January 24, 2021

Volume XI, Number 24

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January 22, 2021

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COVID-19: SBA Issues New Guidance: Ineligibility of Partners and Members to Apply for PPP Loans Individually

On April 14, 2020, the Small Business Administration (SBA) issued a Second Interim Final Rule, providing guidance for individuals with self-employment income who file a Form 1040, Schedule C.  The SBA will continue updating its guidance document and Frequently Asked Questions (FAQ’s), on a regular basis.  The SBA has made it clear that the U.S. government will not challenge actions by lenders that conform to the Interim Final Rules and supporting guidance, as well as the FAQ document.

Most self-employed individuals are allowed to apply directly on their own behalf for PPP loans to recover their self-employment income, with one notable exception.

The Second Interim Final Rule states that “if you are a partner in a partnership, you may not submit a separate PPP loan application for yourself as a self-employed individual. Instead, the self-employment income of general active partners may be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application filed by or on behalf of the partnership. Partnerships are eligible for PPP loans under the Cares Act, and the Administrator has determined, in consultation with the Secretary of the Treasury, that limiting a partnership and its partners (and an LLC filing taxes as a partnership) to one PPP loan is necessary to help ensure that as many eligible borrowers as possible obtain PPP loans before the statutory deadline of June 30, 2020.”

Publication of the Second Interim Final Rule comes nearly two weeks after many businesses, including many partnerships and limited liability companies, have already filed applications and been approved for PPP loans based on a plain reading of the CARES Act, which defines “payroll costs” as “compensation to employees.”

For businesses that filed their applications prior to the publication of the Second Interim Final Rule, there is some guidance indicating that businesses can rely on information known at the time of application, although it may prove to be incorrect, there is not yet clear guidance regarding the ability to amend applications based on new guidance or changes made to previous guidance.

Unfortunately, businesses that filed their applications prior to the publication of the Second Interim Final Rule appear to be foreclosed from seeking to amend their loan application once it has been processed.

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©2020 Pierce Atwood LLP. All rights reserved.National Law Review, Volume X, Number 107
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Christopher E. Howard Corporate Finance Attorney Pierce Atwood Law Firm Portland Maine
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Chris Howard has a unique combination of technical legal skills and hands-on business and finance experience, enabling him to integrate these disciplines into strategies that match client objectives and provide clients with a competitive advantage. His forte is in managing complex commercial transactions and development projects in time-sensitive environments, and in accessing all sectors of the capital markets.

Chris' practice has four areas of focus:

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Robert Ravenelle, Pierce Atwood Law Firm, Portland, Tax Law Attorney
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As head of Pierce Atwood's Federal Income Tax practice, Rob Ravenelle has extensive experience in the planning, negotiation and tax structuring for mergers and acquisitions. He works closely with members of our Business Practice Group to ensure that clients obtain the most economic and tax efficient transaction results possible. Rob's prior experience practicing as a Certified Public Accountant brings unique skills that enhance the value of our services in deal transactions, from mergers to renewable energy tax equity financing to succession planning of closely held...

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Katherine Rand, Pierce Atwood, Employment lawyer
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Having worked in human resources and management in the private sector, Katy Rand brings hands-on experience to her practice.  Her client work primarily involves employment law, with a focus on discrimination, harassment, retaliation, and wage / hour issues.   Katy helps employers avoid litigation, counseling them on compliance and employee relations issues and, where appropriate, negotiating early resolution of disputes.  She also has an active litigation practice, routinely advocating on behalf of employers in state and federal court, as well as before administrative agencies such as the ...

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Andrea Suter represents start-up, family owned, and established companies in a wide range of businesses and industries. Her practice focuses on commercial transactions and contracts, mergers and acquisitions, finance and general corporate law matters.

Prior to joining Pierce Atwood, Andrea worked at well-respected law firms in California’s Bay Area and New York where she gained extensive experience advising clients on growing and realizing value through strategic mergers and acquisitions; efficiently raising capital through private placements, venture round financing and traditional...

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