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SBA releases an Interim Final Rule on Treatment of Owners and Forgiveness of Certain Nonpayroll Costs

Guidance on Related Party Rent

In this Interim Final Rule, the SBA addressed three issues many companies face. The most significant is related party rent.

C corporations and S corporations. The SBA has made it clear that owner employees with less than a 5 % ownership in a C or S Corporation are not subject to the owner employee compensation limitations. This exemption is intended to cover owner employees who have no meaningful ability to influence decisions over how loan proceeds are allocated. No discussion on any minimum ownership of a partnership.

Sub-tenant expenses. The SBA declared you cannot deduct expenses related to a sub-tenant and provided some examples to illustrate.

Related Party Rent. The SBA also stated you cannot deduct all the expenses of a related party rent. In this example, they are limiting the amount you can deduct to no more than the mortgage interest owed on the property during the Covered Period that is being rented by the related party. They have also said related party mortgage interest is not deductible.

Borrowers should review this latest Interim Final Rule.

If you have any questions regarding the latest guidance or how it may affect your forgiveness application, please contact your local Blue & Co. advisor

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