June 26, 2020 — We at Saving Seafood have been working with the Commerce Department and the White House to address a problem with the Payroll Protection Plan (PPP) that prevented vessel owners from applying, because under the IRS code they pay crew-members via 1099. We worked closely with David Frulla of Kelley Drye, David Borden of the Offshore Lobstermen’s Association, and Pamela Lafreniere of the Port of New Bedford, who all provided a great deal of technical assistance.
The issue is discussed at length on our Saving Seafood Coronavirus information portal, https://www.savingseafood.org/coronavirus/ .
The link to go directly to the PPP section is here.
Because the initial guidance for the PPP program stated that businesses could not use payments to independent contractors in their calculations of payroll for purposes of determining the eligible PPP loan amount, vessel owners were not eligible. Accordingly, we requested an amendment to the interim final rule:
- that would allow a commercial fishing vessel owner to include 1099 payments to crew in 2019 as “payroll” in applying for a PPP loan and determining maximum loan amount;
- that a fishing vessel owner’s payments to crew from PPP loan proceeds likewise be treated as “payroll” under the PPP for purposes of determining the fishing vessel owner’s appropriate use of PPP loan proceeds, PPP loan forgiveness, and documentation to the lender for PPP loan forgiveness
This morning, the Small Business Administration granted this request and published such an amendment. It is available here.
We want to specifically thank Joseph Russo, Special Assistant to the President and Director of Business Outreach at the White House Office of Public Liaison, and Patrick Wilson, Director of the Office of Business Liaison at the U.S. Department of Commerce for their assistance in bringing these concerns to the SBA and the Treasury Department.
IMPORTANT: This Tuesday, June 30 is the deadline for small businesses to apply for forgivable PPP loans. If you want to apply, you should contact your banker and accountant immediately and assemble the application over the weekend.
The relevant section of the amendment is included below:
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. 85 FR 21747, 21748 (April 20, 2020). The Administrator, in 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 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, 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.