2020 Year-End Tax Guide

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Nonprofit Stimulus: Year in Review

The American economy suffered dramatic turbulence this year due to the COVID-19 pandemic. In response, Congress and the Treasury, as well as state and local governments, provided numerous benefits to individuals, businesses, and the nonprofit sector. By now most nonprofit leaders are very familiar with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2.2 trillion COVID-19 emergency relief bill aimed at providing much- needed economic relief to the American people and the country’s businesses. This law was the largest and most wide-ranging stimulus effort put forth this year. The Act contains several provisions applicable to nonprofit organizations. PAYCHECK PROTECTION PROGRAM For Internal Revenue Sections 501(c)(3) and 501(c)(19) organizations with 500 or fewer employees (full-time and part-time) that have been in existence since March 1, 2020, the Act provides $510 billion in small business relief through federally backed loans under the “Paycheck Protection Program” (PPP). The PPP broadened the standard Small Business Association (SBA) eligibility from only for-profit businesses to include nonprofits organized under Section 501(c)(3) of the Internal Revenue Code. Veteran organizations, as defined in section 501(c)(19), are also considered eligible under the PPP. Trade associations, social welfare groups and other 501(c) entities continue to lobby Congress for inclusion under the Act. Eligible nonprofits are able to receive the lesser of $10 million or 2.5 times their average total monthly payroll costs from the prior year with expedited loans of up to $1 million. Payments of principal, interest, and fees are deferred for at least 10 months, but not more than one year, the loan maturity is expanded to five years from an

original 2-year period, and interest rates are at 1%. The SBA will not collect any yearly or guarantee fees for the loan, and all prepayment penalties are waived. No personal guarantees are required to receive funds, no collateral needs to be pledged, and NPOs are not required to show they cannot obtain credit elsewhere. Applicants are required simply to certify that the loan is necessary because of uncertain economic conditions and that they will spend the funds on payroll and other qualified costs. PPP recipients are eligible for loan forgiveness for 24 weeks of eligible costs commencing from the origination date of the loan. The amount of loan forgiveness may be reduced if the organization reduces the number of employees as compared to the prior year, or if the employer reduces the pay of any employee by more than 25% as of the last calendar quarter. Nonprofits that re-hire workers who have been laid off as a result of the crisis will not be penalized for having a reduced payroll from the beginning of the relevant period. APPLYING FOR FORGIVENESS The application period for these loans has ended, and now the sector is working towards submitting forgiveness applications to lenders. As of this writing, many lenders are hanging on to the hope that Congress will grant blanket forgiveness for smaller loans which would dramatically cut their workload. However, some lenders have already opened their portals for forgiveness applications, and we expect most others will follow suit soon, regardless of what further changes are made to the program. The SBA has also issued guidance stating that borrowers with loans of $50,000 or less can utilize a new simplified application. Banks are expected to take up to 60 days to process forgiveness applications and the SBA, up to 90 days. Once a borrower has been fully forgiven by the SBA, they may take the loan off their books and record a gain from debt forgiveness.