Exempt organizations received some much-needed relief as part of the Consolidated Appropriations Act of 2021. While the full act runs more than 5,500 pages, we’ve summarized the key items affecting exempt organizations.
Everyone’s favorite funding stream, the PPP, is back and this time received a much-needed revamp for exempt organizations. The program, call it PPP2, is now offering a second round of draws and also afforded some additional provisions/changes to the original program. These changes help certain types of exempt organizations by including an additional code section into the mix and leaving in place the original 501(c)(3) eligibility. The new funding was designed to help organizations significantly affected by the pandemic.
The CAA added eligibility in the PPP for organizations exempt under section 501(c)(6) (excluding professional sports leagues and political organizations) to participate. This is great news for 501(c)(6) exempt organizations that have been struggling with limited relief options and have been significantly impacted by the pandemic due to travel restrictions and reduction in ability to hold gatherings and networking events, which typically have been a significant component of many trade associations.
Under PPP2, 501(c)(3) or 501(c)(6) organizations are eligible to receive funding provided they meet the following criteria: the organization employs not more than 300 staff members; can demonstrate a reduction in gross receipts of not less than 25% in any quarter in 2020, as compared to the same quarter in 2019; and, for 501(c)(6) organizations, they do not have more than 15% (or $1 million dollars) of receipts or activities related to lobbying.
The requirements for participating in PPP2 present the defined term of gross receipts, which potential borrowers must navigate to determine their eligibility. Traditional considerations of gross receipts of an exempt organization can vary greatly. For example, some organizations have permanently restricted endowments with significant dollars, but most of that money is not operational.
The CAA clarifies that for the purpose of computing the gross receipts to determine whether an exempt organization is an eligible employer, “gross receipts” has the same meaning as Internal Revenue Code section 6033, the section that governs the filing of Form 990.
In updated guidance, the SBA has clarified that “gross receipts” for these purposes should be those received by the organization during its annual accounting period from all sources, without reduction for any costs or expenses.
Using this interpretation “gross receipts” includes but is not limited to items such as contributions and grants (without reduction for the expenses of raising and collecting such amounts), programmatic revenue (without reduction for expenses attributable to the receipt of such amounts), realized investment income (interest/dividends, realized gains, etc., without reduction for cost or other basis and expenses of sale) and events revenue, among other things.
The organization would then exclude certain items such as unrealized gains/losses, donated services, and other nonrecurring changes (which generally are non-cash in nature).
The updated guidance further specifies the following Federal Form 990 series line items that should be used in this determination as follows. For nonprofit organizations (IRS Form 990): the sum of lines 6b(i), 6b(ii), 7b(i), 7b(ii), 8b, 9b, 10b, and 12 (column (A) of Part VIII. For nonprofit organizations (IRS Form 990-EZ): sum of lines 5b, 6c, 7b, and 9 of Part I.
Gross receipts of a borrower’s affiliates (unless a waiver of affiliation applies) are calculated by adding the gross receipts of the business concern with the gross receipts of each affiliate. The SBA has additionally provided that any forgiven first draw PPP loan shall not be included toward gross receipts.
The CAA also extends the increased percentage limitations on certain charitable contributions made by individuals and corporations to 2021. The increase had been instituted as part of the CARES Act to encourage additional cash contributions to charitable organizations (excluding contributions to private foundations, supporting organizations, or donor advised funds), and was set to expire at the end of 2020.
The act increases the amount of the above-the-line deduction for cash contributions to qualified charitable organizations to up to $600 for married couples filing jointly beginning in 2021. This had previously been capped at $300. Exempt organizations should market these enhanced benefits to potential donors, as it is a great incentive to contribute.
In addition, the Act contains allocations of funds to be granted as follows: $15 billion to “Save Our Stages”, dedicated to relief for theater, music and other cultural institutions (article with further information on Save our Stages; $400 million for emergency food assistance for food banks; $250 million for Head Start providers; $22.7 billion “Higher Education Emergency Relief Fund” for public and private colleges and universities; $1.7 billion for Historically Black Colleges and Universities, Tribal Colleges and Universities, Hispanic Serving Institutions, and certain other institutions.
The CAA provides some critical relief options to exempt organizations. However, as we’ve seen from the CARES Act and first round of PPP the rules around administration and distribution of these benefits can be a continually shifting and a complex landscape to navigate.
Israel Tannenbaum is a partner at Withum, advising not-for-profit clients of all sizes