At the onset of the COVID-19 pandemic last March, Congress enacted three pieces of legislation over a few short weeks – the largest being the $2.3 trillion CARES Act. The CARES Act provided relief to individuals and businesses and introduced the popular Paycheck Protection Program (“PPP”) loans and Employer Retention Credit (ERC).
After months of back-and-forth, Congress finally moved forward with the latest COVID-19 relief and stimulus package. Congress passed the “Consolidated Appropriations Act, 2021 (H.R.133)” (CAA) on December 21, 2020. On December 27, President Trump signed the Stimulus and Relief legislation, which established a second round of PPP loans and enhanced the ERC.
Since then, not-for-profit organizations struggled to understand and address complex questions regarding the recent COVID-19 relief packages. This article offers some answers to these pressing questions:
FAQ 1: How do not-for-profit organizations calculate the reduction in gross receipts as applicable for PPP or the ERC?
Under guidance from the SBA and Treasury, not-for-profit entities should reference Section 6033. The regulations for this section state that “gross receipts means the gross amount received by the organization during its annual accounting period from all sources without reduction for any costs or expenses.” It goes on to state:
Thus “gross receipts” includes, but is not limited to (i) the gross amount received as contributions, gifts, grants, and similar amounts without reduction for the expenses of raising and collecting such amounts, (ii) the gross amount received as dues or assessments from members or affiliated organizations without reduction for expenses attributable to the receipt of such amounts, (iii) gross sales or receipts from business activities (including business activities unrelated to the purpose for which the organization qualifies for exemption, the net income or loss from which may be required to be reported on Form 990-T), (iv) the gross amount received from the sale of assets without reduction for cost or other basis and expenses of sale, and (v) the gross amount received as investment income, such as interest, dividends, rents, and royalties.
FAQ 1a: What amounts are used to calculate gross receipts when an organization uses annual income tax returns to establish a gross receipts reduction of at least 25 percent?
These amounts vary by the organization’s tax return type. Amounts used by not-for-profit entities on Form 990 should include the sum of lines 6b(i); 6b(ii); 7b(i); 7b(ii); 8b; 9b; 10b; and 12 (column (A) of Part VIII. For those filing Form 990-EZ, include the sum of lines 5b; 6c; 7b; and 9 of Part I.
Please note that the forgiveness of initial PPP loan funding is excluded from gross receipts.
FAQ 1b: What if the organization is using internally prepared quarterly financial statements to demonstrate the gross receipts reduction?
The organization must sign and date the first page of the statements and initial all other pages to verify accuracy if the financial statements are not audited. The statements must clearly identify which line items constitute gross receipts.
FAQ 2: How do the “affiliation rules” impact the eligibility for PPP or ERC?
According to the SBA’s guidance, it may consider two or more not-for-profit entities under common control to be “affiliated.” This relationship could cause an entity to not meet the employee count or gross receipts eligibility requirements. The determination can be complex and may require a legal opinion. The organization could consider Form 990 Schedule R reporting as a guide in this determination.
Please note that these rules do not apply to faith-based not-for-profit organizations.
FAQ 3: Who is eligible for a PPP 2 loan (“PPP Second Draw Loan”)?
Eligible tax-exempt organizations (including Section 501(c)(6) entities) must meet the following qualifications:
- Employ no more than 300 employees;
- Used the entire amount of their first PPP loan; and
- Demonstrate at least a 25% reduction in gross receipts in any quarter of 2020 relative to same quarter of 2019.
We are still awaiting additional guidance on the appropriate time period to distinguish the number of employees for the first requirement.
FAQ 4: Are there any special additional requirements for 501(c)(6) organizations applying for a PPP 2 loan?
There are additional requirements which include:
- An organization cannot receive more than 15% of receipts from lobbying;
- The lobbying activities cannot comprise more than 15% of total activities; and
- The cost of lobbying activities of the organization cannot exceed $1 million during the most recent tax year ending prior to February 15, 2020.
FAQ 5: What are the details of the enhanced ERC as part of the CAA?
Click here to read our article summarizing this question in full:
FAQ 6: Do religious organizations qualify?
Religious organizations are eligible for PPP and ERC. If the entity does not file Form 990, they must use the Section 6033 regulation language above to calculate gross receipts.
FAQ 7: Are public colleges and universities eligible for the ERC?
The CAA adds that these entities are eligible for this credit in 2021.
FAQ 8: What does “full or partial suspension due to government order” mean for ERC qualification?
This Sikich article answers that question. Click here: https://www.sikich.com/insight/employee-retention-credit-deeper-dive-full-or-partial-suspension-of-operations/.
FAQ 9: What other types of grants from the CAA might be available to a tax-exempt organization?
The “Shuttered Venue Operators Grant” program may apply for live venue or performing arts operators, museums, zoos, or aquariums. The entity must not have received a PPP loan on or after December 27, 2020 to qualify.
If an organization believes they may be eligible, more information and updates can be found here: https://www.sba.gov/document/support-shuttered-venue-operators-grants-faq.
FAQ 10: What additional steps are necessary if a not-for-profit organization (and its affiliates) receives more than $2 million in PPP loans?
Borrowers with an original principal amount of $2 million or greater are required to complete SBA Form 3510, Loan Necessity Questionnaire (Non-Profit Borrowers):