[Federal Register Volume 85, Number 113 (Thursday, June 11, 2020)]
[Rules and Regulations]
[Pages 35550-35553]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12623]
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SMALL BUSINESS ADMINISTRATION
13 CFR Parts 120 and 121
[Docket Number SBA-2020-0034]
RIN 3245-AH48
Business Loan Program Temporary Changes; Paycheck Protection
Program--Eligibility of Certain Telephone Cooperatives
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 an interim final rule announcing the implementation of the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The
CARES Act temporarily adds a new program, titled the ``Paycheck
Protection Program,'' to the SBA's 7(a) Loan Program. The CARES Act
also provides for forgiveness of up to the full principal amount of
qualifying loans guaranteed under the Paycheck Protection Program
(PPP). The PPP is intended to provide economic relief to small
businesses nationwide adversely impacted by the Coronavirus Disease
2019 (COVID-19). This interim final rule supplements previously
published interim final rules by providing guidance on additional
eligibility requirements for certain telephone cooperatives, and
requests public comment.
DATES:
Effective date: This rule is effective June 8, 2020.
Applicability date: This interim final rule applies to applications
submitted under the Paycheck Protection Program through June 30, 2020,
or until funds made available for this purpose are exhausted.
Comment date: Comments must be received on or before July 13, 2020.
ADDRESSES: You may submit comments, identified by number SBA-2020-0034
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
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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: SBA posted additional interim final rules on
April 3, 2020, April 14, 2020, April 24, 2020, April 28, 2020, April
30, 2020, May 5, 2020, May 8, 2020, May 13, 2020, May 14, 2020, May 18,
2020, May 20, 2020, and May 22, 2020; SBA and Treasury posted an
additional interim final rule on May 22, 2020; and the Department of
the Treasury posted an additional interim final rule on April 28, 2020.
This interim final rule supplements the previously posted interim final
rules by providing guidance on additional eligibility requirements for
certain telephone cooperatives, and requests public comment.
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, are being
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, are being 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.
Among the categories of entities that are eligible PPP borrowers
are business concerns and certain nonprofit organizations described in
section 501(c)(3) of the Internal Revenue Code (the Code). This interim
final rule addresses the eligibility of mutual or cooperative telephone
companies that are described in section 501(c)(12) of the Internal
Revenue Code (telephone cooperatives) as PPP borrowers. Existing SBA
regulations define ``business concern'' as ``a business entity
organized for profit,'' subject to certain limitations. 13 CFR
121.105(a)(1). Generally, telephone cooperatives are organizations that
are owned and controlled by members who receive telecommunications
services from the cooperative. Telephone cooperatives periodically
return any excess of net operating revenues over their cost of
operations--such as through ``capital credits''--to their member-
owners. In addition, telephone cooperatives meeting the description of
section 501(c)(12) of the Code may be exempt from federal income
taxation under section 501(a) of the Code. To qualify for the
exemption, a telephone cooperative must receive at least 85 percent of
its income each year from its members. The 85 percent member income
test is computed annually. A telephone cooperative may be exempt in one
year, lose exemption in another year if it does not derive at least 85
percent of its income from members, and become exempt in a third year.
Because of their potential tax exemption under section 501(c)(12) of
the Code, telephone cooperatives have faced uncertainty about their
eligibility to receive PPP loans.
The Administrator, in consultation with the Secretary, understands
that telephone cooperatives are unusual in that they may be exempt from
taxation or organized under state nonprofit statutes in certain
jurisdictions, while they operate as businesses. For example, telephone
cooperatives provide telecommunications services and distribute capital
credits to their member-owners.
On May 14, 2020, SBA posted an interim final rule providing that
certain electric cooperatives, which may also be exempt from taxation
or organized under state nonprofit statutes, but which return any
excess of net operating revenues over their cost of operations to their
member-owners, will be considered to be ``a business entity organized
for profit'' under 13 CFR 121.105(a)(1) for purposes of the PPP and
therefore eligible to receive PPP loans, provided they meet other
eligibility criteria. See 85 FR 29847. Because telephone cooperatives
also operate as businesses, as described below, and to provide
certainty to potential PPP applicants, this interim final rule provides
that, for purposes of the PPP, a telephone cooperative that is exempt
from federal income taxation under section 501(c)(12) of the Code also
will be considered to be ``a business entity organized for profit''
under 13 CFR 121.105(a)(1). As a result, such telephone cooperatives
are eligible PPP borrowers, as long as other eligibility requirements
are met.
II. Comments and Immediate Effective Date
The intent of the Act is that SBA provide relief to America's small
businesses expeditiously. This intent, along with the dramatic decrease
in economic activity nationwide, provides good cause for SBA to
dispense with the 30-day delayed effective date provided in the
Administrative Procedure Act. Specifically, it is critical to meet
lenders' and borrowers' need for clarity concerning program
requirements as rapidly as possible because the last day eligible
borrowers can apply for and receive a loan is June 30, 2020.
This interim final rule supplements previous regulations and
guidance on an important, discrete issue. The immediate effective date
of this interim final rule will benefit lenders so that they can
swiftly close and disburse loans to small businesses. This interim
final rule is effective without advance notice and public comment
because section 1114 of the Act authorizes SBA to issue regulations to
implement Title I of the Act without regard to notice requirements.
This rule is being issued to allow for immediate implementation of this
program. Although this interim final rule is effective immediately,
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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 13, 2020. SBA will
consider these comments and the need for making any revisions as a
result of these comments.
III. Paycheck Protection Program Additional Eligibility Criteria
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 the
PPP. Loans under the PPP will be 100 percent guaranteed by SBA, and the
full principal amount of the loans and any accrued interest may qualify
for loan forgiveness. Additional information about the PPP is available
in interim final rules published by SBA and the Department of the
Treasury in the Federal Register (85 FR 20811, 85 FR 20817, 85 FR
21747, 85 FR 23450, 85 FR 23917, 85 FR 26321, 85 FR 26324, 85 FR 27287,
85 FR 29845, 85 FR 29842, 85 FR 29847, 85 FR 30835, 85 FR 31357, 85 FR
33004, and 85 FR 33010), collectively, the PPP Interim Final Rules.
1. Eligibility of Certain Telephone Cooperatives
Are telephone cooperatives that are exempt from federal income
taxation under section 501(c)(12) of the Internal Revenue Code eligible
for a PPP loan?
Yes. Telephone cooperatives provide telecommunications services and
return any excess of net operating revenues over their cost of
operations to their member-owners, such as through capital credits.
Accordingly, for purposes of the PPP, the Administrator, in
consultation with the Secretary, has determined that a telephone
cooperative that is exempt from federal income taxation under section
501(c)(12) of the Internal Revenue Code will be considered to be ``a
business entity organized for profit'' for purposes of 13 CFR
121.105(a)(1). As a result, such entities are eligible PPP borrowers,
as long as other eligibility requirements are met. To be eligible, a
telephone cooperative must satisfy the employee-based size standard
established in the CARES Act, SBA's employee-based size standard
corresponding to its primary industry, if higher, or both tests in
SBA's ``alternative size standard.'' \1\ 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,
affected by the COVID-19 emergency.
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\1\ Under the alternative size standard, a business concern,
including a telephone cooperative, can qualify for the PPP as a
small business concern if, as of March 27, 2020: (1) The maximum
tangible net worth of the business was not more than $15 million;
and (2) the average net income after Federal income taxes (excluding
any carry-over losses) of the business for the two full fiscal years
before the date of the application is not more than $5 million. For
a telephone cooperative that does not have net income, the telephone
cooperative's capital credits distributed to its owner-members will
be considered its net income.
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2. 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.
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
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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. 2020-12623 Filed 6-8-20; 2:00 pm]
BILLING CODE 8026-03-P