Skip to main content

Nixon Peabody LLP

  • People
  • Capabilities
  • Insights
  • About
Trending Topics
    • People
    • Capabilities
    • Insights
    • About
    • Locations
    • Events
    • Careers
    • Alumni
    Practices

    View All

    • Affordable Housing
    • Community Development Finance
    • Corporate & Finance
    • Cybersecurity & Privacy
    • Entertainment & Media
    • Environmental
    • Franchising & Distribution
    • Government Investigations & White Collar Defense
    • Healthcare
    • Intellectual Property
    • International Services
    • Labor, Employment, and Benefits
    • Litigation
    • Private Wealth & Advisory
    • Project Finance
    • Public Finance
    • Real Estate
    • Regulatory & Government Relations
    Industries

    View All

    • Aviation
    • Cannabis
    • Consumer
    • Energy
    • Financial Services
    • Healthcare
    • Higher Education
    • Infrastructure
    • Manufacturing
    • Nonprofit Organizations
    • Real Estate
    • Sports & Stadiums
    • Technology
    Value-Added Services

    View All

    • Alternative Fee Arrangements

      Developing innovative pricing structures and alternative fee agreement models that deliver additional value for our clients.

    • Continuing Education

      Advancing professional knowledge and offering credits for attorneys, staff and other professionals.

    • Crisis Advisory

      Helping clients respond correctly when a crisis occurs.

    • DEI Strategic Services

      Providing our clients with legal, strategic, and practical advice to make transformational changes in their organizations.

    • eDiscovery

      Leveraging law and technology to deliver sound solutions.

    • Environmental, Social, and Governance (ESG)

      We help clients create positive return on investments in people, products, and the planet.

    • Global Services

      Delivering seamless service through partnerships across the globe.

    • Innovation

      Leveraging leading-edge technology to guide change and create seamless, collaborative experiences for clients and attorneys.

    • IPED

      Industry-leading conferences focused on affordable housing, tax credits, and more.

    • Legal Project Management

      Providing actionable information to support strategic decision-making.

    • Legally Green

      Teaming with clients to advance sustainable projects, mitigate the effects of climate change, and protect our planet.

    • Nixon Peabody Trust Company

      Offering a range of investment management and fiduciary services.

    • NP Capital Connector

      Bringing together companies and investors for tomorrow’s new deals.

    • NP Second Opinion

      Offering fresh insights on cases that are delayed, over budget, or off-target from the desired resolution.

    • NP Trial

      Courtroom-ready lawyers who can resolve disputes early on clients’ terms or prevail at trial before a judge or jury.

    • Social Impact

      Creating positive impact in our communities through increasing equity, access, and opportunity.

    • Women in Dealmaking

      We provide strategic counsel on complex corporate transactions and unite dynamic women in the dealmaking arena.

    1. Home
    2. Insights
    3. Alerts
    4. SBA issues interim final rule addressing both owner-employee compensation and rent issues

      Alerts

    Alert / Coronavirus Stimulus and Relief

    SBA issues interim final rule addressing both owner-employee compensation and rent issues

    Aug 28, 2020

    LinkedInX (Twitter)EmailCopy URL

    By Eric Ferrante, Morgan Nighan and David Kaufman

    The Small Business Administration (“SBA”) has issued additional regulations addressing loan forgiveness under the Paycheck Protection Program (“PPP”) in the form of an Interim Final Rule published on August 24, 2020 (the “IFR”).[1] The latest IFR relaxes the cap on forgiveness-eligible compensation paid to certain owner-employees of PPP borrowers and attempts to clarify certain non-payroll costs that are eligible for forgiveness.

    Changes to the owner-employee compensation cap for PPP loan forgiveness

    The first change made by the IFR is a relaxation of the rule capping the amount of PPP loan forgiveness available for the compensation of some owner-employees of PPP borrowers. Owner-employees of S- and C-corps are allowed to include their employee cash compensation in the calculation of payroll costs incurred during the covered period. However, an Interim Final Rule published by SBA in June 2020, 85 F.R. 38304, 38307 (June 26, 2020), caps the amount an owner-employee can claim at eight-weeks’ worth (8/52) of their 2019 compensation if the borrower uses an eight-week covered loan period or 2.5-months’ worth of their 2019 compensation if the borrower uses a 24-week covered loan period. Until recently, it was assumed that this cap applied to all S- and C-corp owner-employees. However, the latest IFR eliminates this cap for owner-employees in S- and C-corps who have less than a five percent (5%) ownership stake. Per the IFR, this exemption “is intended to cover owner-employees who have no meaningful ability to influence decisions over how loan proceeds are allocated.”

    Clarification of certain non-payroll costs that are not eligible for loan forgiveness

    The new IFR also addresses certain non-payroll costs, relating to real estate, that are not eligible for loan forgiveness:

    Subtenants

    The IFR states that amounts attributable to the business operation of a tenant or sub-tenant of a PPP borrower or, in the context of home-based business, house expenses, are not eligible for forgiveness. This means, for example, that if a PPP borrower leases an office space for $10,000 per month and sub-leases a portion of the space to another business for $2,500 per month, the borrower cannot claim the full $10,000 monthly rent payment in its forgiveness application. Instead, only $7,500 per month is eligible for loan forgiveness.

    Owner rentals

    If a borrower has a mortgage on an office building it operates out of, and it leases a portion of the space to other businesses, the portion of the 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. In other words, if the leased space represents 25% of the fair market value of the office building, the borrower may only claim forgiveness on 75% of the mortgage interest.

    Co-tenancy

    As another example, where a borrower shares rented space with another business, the IFR explains that 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 the borrower’s expected 2020 tax filings if the borrower is a new business).

    Home office

    The IFR also explains that if a borrower works out of his or her home, the borrower may include only the share of covered expenses that were deductible on the borrower’s 2019 tax filings when calculating loan forgiveness. For new businesses, the borrower can use expected deductions on 2020 tax filings.

    Rent payments to related parties are eligible for loan forgiveness, but limited to the amount of mortgage interest owed on the property

    Finally, the IFR states that rent payments to a related party are only eligible for loan forgiveness if (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 mortgage were entered into prior to February 15, 2020. The IFR states, “The borrower must provide its lender with mortgage interest documentation to substantiate these payments.” However, the IFR clarifies that mortgage interest payments to a related party are not eligible for loan forgiveness.

    The IFR defines “related party” for these purposes to mean any ownership in common between the borrower and the property owner.


    1. The SBA has issued many Interim Final Rules for PPP and this one is distinguished by Docket Number SBA-2020-0044. As of August 28, 2020, the official Federal Register notice has not yet been posted.
      [Back to reference]

    Practices

    Affordable HousingCorporate & FinanceFinancial Restructuring & BankruptcyFranchising & DistributionMergers, Acquisitions, and Corporate Transactions Private Equity & Investment FundsTaxHealthcareLabor, Employment & BenefitsCalifornia Labor & EmploymentClass Actions & Aggregate LitigationComplex DisputesAntitrust

    Industries

    Food, Beverage & AgribusinessBanking & FinanceNonprofit OrganizationsHealthcare

    Insights And Happenings

    • Article

      Nixon Peabody 2020 MAC Survey

      Jan 14, 2021
    • Alert

      SBA issues new guidance on change of ownership of PPP borrowers

      Oct 7, 2020
    • Alert

      Names and limited details about Paycheck Protection Program (PPP) Loans will now be released for businesses receiving $150,000 or more

      June 22, 2020
    The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

    Subscribe to stay informed of the latest legal news, alerts, and business trends.Subscribe

    • People
    • Capabilities
    • Insights
    • About
    • Locations
    • Events
    • Careers
    • Alumni
    • Cookie Preferences
    • Privacy Policy
    • Terms of Use
    • Accessibility Statement
    • Statement of Client Rights
    • Purchase Order Terms & Conditions
    • Nixon Peabody International LLC
    • PAL
    © 2025 Nixon Peabody. All rights reserved