Fishing For PPP Loans And Forgiveness – SBA Gives Fishermen A Nice Catch

“Fishing for forgiveness…”

Those who are familiar with the rules governing the Paycheck Protection Program know how much of a challenge it has been to understand and advise clients who do not fit into the mold to allow for efficient and effective spending of loan monies to achieve forgiveness.  Commercial anglers, and recreational fishing captains with mates, found themselves being a square peg trying to fit into a round hole, but fortunately will have their boats bailed out by special SBA guidance, which is described below. 

Let’s hope that future SBA guidance helps other similarly situated industries.  No-one seems to know how the fishing industry achieved this perhaps political good result, but whoever made this happen should be drawing many kudos, if not campaign contributions (in cash or fish?), from a very happy industry.

The PPP was designed to be accessible to as many kinds of businesses as possible. While well intentioned, the rules and applications issued by the SBA have caused much disappointment for a great many businesses and professionals.  The SBA and the Treasury have tried to bridge these gaps in understanding by releasing specifically targeted advice and rules for telephone cooperatives, electric cooperatives, churches, employees with seasonal employees, and now fishermen.  

Fishing vessel owners have a unique PPP scenario because Section 3121(b)(20) of the Internal Revenue Code makes the relationship between a crew member and a fishing boat owner analogous to a joint venture or partnership for employment category purposes, even though crew members would otherwise be characterized as employees, if not for these special rules.  

While this may feel bizarrely specific, these rules may give us a hint about future guidance to come for other industries who are instructed under the tax law to treat “employed” individuals as non-employees. 

The June 25th rules that throw anglers a line are as follows:

1.  Fishing boat owners can include payroll costs attributable to crew members in their PPP loan applications. 

It was unknown whether fishing boat owners, who file as Schedule C individual business owners and have less than 10 crew members, can treat compensation paid to crew members as payroll costs in their loan application because I.R.C. Section 3121(b)(20), in effect, makes the crew members non-employees. The SBA’s answer was yes. 

The exact language of the Interim Final Rule, which removes the hook, is as follows: 

  • “The Administrator, in consultation with the Secretary, has determined that the relationship of a crew member 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 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.”

Presumably, since boat owners are able to report expenses paid for crew members as if they were normal employees, the normal employee compensation caps of $15,385 ($100,000 x 8/52) for an 8-week covered period and $46,154 ($100,000 x 24/52) for a 24-week covered period would apply. 

2. Fishing boat owners cannot seek forgiveness for compensation paid to crew members who also received PPP loans. 

Because many crew members are not technically “employees,” they were eligible to receive their own PPP loans. This left boat owners wondering if they could include payroll costs for compensation paid to a crew member who received their own PPP in their forgiveness application. The SBA’s answer was no. 

The language of the rule, which casts a broad net, is as follows:   

  • “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 intention here is to prevent double dipping on forgiveness. The unique employer-employee relationship between the boat owner and crew member allows both the employment provider and the labor provider to have PPP loans out at the same time. 

The Interim Final Rule goes on to provide that “The Administrator, in consultation with the Secretary, has determined that this restriction is necessary to prevent fishing boat owners and crew members from claiming forgiveness for the same payroll costs (for the owner’s PPP loan, the compensation to a specific crew member; for the crew member’s PPP loan, the compensation from the owner to that crew member). As a result, only the crew member’s PPP loan is eligible for forgiveness, and the owner may not obtain forgiveness for any payroll costs paid to the crew member.

Interestingly, while the rule explicitly puts the impetus on the boat owner to be aware of whether crew members have taken PPP loans, there does not appear to be any duty on the part of crew members to disclose whether they have received such loans.  

Finally, the rule explicitly states that “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.” This should be seen as a warning to borrowers who have a unique business structure that could create PPP loan overlap between owners and “employees” or independent contractors. These kinds of borrowers should ensure their expense documentation is airtight, so as to avoid any extra scrutiny from the SBA or Treasury. 

What does this mean for regular PPP borrowers who may have to sink or swim?

One theme is the SBA and the Treasury’s desire to prevent overlapping loans and forgiveness, and to give all business owners and contractors the ability to seek a PPP loan and forgiveness. 

In an Interim Final Rule released on May 22nd, the SBA discussed caps on an owner’s compensation at the lesser of 8/52 of 2019 compensation or $15.385. The rule stated that the cap applied “in total across all businesses.” Many advisors believed this meant that if an individual owns more than one business, the cap on the owner’s compensation is an aggregate across each of the businesses. This may become a problem, however, because many thousands of borrowers likely took the full owner’s compensation amount available for each business.

For example, say you have a borrower who owns 100% of four different S corporations. The borrower’s 2019 compensation from each business was over $100,000, so they take the maximum amount of owner compensation for an 8-week period ($15,385) for all four businesses for a total of $61,540. After the SBA imposed the aggregate cap, the owner will now only be able to count $15,385 of that total towards forgiveness. This leaves $46,155 leftover that the borrower will have to cover with other expenses, if they still want to reach full forgiveness.

The question then becomes, ‘How will the SBA treat these individuals, considering that they retroactively capped the amount borrowers were allowed to consider as forgivable owner’s compensation?’ On one hand, the SBA retroactively imposed the cap, and it certainly seems unfair to punish borrowers for breaking a rule that did not even exist at the time they took the loan. On the other hand, the SBA and the Treasury have been very intentional in ensuring that borrowers do not double dip (into the ocean) on loans or forgiveness, as evidenced by the new rules governing fishing boat owners. We hope to receive any further official guidance on this dilemma before the hopes of many borrowers sink, and certainly fishing businesses do not think this is punny.

The window to apply for PPP loans has been extended to August 8th, so the SBA and Treasury still have the opportunity to provide clarified guidance on the loan application process. Keep a close eye on the Treasury’s website: ( as they may release a wave of guidance in response to the extension of the program in the coming days.

Furthermore, if you have been following the PPP closely, then buckle up (and put your life preserver on) for round two, as Congress will begin to negotiate the next round of Coronavirus aid over the coming months. We are ‘gonna’ need a bigger boat.

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