2020 Year-End Tax Guide

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THE MARCUM 2020 YEAR-END TAX GUIDE

Nonprofit Stimulus: Year in Review

EIDL PROGRAM All other types of nonprofit organizations such as 501(c)(4) (social welfare organizations) and 501(c)(6) (trade and professional associations) entities with 500 or fewer employees that were in existence at March 1, 2020, were provided the opportunity to apply for emergency financial relief under the Economic Injury Disaster Loan (EIDL) grant program. The existing EIDL program was originally slated to provide loans of up to $2 million but was quickly revised down to $150,000. The loans are available at an interest rate of 2.75 percent for nonprofits. Loan payment can be deferred for one year for loan maturities of up to 30 years. These loans may be used to pay fixed debts, payroll, accounts payable and other bills outstanding due to the impact of the pandemic. Qualifying nonprofits may apply for an EIDL loans in addition to a PPP loan as long as the funding is not used for the same purpose. Perhaps more significantly for nonprofits in need of an immediate influx of funds was the EIDL emergency cash advance of $1,000 per employee up to a maximum of $10,000. These advances were disbursed quickly and awarded even if the EIDL loan application was denied, with no requirement for the recipient to repay the funds. Emergency advance funds can be used for payroll, increased material costs, rent or mortgage payments, or repaying other obligations that cannot otherwise be met because of revenue losses due to the pandemic. STABILIZATION FUND Larger entities with 500 to 10,000 employees can find financial relief through a new Stabilization Fund. While it does not provide for loan forgiveness, the fund does mandate an interest rate of no more than 2 percent and does not accrue interest or require repayment for the first six months. To qualify, the nonprofit must retain or rehire 90 percent of its staff at full compensation.

MAIN STREET LENDING PROGRAM Later in the year, the Federal Reserve Board expanded the Main Street Lending Program to larger nonprofit organizations such as educational institutions, hospitals, and social service organizations. This program provides for loans through two lending facilities: the New Loan Facility and the Expanded Loan Facility. The former offers loans of up to $250,000 over five years while the latter allows for up to $10 million in credit. Eligibility criteria is fairly specific, including revenue, margin, cash, and debt repayment metrics similar to how for-profit businesses are evaluated for creditworthiness. As a result, many nonprofits are finding they don’t qualify. However, for those that do, the additional liquidity from this program is proving vital for continuing operations. EMPLOYEE RETENTION CREDIT All entities are entitled to a refundable payroll tax credit, the Employee Retention Credit, of up to $5,000 for each employee on the payroll when certain conditions are met. To be eligible, an entity must have carried on a trade or business during calendar year 2020 and satisfy one of the following two tests: X Have business operations at least partially suspended during the calendar quarter by order of a government authority limiting commerce, travel, or group meetings due to the pandemic; or X Have a reduction in revenue of at least 50 percent in the first quarter of 2020 as compared to the first quarter of 2019. For all nonprofit organizations, the entity’s whole operations must be taken into account when determining the decline in revenues. For 501(c)(3) and 501(c)(19) organizations, funds provided via PPP loans are not eligible for these payroll tax credits.