CAA COVID-relief Provisions for Not-for-profits Explained
by CSH's Jane E. Pfeifer, CPA
The Consolidated Appropriations Act of 2021 (“The act”) contains relief provisions relating to the coronavirus pandemic, several of which are significant to the not-for-profit community. The CARES Act (passed in March 2020) also provided relief relative to the pandemic, but many of its provisions were available only to organizations designated as exempt under IRC Section 501(c)(3). The most recent legislation provides broader relief that will benefit other types of exempt organizations.
The act has created a second opportunity for both for-profit and not-for-profit businesses to obtain a Paycheck Protection Program (PPP) loan. To obtain a second PPP loan, applicants will need to show that they suffered a reduction in gross receipts of 25 percent or more during any quarter of 2020 as compared to the same quarter of 2019. Qualifying businesses must have 300 or fewer employees and must have been in operation on Feb. 15, 2020. This provision will allow any 501(c)(3) organization that obtained a PPP loan in 2020 and used it for payroll and other allowed expenditures to obtain a second PPP loan if it can show the decline in revenue noted above. The amount of the loan will be 2.5 times the average monthly payroll of either 2019 or 2020, not to exceed $2 million.
In addition to a second PPP, the loan program was expanded to include tax-exempt business leagues qualifying under IRC Section 501(c)(6), and destination marketing organizations. In order to qualify, these organizations must have 300 or fewer employees, but they do not have to show a revenue decline as required under the second-draw loans. However, 501(c)(6) organizations will not qualify if their lobbying activity exceeds certain limits. Specifically, if lobbying revenue exceeds 15 percent of total revenues, or lobbying comprises 15 percent of total activities, or the amount spent on lobbying exceeds $1 million, the organization will not qualify.
In addition to expanding the types of organizations that can obtain PPP loans, and creating a second opportunity to obtain a PPP loan, the act also broadened the use of the proceeds. To obtain loan forgiveness, 60 percent of the proceeds must be used for payroll costs; the remaining 40 percent can be used for interest on mortgage debt, operating expenses, rent, utilities, supplier costs or worker-protection costs. No amount of the proceeds can be used for lobbying or political expenditures. All such costs must be incurred during the 24-week period beginning with the date the proceeds are received.
Much like the PPP loan, the Employee Retention Tax Credit (ERTC) was a component of the CARES Act. Under the current act, the ERTC was enhanced and extended. To qualify for the ERTC, businesses will need to be able to show a decline in revenue of at least 50 percent for Q1-Q4 2020 as compared to the same quarters in 2019, or for Q1-Q2 2021, a 20-percent decline or higher as compared to the same quarter of 2019. If such a reduction occurs in 2020, then the employer is eligible for a credit of 50 percent of wages up to a maximum of $10,000 of qualifying wages per employee. If the reduction occurs for the first 2 quarters of 2021, a credit of seventy percent of wages up to a maximum of $10,000 of qualifying wages per employee, per quarter will apply. Under the current act, the ERTC allows a business to have both a PPP loan and utilize the ERTC, as long as the same wages are not used to support PPP forgiveness and the ERTC.
The act also bestows special relief to shuttered venues such as museums, theaters and similar establishments that lost considerable revenue in 2020 due to the pandemic. To qualify, the venue must be able to show a loss in revenue in 2020 of at least 25 percent as compared to 2019. The act has appropriated $15 billion to provide revenue replacement, which could be as much as 45 percent of 2019 average monthly income, not to exceed $10 million dollars, with the possibility of a second grant equal to 50 percent of the initial grant. Grants will be made first to qualifying organizations that have recognized a reduction in revenue of 90 percent or more. A second round of funding will be provided 14 days later to those organizations that can show a 70 percent or higher revenue loss, and following these periods, available dollars will be awarded to other qualifying entities.
The CAA includes many other significant components, but the items listed above are a summary of the major COVID-relief provisions that could be important to your organization. Since some of the items listed are mutually exclusive, it is important to look at each organization’s facts and circumstances to determine which of the programs will provide the most assistance.
If you think you might qualify for one of these programs, please contact a Clark Shaefer Hackett (CSH) representative who can assist you. Their organization can help you sort through the programs and assist you in obtaining relief.
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