[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]



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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