On June 25, 2020, the U.S. Small Business Administration (“SBA”) posted a twenty-second Interim Final Rule on on Certain Eligible Payroll Costs. This Interim Final Rule addresses payroll costs that may be included on a Paycheck Protection Program (“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 crew members 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”). 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.
Interim Final Rule 1, 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. Because crew members 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 crew members as a payroll cost on their PPP loan applications.
The Administrator, in consultation with the Secretary of the Treasury, has determined that the relationship of a fishing boat owner and a crew member described in Section 3121(b)(20) of the Code is analogous to a joint venture or partnership. For example, the fishing boat owner and crew members each contribute labor or resources to a common commercial enterprise, and the owner and crew members share in the enterprise’s profits. In order to harmonize SBA’s interim final rule regarding partnerships with SBA’s interim final rule described above regarding independent contractors, the Administrator, in consultation with the Secretary of the Treasury, 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 provides that:
Section III (1.) A fishing boat owner may include compensation reported on Box 5 of IRS Form 1099-MISC and paid to a crew member described in Section 3121(b)(20) of the Code, up to $100,000 annualized, as a payroll cost in its PPP loan application.
Section III (2.) If a fishing boat crew member 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 crew member. This restriction applies only if the crew member is performing services described in Section 3121(b)(20) of the Code for the particular fishing boat owner.
The fishing boat owner is responsible for determining whether any of its crew members 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.
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