October 24, 2021

Volume XI, Number 297


October 22, 2021

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SBA Releases Interim Final Rule Related to Owner-Employee Compensation and Related Party Nonpayroll Costs

The U.S. Small Business Administration issued an Interim Final Rule on August 25, 2020 (the “Rule”), addressing owner-employee compensation and related party nonpayroll costs.

The Rule creates a threshold for owner-employee compensation caps. The Rule states that owner-employees with less than a 5% ownership stake in a C- or S-Corporation are not subject to the owner-employee compensation rule.

The Rule further addresses related party nonpayroll costs. Loan forgiveness for nonpayroll costs must not include any amount attributable to the business operation of a tenant or sub-tenant or, for home-based businesses, household expenses. The Rule provides for various examples to illustrate.

The Rule confirms that related party rent payments are eligible for forgiveness as long as (1) the amount of loan forgiveness 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. Mortgage interest payments to a related party are not eligible for forgiveness. When applying for forgiveness, the borrower must provide mortgage interest documentation to substantiate the payments. For purposes of the Rule, related party is defined as ownership in common between the business and the property owner.

The Interim Final Rule is available HERE.

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume X, Number 240

About this Author

Phil Feigen of the Polsinelli Law Firm Corporate Transaction Attorney, in Washington DC
Office Managing Partner

Phil Feigen brings a unique perspective to providing general corporate advice, as well as complex business counsel to clients in ever-changing regulatory environments.  For more than 20 years, Phil has been providing guidance with respect to Small Business Investment Companies and other Small Business Administrative regulations, federal and state banking laws and federal securities laws. 

Phil focuses on helping clients through the SBIC licensing process so that they may realize the benefits of the program and increase the amount of investment...

Sara C. Ainsworth Securities & Corporate Finance Attorney Polsinelli Washington, D.C.

As an associate in the Securities & Corporate Finance practice, clients rely on Sara Ainsworth to work with Polsinelli’s team of attorneys to analyze each transaction matter to develop a strategic approach to representation based on the client’s immediate and long-term business and operational goals.

Working closely with seasoned Polsinelli attorneys in the Securities & Corporate Finance practice, Sara helps deliver a range of legal services during the life cycle of the client’s business—from selecting the appropriate choice of entity through to exit strategy.  Her practice...