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Minister’s Housing Allowance Can Be Included in Payroll Costs for PPP Loans

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In an FAQ just released this afternoon, the U.S. Small Business Administration (SBA) states that it has approved the inclusion of the minister’s housing allowance in payroll costs for purposes of applying for a Paycheck Protection Program (PPP) loan and seeking forgiveness of that loan.

Here is the text from the FAQ:

32. Question: Does the cost of a housing stipend or allowance provided to an employee as part of compensation count toward payroll costs?

Answer: Yes. Payroll costs includes all cash compensation paid to employees, subject to the $100,000 annual compensation per employee limitation.

In addition, the SBA provided guidance regarding the determination that an employee’s principal place of residence is in the United States. The text of that FAQ reads:

33. Question: Is there existing guidance to help PPP applicants and lenders determine whether an individual employee’s principal place of residence is in the United States?

Answer: PPP applicants and lenders may consider IRS regulations (26 CFR § 1.121-1(b)(2)) when determining whether an individual employee’s principal place of residence is in the United States.

Note that we discussed this approach in our recent article on Mission Agencies and Paycheck Protection Program Loans. There we stated:

A third potential source of guidance as to the location of an individual’s principal place of residence is Internal Revenue Code (IRC) section 121, the code section that excludes from gross income a portion of the gain realized from the sale of a principal residence. Among the factors considered in determining whether a property is a taxpayer’s principal residence are:

  1. The number of days in a year the taxpayer spends at the residence.
  2. The taxpayer’s place of employment. [This is the location where the employee performs services; not the location of the employer’s principal offices.]
  3. The principal place of abode of the taxpayers’ family members. [This is the location where daily living activities take place.]
  4. The address listed on the taxpayer’s federal and state tax returns, driver’s license, automobile registration, and voter registration card.
  5. The taxpayer’s mailing address for bills and correspondence.
  6. The location of the taxpayer’s banks.
  7. The location of religious organizations and recreational clubs with which the taxpayer is affiliated

Readers familiar with the factors that make up the bona fide residence test used to determine eligibility for the foreign earned income exclusion will recognize that many of these factors are used in that test as well.

These factors must be viewed under the totality of the circumstances. For example, the mere fact that someone has maintained their U.S. voter registration, a U.S. driver’s license, and a convenience address in the U.S. will not overcome the fact that the taxpayer spends the majority of their time outside the U.S. and that their family’s principal place of abode is outside the U.S. The bottom line is that in most cases these factors will tend to establish that a foreign-serving missionary’s principal place of residence is outside the U.S.

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