[Federal Register Volume 85, Number 126 (Tuesday, June 30, 2020)]
[Rules and Regulations]
[Pages 39066-39068]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14128]
[[Page 39066]]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 120
[Docket Number SBA-2020-0040]
RIN 3245-AH54
Business Loan Program Temporary Changes; Paycheck Protection
Program--Certain Eligible Payroll Costs
AGENCY: U.S. Small Business Administration.
ACTION: Interim final rule.
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SUMMARY: On April 2, 2020, the U.S. Small Business Administration (SBA)
posted on its website an interim final rule relating to the
implementation of Sections 1102 and 1106 of the Coronavirus Aid,
Relief, and Economic Security Act (CARES Act or the Act) (published in
the Federal Register on April 15, 2020). Section 1102 of the Act
temporarily adds a new product, titled the ``Paycheck Protection
Program,'' to the U.S. Small Business Administration's (SBA's) 7(a)
Loan Program. Subsequently, SBA issued a number of interim final rules
implementing the Paycheck Protection Program. This interim final rule
supplements the previously posted interim final rules by providing
additional guidance on certain eligible payroll costs.
DATES:
Effective Date: The provisions in this interim final rule are
effective June 26, 2020.
Comment Date: Comments must be received on or before July 30, 2020.
ADDRESSES: You may submit comments, identified by number SBA-2020-0040
through the Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
SBA will post all comments on www.regulations.gov. If you wish to
submit confidential business information (CBI) as defined in the User
Notice at www.regulations.gov, please send an email to [email protected].
Highlight the information that you consider to be CBI and explain why
you believe SBA should hold this information as confidential. SBA will
review the information and make the final determination whether it will
publish the information.
FOR FURTHER INFORMATION CONTACT: A Call Center Representative at 833-
572-0502, or the local SBA Field Office; the list of offices can be
found at https://www.sba.gov/tools/local-assistance/districtoffices.
SUPPLEMENTARY INFORMATION:
I. Background Information
On March 13, 2020, President Trump declared the ongoing Coronavirus
Disease 2019 (COVID-19) pandemic of sufficient severity and magnitude
to warrant an emergency declaration for all States, territories, and
the District of Columbia. With the COVID-19 emergency, many small
businesses nationwide are experiencing economic hardship as a direct
result of the Federal, State, tribal, and local public health measures
that are being taken to minimize the public's exposure to the virus.
These measures, some of which are government-mandated, have been
implemented nationwide and include the closures of restaurants, bars,
and gyms. In addition, based on the advice of public health officials,
other measures, such as keeping a safe distance from others or even
stay-at-home orders, have been implemented, resulting in a dramatic
decrease in economic activity as the public avoids malls, retail
stores, and other businesses.
On March 27, 2020, the President signed the Coronavirus Aid,
Relief, and Economic Security Act (the CARES Act) (Pub. L. 116-136) to
provide emergency assistance and health care response for individuals,
families, and businesses affected by the coronavirus pandemic. The
Small Business Administration (SBA) received funding and authority
through the CARES Act to modify existing loan programs and establish a
new loan program to assist small businesses nationwide adversely
impacted by the COVID-19 emergency.
Section 1102 of the CARES Act temporarily permits SBA to guarantee
100 percent of 7(a) loans under a new program titled the ``Paycheck
Protection Program.'' Section 1106 of the CARES Act provides for
forgiveness of up to the full principal amount of qualifying loans
guaranteed under the Paycheck Protection Program (PPP).
On April 24, 2020, the President signed the Paycheck Protection
Program and Health Care Enhancement Act (Pub. L. 116-139), which
provided additional funding and authority for the PPP. On June 5, 2020,
the President signed the Paycheck Protection Program Flexibility Act of
2020 (Flexibility Act) (Pub. L. 116-142), which changed provisions of
the PPP relating to the maturity of PPP loans, the deferral of PPP loan
payments, and the forgiveness of PPP loans.
This interim final rule addresses payroll costs that may be
included on a PPP loan application submitted by certain boat owners or
operators that are engaged in catching fish or other forms of aquatic
animal life (fishing boat owners) and that have hired one or more
crewmembers who are regarded as independent contractors or otherwise
self-employed for certain federal tax purposes under 26 U.S.C.
3121(b)(20) of the Internal Revenue Code (the Code). A crewmember may
be described in Section 3121(b)(20) of the Code if the fishing boat on
which he or she works has an operating crew that is normally made up of
fewer than 10 individuals and the crewmember receives as compensation
for his or her work a share of the boat's catch or of the proceeds from
the sale of the catch, in an amount that depends on the amount of the
catch. Such a crewmember generally may not receive additional cash
remuneration or other compensation for his or her services with respect
to the fishing boat. A fishing boat owner must report compensation paid
to such a crewmember on Box 5 of IRS Form 1099-MISC. The First Interim
Final Rule, posted on April 2, 2020, provided that because independent
contractors have the ability to apply for a PPP loan on their own, they
do not count for purposes of another applicant's PPP loan calculation.
85 FR 20811, 20813 (April 15, 2020). Because crewmembers described in
Section 3121(b)(20) of the Code are treated as independent contractors
or otherwise self-employed for certain federal tax purposes, fishing
boat owners have faced uncertainty about whether to report payments to
such crewmembers as a payroll cost on their PPP loan applications.
On April 14, 2020, SBA, in consultation with Treasury, posted an
interim final rule explaining that the self-employment income of the
general active partners of a partnership could be reported as a payroll
cost, up to $100,000 annualized, on a PPP loan application filed by or
on behalf of the partnership.\1\ 85 FR 21747, 21748 (April 20, 2020).
The Administrator, in consultation with the Secretary, has determined
that the relationship of a fishing boat owner and a crewmember
described in Section 3121(b)(20) of the Code is analogous to a joint
venture or partnership. For example, the fishing boat owner and
crewmembers each contribute labor or resources to a common commercial
enterprise, and the owner and crewmembers share in the enterprise's
profits. In order to
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harmonize SBA's interim final rule regarding partnerships with SBA's
interim final rule described above regarding independent contactors,
the Administrator, in consultation with the Secretary, has determined
that in the event of a conflict (i.e., a case where one or more
partners in a partnership are treated as independent contractors for
tax purposes), the rules regarding partnership will govern.
Accordingly, as described below, this interim final rule (1) provides
that a fishing boat owner may include compensation reported on Box 5 of
Form 1099-MISC and paid to a crewmember described in Section
3121(b)(20) as a payroll cost in its PPP loan application, and (2)
addresses a fishing boat owner's eligibility to obtain loan forgiveness
of payroll costs paid to a crewmember who has obtained his or her own
PPP loan.
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\1\ Guidance describing how to calculate partnership PPP loan
amounts and defining the self-employment income of partners was
posted on April 24, 2020 (see How to Calculate Maximum Loan Amounts,
Question 4, at https://www.sba.gov/sites/default/files/2020-06/How-to-Calculate-Loan-Amounts-508_0.pdf).
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II. Comments and Immediate Effective Date
This interim final rule is effective without advance notice and
public comment because Section 1114 of the CARES Act authorizes SBA to
issue regulations to implement Title I of the Act without regard to
notice requirements. In addition, SBA has determined that there is good
cause for dispensing with advance public notice and comment on the
grounds that that it would be contrary to the public interest.
Specifically, advance public notice and comment would defeat the
purpose of this interim final rule given that SBA's authority to
guarantee PPP loans expires on June 30, 2020. These same reasons
provide good cause for SBA to dispense with the 30-day delayed
effective date provided in the Administrative Procedure Act (APA). See
5 U.S.C. 553(b)(B). Although this interim final rule is effective on or
before date of filing, comments are solicited from interested members
of the public on all aspects of the interim final rule, including
Section III below. These comments must be submitted on or before July
30, 2020. The SBA will consider these comments and the need for making
any revisions as a result of these comments.
III. Paycheck Protection Program--Additional Guidance on Certain
Eligible Payroll Costs
Overview
The CARES Act was enacted to provide immediate assistance to
individuals, families, and organizations affected by the COVID-19
emergency. Among the provisions contained in the CARES Act are
provisions authorizing SBA to temporarily guarantee loans under a new
7(a) loan program titled the ``Paycheck Protection Program.'' Loans
guaranteed under the Paycheck Protection Program (PPP) will be 100
percent guaranteed by SBA, and the full principal amount of the loans
may qualify for loan forgiveness. The purpose of this interim final
rule is to provide additional guidance concerning payroll costs that
may be reported in connection with certain PPP loan and loan
forgiveness applications.
1. Calculation of Payroll Costs of Certain Fishing Boat Owners
May fishing boat owners include payroll costs in their PPP loan
applications that are attributable to crewmembers described in Section
3121(b)(20) of the Internal Revenue Code?
Yes. The Administrator, in consultation with the Secretary, has
determined that the relationship of a crewmember described in Section
3121(b)(20) of the Internal Revenue Code (Code) and a fishing boat
owner or operator (fishing boat owner) is analogous to a joint venture
or partnership for purposes of the PPP. As a result, a fishing boat
owner may include compensation reported on Box 5 of IRS Form 1099-MISC
and paid to a crewmember described in Section 3121(b)(20) of the Code,
up to $100,000 annualized, as a payroll cost in its PPP loan
application. The Administrator, in consultation with the Secretary, has
determined that this treatment is appropriate to effectuate the
purposes of the CARES Act to provide assistance to eligible PPP
borrowers, including business concerns that operate as partnerships,
affected by the COVID-19 emergency.
2. Calculation of Certain Payroll Costs Eligible for Loan Forgiveness
May a fishing boat owner include as payroll costs in its
application for loan forgiveness any compensation paid to a crewmember
who received his or her own PPP loan and is seeking forgiveness for
amounts of compensation the crewmember received for performing services
described in Section 3121(b)(20) of the Code with respect to that
owner's fishing boat?
No. If a fishing boat crewmember obtains his or her own PPP loan
and seeks forgiveness of that loan based in part on compensation from a
particular fishing boat owner, the fishing boat owner cannot also
obtain PPP loan forgiveness based on compensation paid to that same
crewmember. This restriction applies only if the crewmember is
performing services described in Section 3121(b)(20) of the Code for
the particular fishing boat owner. The Administrator, in consultation
with the Secretary, has determined that this restriction is necessary
to prevent fishing boat owners and crewmembers from claiming
forgiveness for the same payroll costs (for the owner's PPP loan, the
compensation to a specific crewmember; for the crewmember's PPP loan,
the compensation from the owner to that crewmember). As a result, only
the crewmember's PPP loan is eligible for forgiveness, and the owner
may not obtain forgiveness for any payroll costs paid to the
crewmember. The fishing boat owner is responsible for determining
whether any of its crewmembers during the covered period for loan
forgiveness received their own PPP loans. Due to the increased risk of
duplicate payroll costs, PPP loans to fishing boat owners are more
likely to be subject to an SBA loan review.
3. Additional Information
SBA may provide further guidance, if needed, through SBA notices
that will be posted on SBA's website at www.sba.gov. Questions on the
Paycheck Protection Program may be directed to the Lender Relations
Specialist in the local SBA Field Office. The local SBA Field Office
may be found at https://www.sba.gov/tools/local-assistance/districtoffices.
Compliance With Executive Orders 12866, 12988, 13132, 13563, and 13771,
the Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory
Flexibility Act (5 U.S.C. 601-612)
Executive Orders 12866, 13563, and 13771
This interim final rule is economically significant for the
purposes of Executive Orders 12866 and 13563, and is considered a major
rule under the Congressional Review Act. SBA, however, is proceeding
under the emergency provision at Executive Order 12866 Section
6(a)(3)(D) based on the need to move expeditiously to mitigate the
current economic conditions arising from the COVID-19 emergency. This
rule's designation under Executive Order 13771 will be informed by
public comment.
Executive Order 12988
SBA has drafted this rule, to the extent practicable, in accordance
with the standards set forth in Section 3(a) and 3(b)(2) of Executive
Order 12988, to minimize litigation, eliminate ambiguity, and reduce
burden. The rule has no preemptive or retroactive effect.
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Executive Order 13132
SBA has determined that this rule will not have substantial direct
effects on the States, on the relationship between the National
Government and the States, or on the distribution of power and
responsibilities among the various layers of government. Therefore, SBA
has determined that this rule has no federalism implications warranting
preparation of a federalism assessment.
Paperwork Reduction Act, 44 U.S.C. Chapter 35
SBA has determined that this rule will not impose new or modify
existing recordkeeping or reporting requirements under the Paperwork
Reduction Act.
Regulatory Flexibility Act (RFA)
The Regulatory Flexibility Act (RFA) generally requires that when
an agency issues a proposed rule, or a final rule pursuant to Section
553(b) of the APA or another law, the agency must prepare a regulatory
flexibility analysis that meets the requirements of the RFA and publish
such analysis in the Federal Register. 5 U.S.C. 603, 604. Specifically,
the RFA normally requires agencies to describe the impact of a
rulemaking on small entities by providing a regulatory impact analysis.
Such analysis must address the consideration of regulatory options that
would lessen the economic effect of the rule on small entities. The RFA
defines a ``small entity'' as (1) a proprietary firm meeting the size
standards of the Small Business Administration (SBA); (2) a nonprofit
organization that is not dominant in its field; or (3) a small
government jurisdiction with a population of less than 50,000. 5 U.S.C.
601(3)-(6). Except for such small government jurisdictions, neither
State nor local governments are ``small entities.'' Similarly, for
purposes of the RFA, individual persons are not small entities.
The requirement to conduct a regulatory impact analysis does not
apply if the head of the agency ``certifies that the rule will not, if
promulgated, have a significant economic impact on a substantial number
of small entities.'' 5 U.S.C. 605(b). The agency must, however, publish
the certification in the Federal Register at the time of publication of
the rule, ``along with a statement providing the factual basis for such
certification.'' If the agency head has not waived the requirements for
a regulatory flexibility analysis in accordance with the RFA's waiver
provision, and no other RFA exception applies, the agency must prepare
the regulatory flexibility analysis and publish it in the Federal
Register at the time of promulgation or, if the rule is promulgated in
response to an emergency that makes timely compliance impracticable,
within 180 days of publication of the final rule. 5 U.S.C. 604(a),
608(b).
Rules that are exempt from notice and comment are also exempt from
the RFA requirements, including conducting a regulatory flexibility
analysis, when among other things the agency for good cause finds that
notice and public procedure are impracticable, unnecessary, or contrary
to the public interest. SBA Office of Advocacy guide: How to Comply
with the Regulatory Flexibility Act, Ch.1. p.9. Accordingly, SBA is not
required to conduct a regulatory flexibility analysis.
Jovita Carranza,
Administrator.
[FR Doc. 2020-14128 Filed 6-26-20; 11:15 am]
BILLING CODE 8026-03-P