[Federal Register Volume 85, Number 167 (Thursday, August 27, 2020)]
[Rules and Regulations]
[Pages 52881-52883]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-18940]
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Rules and Regulations
Federal Register
________________________________________________________________________
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.
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Federal Register / Vol. 85, No. 167 / Thursday, August 27, 2020 /
Rules and Regulations
[[Page 52881]]
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
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-at-home 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
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
[[Page 52882]]
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.
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 owner-employee.
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 S-
Corporation 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.
2. Eligibility of Certain Nonpayroll Costs for Loan Forgiveness
a. Are amounts attributable to the business operation of a tenant
or sub-tenant 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 sub-tenant of the PPP borrower or, for home-based businesses,
household expenses. The examples below illustrate this rule.
Example 1: A borrower rents an office building for $10,000 per
month and sub-leases 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\
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.
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\1\ In this context, the related party itself would not also be
eligible to request forgiveness for this amount.
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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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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.
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).
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]
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