this interim final rule given that SBA’s
authority to guarantee PPP loans
expired on August 8, 2020 and SBA
began accepting lender loan forgiveness
submissions on August 10, 2020. These
same reasons provide good cause for
SBA to dispense with the 30-day
delayed effective date provided in the
Administrative Procedure Act (APA).
See 5 U.S.C. 553(b)(B). Although this
interim final rule is effective on or
before date of filing, comments are
solicited from interested members of the
public on all aspects of the interim final
rule, including Section III below. These

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Federal Register / Vol. 85, No. 167 / Thursday, August 27, 2020 / Rules and Regulations

comments must be submitted on or
before September 28, 2020. The SBA
will consider these comments and the
need for making any revisions as a
result of these comments.
III. Paycheck Protection Program—
Treatment of Owners and Forgiveness
of Certain Nonpayroll Costs
Overview
The CARES Act was enacted to
provide immediate assistance to
individuals, families, and organizations
affected by the COVID–19 emergency.
Among the provisions contained in the
CARES Act are provisions authorizing
SBA to temporarily guarantee loans
under a new 7(a) loan program titled the
‘‘Paycheck Protection Program.’’ Loans
guaranteed under the Paycheck
Protection Program (PPP) will be 100
percent guaranteed by SBA, and the full
principal amount of the loans may
qualify for loan forgiveness. The
purpose of this interim final rule is to
provide additional guidance concerning
the ownership percentage that triggers
the applicability of the owner
compensation rule for forgiveness
purposes and limitations on the
eligibility of certain nonpayroll costs for
forgiveness.

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1. Owners
Are any individuals with an
ownership stake in a PPP borrower
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 5 percent ownership stake in a C- or
S-Corporation are not subject to the
owner-employee compensation rule.
The First Loan Forgiveness Rule, as
revised by the Revisions to Loan
Forgiveness and Loan Review
Procedures Interim Final Rules, 85 FR
38304, 38307 (June 26, 2020), caps the
amount of loan forgiveness for payroll
compensation attributable to an owneremployee. There is no exception in the
rule based on the owner-employee’s
percentage of ownership. The
Administrator, in consultation with the
Secretary, has now determined that an
owner-employee in a C- or SCorporation who has less than a 5
percent ownership stake will not be
subject to the owner-employee
compensation rule. This exemption is
intended to cover owner-employees
who have no meaningful ability to
influence decisions over how loan
proceeds are allocated.

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2. Eligibility of Certain Nonpayroll Costs
for Loan Forgiveness
a. Are amounts attributable to the
business operation of a tenant or subtenant of the PPP borrower or, in the
context of home-based businesses,
household expenses, eligible for
forgiveness?
No, the amount of loan forgiveness
requested for nonpayroll costs may not
include any amount attributable to the
business operation of a tenant or subtenant of the PPP borrower or, for homebased businesses, household expenses.
The examples below illustrate this rule.
Example 1: A borrower rents an office
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 an office 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 fair market
value of the space that is not leased out
to other businesses. As an illustration, if
the leased space represents 25% of the
fair market value of the office 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.
Example 4: A borrower works out of
his or her home. When determining the
amount of nonpayroll costs that are
eligible for loan forgiveness, the
borrower may include only the share of
covered expenses that were deductible
on the borrower’s 2019 tax filings, or if
a new business, the borrower’s expected
2020 tax filings.
b. Are rent payments to a related party
eligible for loan forgiveness?
Yes, as long as (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, 2020.1
1 In this context, the related party itself would not
also be eligible to request forgiveness for this
amount.

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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. 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. PPP loans
are intended to help businesses cover
certain non-payroll obligations that are
owed to third parties, not payments to
a business’s owner that occur because of
how the business is structured. This
will maintain equitable treatment
between a business owner that holds
property in a separate entity and one
that holds the property in the same
entity as its business operations.
3. Additional Information
SBA may provide further guidance, if
needed, through SBA notices that will
be posted on SBA’s website at
www.sba.gov. Questions on the
Paycheck Protection Program may be
directed to the Lender Relations
Specialist in the local SBA Field Office.
The local SBA Field Office may be
found at https://www.sba.gov/tools/
local-assistance/districtoffices.
Compliance With Executive Orders
12866, 12988, 13132, 13563, and 13771,
the Paperwork Reduction Act (44
U.S.C. Ch. 35), and the Regulatory
Flexibility Act (5 U.S.C. 601–612).
Executive Orders 12866, 13563, and
13771
This interim final rule is
economically significant for the
purposes of Executive Orders 12866 and
13563, and is considered a major rule
under the Congressional Review Act.
SBA, however, is proceeding under the
emergency provision at Executive Order
12866 Section 6(a)(3)(D) based on the
need to move expeditiously to mitigate
the current economic conditions arising
from the COVID–19 emergency. This
rule’s designation under Executive
Order 13771 will be informed by public
comment.
Executive Order 12988
SBA has drafted this rule, to the
extent practicable, in accordance with
the standards set forth in Section 3(a)
and 3(b)(2) of Executive Order 12988, to
minimize litigation, eliminate
ambiguity, and reduce burden. The rule
has no preemptive or retroactive effect.
Executive Order 13132
SBA has determined that this rule
will not have substantial direct effects
on the States, on the relationship
between the National Government and

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Federal Register / Vol. 85, No. 167 / Thursday, August 27, 2020 / Rules and Regulations
the States, or on the distribution of
power and responsibilities among the
various layers of government. Therefore,
SBA has determined that this rule has
no federalism implications warranting
preparation of a federalism assessment.

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Paperwork Reduction Act, 44 U.S.C.
Chapter 35
SBA has determined that this rule
will not impose new or modify existing
recordkeeping or reporting requirements
under the Paperwork Reduction Act.
Regulatory Flexibility Act (RFA)
The Regulatory Flexibility Act (RFA)
generally requires that when an agency
issues a proposed rule, or a final rule
pursuant to Section 553(b) of the APA
or another law, the agency must prepare
a regulatory flexibility analysis that
meets the requirements of the RFA and
publish such analysis in the Federal
Register. 5 U.S.C. 603, 604. Specifically,
the RFA normally requires agencies to
describe the impact of a rulemaking on
small entities by providing a regulatory
impact analysis. Such analysis must
address the consideration of regulatory
options that would lessen the economic
effect of the rule on small entities. The
RFA defines a ‘‘small entity’’ as (1) a
proprietary firm meeting the size
standards of the Small Business
Administration (SBA); (2) a nonprofit
organization that is not dominant in its
field; or (3) a small government
jurisdiction with a population of less
than 50,000. 5 U.S.C. 601(3)–(6). Except
for such small government jurisdictions,
neither State nor local governments are
‘‘small entities.’’ Similarly, for purposes
of the RFA, individual persons are not
small entities.
The requirement to conduct a
regulatory impact analysis does not
apply if the head of the agency ‘‘certifies
that the rule will not, if promulgated,
have a significant economic impact on
a substantial number of small entities.’’
5 U.S.C. 605(b). The agency must,
however, publish the certification in the
Federal Register at the time of
publication of the rule, ‘‘along with a
statement providing the factual basis for
such certification.’’ If the agency head
has not waived the requirements for a
regulatory flexibility analysis in
accordance with the RFA’s waiver
provision, and no other RFA exception
applies, the agency must prepare the
regulatory flexibility analysis and
publish it in the Federal Register at the
time of promulgation or, if the rule is
promulgated in response to an
emergency that makes timely
compliance impracticable, within 180
days of publication of the final rule. 5
U.S.C. 604(a), 608(b).

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Rules that are exempt from notice and
comment are also exempt from the RFA
requirements, including conducting a
regulatory flexibility analysis, when
among other things the agency for good
cause finds that notice and public
procedure are impracticable,
unnecessary, or contrary to the public
interest. SBA Office of Advocacy guide:
How to Comply with the Regulatory
Flexibility Act, Ch.1. p.9. Accordingly,
SBA is not required to conduct a
regulatory flexibility analysis.
Jovita Carranza,
Administrator.
[FR Doc. 2020–18940 Filed 8–25–20; 1:00 pm]
BILLING CODE P

SMALL BUSINESS ADMINISTRATION
13 CFR Part 134
[Docket Number SBA–2020–0042]
RIN 3245–AH55

Appeals of SBA Loan Review
Decisions Under the Paycheck
Protection Program
AGENCY: U.S. Small Business

Administration.
ACTION: Interim final rule.
SUMMARY: On April 2, 2020, the U.S.

Small Business Administration (SBA)
posted on its website an interim final
rule relating to the implementation of
sections 1102 and 1106 of the
Coronavirus Aid, Relief, and Economic
Security Act (CARES Act or the Act)
(published in the Federal Register on
April 15, 2020). Section 1102 of the Act
temporarily adds a new product, titled
the ‘‘Paycheck Protection Program,’’ to
the U.S. Small Business
Administration’s (SBA’s) 7(a) Loan
Program. Subsequently, SBA issued a
number of interim final rules
implementing the Paycheck Protection
Program (PPP). This interim final rule
supplements the interim final rule on
Loan Review Procedures and Related
Borrower and Lender Responsibilities
posted on SBA’s website on May 22,
2020 (published on June 1, 2020, in the
Federal Register), as revised by the
interim final rule posted on SBA’s
website on June 22, 2020, in order to
inform PPP borrowers and lenders of the
process for a PPP borrower to appeal
certain SBA loan review decisions
under the PPP to the SBA Office of
Hearings and Appeals, and requests
public comment.
DATES:
Effective date: This rule is effective
August 25, 2020.

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52883

Applicability date: This interim final
rule applies to certain loan review
decisions made by SBA under the
Paycheck Protection Program.
Comment date: Comments must be
received on or before September 28,
2020.
ADDRESSES: You may submit comments,
identified by number SBA–2020–0042
through the Federal eRulemaking Portal:
http://www.regulations.gov. Follow the
instructions for submitting comments.
SBA will post all comments on
www.regulations.gov. If you wish to
submit confidential business
information (CBI) as defined in the User
Notice at www.regulations.gov, please
send an email to ppp-ifr@sba.gov.
Highlight the information that you
consider to be CBI and explain why you
believe SBA should hold this
information as confidential. SBA will
review the information and make the
final determination whether it will
publish the information.
FOR FURTHER INFORMATION CONTACT: A
Call Center Representative at 833–572–
0502, or the local SBA Field Office; the
list of offices can be found at https://
www.sba.gov/tools/localassistance/
districtoffices.
SUPPLEMENTARY INFORMATION:
I. Background Information
On March 13, 2020, President Trump
declared the ongoing Coronavirus
Disease 2019 (COVID–19) pandemic of
sufficient severity and magnitude to
warrant an emergency declaration for all
States, territories, and the District of
Columbia. With the COVID–19
emergency, many small businesses
nationwide are experiencing economic
hardship as a direct result of the
Federal, State, tribal, and local public
health measures that have been taken to
minimize the public’s exposure to the
virus. These measures, some of which
are government-mandated, have been
implemented nationwide and include
the closures of restaurants, bars, and
gyms. In addition, based on the advice
of public health officials, other
measures, such as keeping a safe
distance from others or even stay-athome orders, are being implemented,
resulting in a dramatic decrease in
economic activity as the public avoids
malls, retail stores, and other
businesses.
On March 27, 2020, the President
signed the Coronavirus Aid, Relief, and
Economic Security Act (the CARES Act)
(Pub. L. 116–136) to provide emergency
assistance and health care response for
individuals, families, and businesses
affected by the coronavirus pandemic.
The Small Business Administration

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27AUR1

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