SBA Finally Issues IFR on Schedule C SE Income for PPP

Today the SBA issued an Interim Final Rule (IFR) allowing Schedule C filers to apply for a PPP loan based on line 7 Gross Income of Schedule C.

This will allow many business owners to get a maximum $20,833 loan for their income even though they showed a loss on their Schedule C.  This is just like the new rules for Farmer’s Schedule F borrowers.

However, this rule is applicable after the date this gets published in the federal register and if you already have gotten a loan based on the old rules you are prevented from increasing the loan.

If the borrower also has employees, they can borrow based on their SE gross income (limited to $100,000) plus the amount of employee’s payroll costs.  However, you do have to reduce line 7 gross income by total employee payroll costs.  If that number is still greater than $100,000, you still qualify for the $20,833 loan plus the employee portion.  The IFR calls this “proprietor expenses” which is all non-payroll expenses plus owner “compensation” (net profit).

If you report more than $150,000 of gross income you will likely have to provide documentation to receive the PPP loan even if the total loan is less than $150,000.  This is new and will provide more scrutiny by the SBA as to whether the borrower needed the funds.

IMPORTANT FOR FARMERS

The IFR does not address whether farm partnerships can apply for a PPP loan based on gross income reported on line 9 of Schedule F.  However, the IFR on page 21 is very clear that loan forgiveness for a partnership related to partner’s net income will be based solely on net self-employment income reported on the partnership return.

What this means is that many banks (we have heard) are allowing farm partnerships to borrow based on gross income reported on line 9.  However, when you apply for loan forgiveness, it will be limited to net SE income for each partner.  One way to still get full forgiveness is to have enough employee payroll costs and other qualified expenses.  However, the SBA may still determine that your loan amount should have been lower based on SE income and will make you pay the difference.

The SBA is still getting pressure from various farm groups and farm state Senators and House members to approve gross income for farm partnerships but this has not happened yet, and SBA and the Administration may not view this as helping disadvantaged borrowers based on the language in this IFR.