52881

Rules and Regulations Federal Register
Vol. 85, No. 167

Thursday, August 27, 2020

This section of the FEDERAL REGISTER submit confidential business 100 percent of 7(a) loans under a new
contains regulatory documents having general information (CBI) as defined in the User program titled the ‘‘Paycheck Protection
applicability and legal effect, most of which Notice at www.regulations.gov, please Program.’’ Section 1106 of the CARES
are keyed to and codified in the Code of send an email to ppp-ifr@sba.gov. Act provides for forgiveness of up to the
Federal Regulations, which is published under Highlight the information that you full principal amount of qualifying
50 titles pursuant to 44 U.S.C. 1510.
consider to be CBI and explain why you loans guaranteed under the Paycheck
The Code of Federal Regulations is sold by believe SBA should hold this Protection Program (PPP).
the Superintendent of Documents. information as confidential. SBA will On April 24, 2020, the President
review the information and make the signed the Paycheck Protection Program
final determination whether it will and Health Care Enhancement Act (Pub.
SMALL BUSINESS ADMINISTRATION publish the information. L. 116–139), which provided additional
FOR FURTHER INFORMATION CONTACT: A funding and authority for the PPP. On
13 CFR Part 120 June 5, 2020, the President signed the
Call Center Representative at 833–572–
[Docket Number SBA–2020–0044] 0502, or the local SBA Field Office; the Paycheck Protection Program Flexibility
RIN 3245–AH56 list of offices can be found at https:// Act of 2020 (Flexibility Act) (Pub. L.
www.sba.gov/tools/local-assistance/ 116–142), which changed provisions of
Business Loan Program Temporary districtoffices. the PPP relating to the maturity of PPP
Changes; Paycheck Protection SUPPLEMENTARY INFORMATION: loans, the deferral of PPP loan
Program—Treatment of Owners and payments, and the forgiveness of PPP
I. Background Information loans. On July 4, 2020, the President
Forgiveness of Certain Nonpayroll
Costs On March 13, 2020, President Trump signed into law S. 4116, which
declared the ongoing Coronavirus reauthorized lending under the PPP
AGENCY: U.S. Small Business Disease 2019 (COVID–19) pandemic of through August 8, 2020 (Pub. L. 116–
Administration. sufficient severity and magnitude to 147).
ACTION: Interim final rule. warrant an emergency declaration for all This interim final rule addresses the
States, territories, and the District of ownership percentage that triggers the
SUMMARY: On April 2, 2020, the U.S.
Columbia. With the COVID–19 applicability of owner compensation
Small Business Administration (SBA) rules for forgiveness purposes. This
emergency, many small businesses
posted on its website an interim final interim final rule also addresses
nationwide are experiencing economic
rule relating to the implementation of limitations on the eligibility of certain
hardship as a direct result of the
Sections 1102 and 1106 of the nonpayroll costs for forgiveness.
Federal, State, tribal, and local public
Coronavirus Aid, Relief, and Economic
health measures that are being taken to II. Comments and Immediate Effective
Security Act (CARES Act or the Act)
minimize the public’s exposure to the Date
(published in the Federal Register on
virus. These measures, some of which
April 15, 2020). Section 1102 of the Act This interim final rule is effective
are government-mandated, have been
temporarily adds a new product, titled without advance notice and public
implemented nationwide and include
the ‘‘Paycheck Protection Program,’’ to comment because Section 1114 of the
the closures of restaurants, bars, and
the U.S. Small Business CARES Act authorizes SBA to issue
gyms. In addition, based on the advice
Administration’s (SBA’s) 7(a) Loan regulations to implement Title I of the
of public health officials, other
Program. Subsequently, SBA issued a Act without regard to notice
measures, such as keeping a safe
number of interim final rules requirements. In addition, SBA has
distance from others or even stay-at-
implementing the Paycheck Protection determined that there is good cause for
home orders, have been implemented,
Program. This interim final rule dispensing with advance public notice
resulting in a dramatic decrease in
supplements the previously posted and comment on the grounds that it
economic activity as the public avoids
interim final rules by providing would be contrary to the public interest.
malls, retail stores, and other
additional guidance on treatment of Specifically, advance public notice and
businesses.
owners and forgiveness of certain On March 27, 2020, the President comment would defeat the purpose of
nonpayroll costs. signed the Coronavirus Aid, Relief, and this interim final rule given that SBA’s
DATES: Economic Security Act (the CARES Act) authority to guarantee PPP loans
Effective date: The provisions in this (Pub. L. 116–136) to provide emergency expired on August 8, 2020 and SBA
interim final rule are effective August assistance and health care response for began accepting lender loan forgiveness
25, 2020. individuals, families, and businesses submissions on August 10, 2020. These
Comment date: Comments must be affected by the coronavirus pandemic. same reasons provide good cause for
received on or before September 28, The Small Business Administration SBA to dispense with the 30-day
2020. (SBA) received funding and authority delayed effective date provided in the

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ADDRESSES: You may submit comments, through the CARES Act to modify Administrative Procedure Act (APA).
identified by number SBA–2020–0044 existing loan programs and establish a See 5 U.S.C. 553(b)(B). Although this
through the Federal eRulemaking Portal: new loan program to assist small interim final rule is effective on or
http://www.regulations.gov. Follow the businesses nationwide adversely before date of filing, comments are
instructions for submitting comments. impacted by the COVID–19 emergency. solicited from interested members of the
SBA will post all comments on Section 1102 of the CARES Act public on all aspects of the interim final
www.regulations.gov. If you wish to temporarily permits SBA to guarantee rule, including Section III below. These

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52882 Federal Register / Vol. 85, No. 167 / Thursday, August 27, 2020 / Rules and Regulations

comments must be submitted on or 2. Eligibility of Certain Nonpayroll Costs Any ownership in common between the
before September 28, 2020. The SBA for Loan Forgiveness business and the property owner is a
will consider these comments and the a. Are amounts attributable to the related party for these purposes. The
need for making any revisions as a business operation of a tenant or sub- borrower must provide its lender with
result of these comments. tenant of the PPP borrower or, in the mortgage interest documentation to
context of home-based businesses, substantiate these payments. While rent
III. Paycheck Protection Program— or lease payments to a related party may
Treatment of Owners and Forgiveness household expenses, eligible for
forgiveness? be eligible for forgiveness, mortgage
of Certain Nonpayroll Costs interest payments to a related party are
No, the amount of loan forgiveness
Overview requested for nonpayroll costs may not not eligible for forgiveness. PPP loans
include any amount attributable to the are intended to help businesses cover
The CARES Act was enacted to business operation of a tenant or sub- certain non-payroll obligations that are
provide immediate assistance to tenant of the PPP borrower or, for home- owed to third parties, not payments to
individuals, families, and organizations based businesses, household expenses. a business’s owner that occur because of
affected by the COVID–19 emergency. The examples below illustrate this rule. how the business is structured. This
Among the provisions contained in the Example 1: A borrower rents an office will maintain equitable treatment
CARES Act are provisions authorizing building for $10,000 per month and sub- between a business owner that holds
SBA to temporarily guarantee loans leases out a portion of the space to other property in a separate entity and one
under a new 7(a) loan program titled the businesses for $2,500 per month. Only that holds the property in the same
‘‘Paycheck Protection Program.’’ Loans $7,500 per month is eligible for loan entity as its business operations.
guaranteed under the Paycheck forgiveness. 3. Additional Information
Protection Program (PPP) will be 100 Example 2: A borrower has a
mortgage on an office building it SBA may provide further guidance, if
percent guaranteed by SBA, and the full needed, through SBA notices that will
principal amount of the loans may operates out of, and it leases out a
portion of the space to other businesses. be posted on SBA’s website at
qualify for loan forgiveness. The www.sba.gov. Questions on the
purpose of this interim final rule is to The portion of mortgage interest that is
eligible for loan forgiveness is limited to Paycheck Protection Program may be
provide additional guidance concerning directed to the Lender Relations
the ownership percentage that triggers the percent share of the fair market
value of the space that is not leased out Specialist in the local SBA Field Office.
the applicability of the owner The local SBA Field Office may be
compensation rule for forgiveness to other businesses. As an illustration, if
found at https://www.sba.gov/tools/
purposes and limitations on the the leased space represents 25% of the
local-assistance/districtoffices.
eligibility of certain nonpayroll costs for fair market value of the office building,
forgiveness. then the borrower may only claim Compliance With Executive Orders
forgiveness on 75% of the mortgage 12866, 12988, 13132, 13563, and 13771,
1. Owners interest. the Paperwork Reduction Act (44
Example 3: A borrower shares a U.S.C. Ch. 35), and the Regulatory
Are any individuals with an rented space with another business. Flexibility Act (5 U.S.C. 601–612).
ownership stake in a PPP borrower When determining the amount that is
exempt from application of the PPP Executive Orders 12866, 13563, and
eligible for loan forgiveness, the
owner-employee compensation rule 13771
borrower must prorate rent and utility
when determining the amount of their payments in the same manner as on the This interim final rule is
compensation that is eligible for loan borrower’s 2019 tax filings, or if a new economically significant for the
forgiveness? business, the borrower’s expected 2020 purposes of Executive Orders 12866 and
Yes, owner-employees with less than tax filings. 13563, and is considered a major rule
a 5 percent ownership stake in a C- or Example 4: A borrower works out of under the Congressional Review Act.
S-Corporation are not subject to the his or her home. When determining the SBA, however, is proceeding under the
owner-employee compensation rule. amount of nonpayroll costs that are emergency provision at Executive Order
The First Loan Forgiveness Rule, as eligible for loan forgiveness, the 12866 Section 6(a)(3)(D) based on the
revised by the Revisions to Loan borrower may include only the share of need to move expeditiously to mitigate
Forgiveness and Loan Review covered expenses that were deductible the current economic conditions arising
Procedures Interim Final Rules, 85 FR on the borrower’s 2019 tax filings, or if from the COVID–19 emergency. This
38304, 38307 (June 26, 2020), caps the a new business, the borrower’s expected rule’s designation under Executive
amount of loan forgiveness for payroll 2020 tax filings. Order 13771 will be informed by public
compensation attributable to an owner- comment.
b. Are rent payments to a related party
employee. There is no exception in the eligible for loan forgiveness? Executive Order 12988
rule based on the owner-employee’s SBA has drafted this rule, to the
percentage of ownership. The Yes, as long as (1) the amount of loan
forgiveness requested for rent or lease extent practicable, in accordance with
Administrator, in consultation with the the standards set forth in Section 3(a)
payments to a related party is no more
Secretary, has now determined that an and 3(b)(2) of Executive Order 12988, to
than the amount of mortgage interest
owner-employee in a C- or S- minimize litigation, eliminate
owed on the property during the
Corporation who has less than a 5 ambiguity, and reduce burden. The rule

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Covered Period that is attributable to the
percent ownership stake will not be has no preemptive or retroactive effect.
space being rented by the business, and
subject to the owner-employee
(2) the lease and the mortgage were Executive Order 13132
compensation rule. This exemption is
entered into prior to February 15, 2020.1
intended to cover owner-employees SBA has determined that this rule
who have no meaningful ability to 1 In this context, the related party itself would not will not have substantial direct effects
influence decisions over how loan also be eligible to request forgiveness for this on the States, on the relationship
proceeds are allocated. amount. between the National Government and

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Federal Register / Vol. 85, No. 167 / Thursday, August 27, 2020 / Rules and Regulations 52883

the States, or on the distribution of Rules that are exempt from notice and Applicability date: This interim final
power and responsibilities among the comment are also exempt from the RFA rule applies to certain loan review
various layers of government. Therefore, requirements, including conducting a decisions made by SBA under the
SBA has determined that this rule has regulatory flexibility analysis, when Paycheck Protection Program.
no federalism implications warranting among other things the agency for good Comment date: Comments must be
preparation of a federalism assessment. cause finds that notice and public received on or before September 28,
procedure are impracticable, 2020.
Paperwork Reduction Act, 44 U.S.C.
Chapter 35 unnecessary, or contrary to the public ADDRESSES: You may submit comments,
interest. SBA Office of Advocacy guide: identified by number SBA–2020–0042
SBA has determined that this rule How to Comply with the Regulatory through the Federal eRulemaking Portal:
will not impose new or modify existing Flexibility Act, Ch.1. p.9. Accordingly, http://www.regulations.gov. Follow the
recordkeeping or reporting requirements SBA is not required to conduct a instructions for submitting comments.
under the Paperwork Reduction Act. regulatory flexibility analysis. SBA will post all comments on
Regulatory Flexibility Act (RFA) Jovita Carranza, www.regulations.gov. If you wish to
The Regulatory Flexibility Act (RFA) Administrator. submit confidential business
generally requires that when an agency information (CBI) as defined in the User
[FR Doc. 2020–18940 Filed 8–25–20; 1:00 pm]
issues a proposed rule, or a final rule Notice at www.regulations.gov, please
BILLING CODE P
pursuant to Section 553(b) of the APA send an email to ppp-ifr@sba.gov.
or another law, the agency must prepare Highlight the information that you
a regulatory flexibility analysis that SMALL BUSINESS ADMINISTRATION consider to be CBI and explain why you
meets the requirements of the RFA and believe SBA should hold this
publish such analysis in the Federal 13 CFR Part 134 information as confidential. SBA will
Register. 5 U.S.C. 603, 604. Specifically, review the information and make the
the RFA normally requires agencies to [Docket Number SBA–2020–0042] final determination whether it will
describe the impact of a rulemaking on RIN 3245–AH55
publish the information.
small entities by providing a regulatory FOR FURTHER INFORMATION CONTACT: A
impact analysis. Such analysis must Appeals of SBA Loan Review Call Center Representative at 833–572–
address the consideration of regulatory Decisions Under the Paycheck 0502, or the local SBA Field Office; the
options that would lessen the economic Protection Program list of offices can be found at https://
effect of the rule on small entities. The www.sba.gov/tools/localassistance/
RFA defines a ‘‘small entity’’ as (1) a AGENCY: U.S. Small Business districtoffices.
proprietary firm meeting the size Administration. SUPPLEMENTARY INFORMATION:
standards of the Small Business ACTION: Interim final rule.
Administration (SBA); (2) a nonprofit I. Background Information
organization that is not dominant in its SUMMARY: On April 2, 2020, the U.S. On March 13, 2020, President Trump
field; or (3) a small government Small Business Administration (SBA) declared the ongoing Coronavirus
jurisdiction with a population of less posted on its website an interim final Disease 2019 (COVID–19) pandemic of
than 50,000. 5 U.S.C. 601(3)–(6). Except rule relating to the implementation of sufficient severity and magnitude to
for such small government jurisdictions, sections 1102 and 1106 of the warrant an emergency declaration for all
neither State nor local governments are Coronavirus Aid, Relief, and Economic States, territories, and the District of
‘‘small entities.’’ Similarly, for purposes Security Act (CARES Act or the Act) Columbia. With the COVID–19
of the RFA, individual persons are not (published in the Federal Register on emergency, many small businesses
small entities. April 15, 2020). Section 1102 of the Act nationwide are experiencing economic
The requirement to conduct a temporarily adds a new product, titled hardship as a direct result of the
regulatory impact analysis does not the ‘‘Paycheck Protection Program,’’ to Federal, State, tribal, and local public
apply if the head of the agency ‘‘certifies the U.S. Small Business health measures that have been taken to
that the rule will not, if promulgated, Administration’s (SBA’s) 7(a) Loan minimize the public’s exposure to the
have a significant economic impact on Program. Subsequently, SBA issued a virus. These measures, some of which
a substantial number of small entities.’’ number of interim final rules are government-mandated, have been
5 U.S.C. 605(b). The agency must, implementing the Paycheck Protection implemented nationwide and include
however, publish the certification in the Program (PPP). This interim final rule the closures of restaurants, bars, and
Federal Register at the time of supplements the interim final rule on gyms. In addition, based on the advice
publication of the rule, ‘‘along with a Loan Review Procedures and Related of public health officials, other
statement providing the factual basis for Borrower and Lender Responsibilities measures, such as keeping a safe
such certification.’’ If the agency head posted on SBA’s website on May 22, distance from others or even stay-at-
has not waived the requirements for a 2020 (published on June 1, 2020, in the home orders, are being implemented,
regulatory flexibility analysis in Federal Register), as revised by the resulting in a dramatic decrease in
accordance with the RFA’s waiver interim final rule posted on SBA’s economic activity as the public avoids
provision, and no other RFA exception website on June 22, 2020, in order to malls, retail stores, and other
applies, the agency must prepare the inform PPP borrowers and lenders of the businesses.
regulatory flexibility analysis and process for a PPP borrower to appeal On March 27, 2020, the President

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publish it in the Federal Register at the certain SBA loan review decisions signed the Coronavirus Aid, Relief, and
time of promulgation or, if the rule is under the PPP to the SBA Office of Economic Security Act (the CARES Act)
promulgated in response to an Hearings and Appeals, and requests (Pub. L. 116–136) to provide emergency
emergency that makes timely public comment. assistance and health care response for
compliance impracticable, within 180 DATES: individuals, families, and businesses
days of publication of the final rule. 5 Effective date: This rule is effective affected by the coronavirus pandemic.
U.S.C. 604(a), 608(b). August 25, 2020. The Small Business Administration

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