Nonprofit Shareholder Marie Primus and Micah Zirnhelt, Human Capital Management Consulting Manager, recently sat down and compiled a list of questions and answers to help nonprofit agencies decipher recently enacted legislation related to the COVID-19 epidemic. You can view the webinar on-demand. Here are a few of the things they covered:
We are 501(c)(6) organization, what options in the CARES Act are available to us?
The Payroll Protection Program (PPP) is only available to 501(c)(3) and 501(c)(19) organizations. A 501(c)(6) can apply for the Economic Injury Disaster Loan (EIDL), Employee Retention Payroll Tax Credit, and delayed payment of payroll taxes (for ER portion in 2020, payable in equal halves at the end of 2021 and 2022).
We are a nonprofit that engages in lobbying activities. Are we eligible for the EIDL program?
It depends, if the organization is primarily engaged in political or lobbying activities, you are not eligible. The application makes you certify that you are not in the business of lobbying. If you are uncertain, you should consult with legal counsel.
If employees have reduced hours because of the Stay in Place order, can the Emergency Sick Leave be used to supplement the work hours to bring them to their normal work hours?
The sick leave is for people who cannot work or telework due to one of the six identified reasons. If the employer has reduced their hours, it would not qualify because the employee is not able to work due to the employer restrictions, not one of the six reasons. If, for example, the employee is only able to work part-time because the other part of the time they need to be focused on child care, that might be a valid reason, but it’s kind of threading the needle.
Are faith-based organizations, including houses of worship, eligible to receive Small Business Administration (SBA) under the PPP and EIDL programs?
The CARES Act explicitly makes nonprofit entities eligible for the PPP program and it does so without regard to whether nonprofit entities provide secular social services. So yes, faith-based organizations are eligible to receive SBA loans regardless of whether they provide secular social services. On April 3, the SBA added a FAQ on its website that helps clarify this.
Can a nonprofit apply for both the PPP and EIDL programs?
Yes, you can get both loans, but the key is to use the money to cover different expenses. As a reminder EIDLs can be used to cover:
- Paid sick leave to employees unable to work due to direct effect of COVID-19
- Maintain payroll
- Increased costs due to supply chain disruption
- Rent or mortgage payments
- Repaying obligations that cannot be met due to revenue loss
PPP loan funds can be used to cover:
- Payroll costs (see final regs for list of specific items)
- Interest on mortgage obligation
- Rent, under lease agreements in force before 2/15/20
- Utilities, for which service began before 2/15/20
- Interest of any debt incurred before 2/15/20
So, if you’re getting an EIDL to cover payroll expenses, you can’t get a PPP to cover payroll for the length of the forgiveness period (8 weeks from when the loan is due). You would have to use the EIDL for different operating expenses or payroll for a different period.
You don’t have to have both types of loans, and you can only apply for one PPP loan.
Do independent contractors count as employees for purposes of a nonprofit’s PPP loan?
No, independent contractors have the ability to apply for a PPP loan on their own, so they do not count for purposes of a borrower’s PPP loan calculation or towards the loan forgiveness.
Many of the people our nonprofit serves are under the poverty level and have not filed taxes, we would like to provide them with information on the recovery rebate available. What information can we provide them to make sure they get the rebate?
The IRS has put out an FAQ on their website that addresses this. And the answer is yes, the IRS will use the Form SSA-1099 or Form RRB-1099 for senior citizens, social security recipients, and railroad retirees who are not otherwise required to file a tax return. They will be limited to the $1,200 as they will not have any information regarding any dependents.
However, those taxpayers, except those mentioned above, who typically do not file returns will need to submit a simple tax return to receive the economic impact payment.
IRS is anticipating a web-based portal for individuals to provide their banking information online, so they can receive the payments immediately as opposed to checks in the mail.
Our nonprofit board of directors asked if we can use restricted funds for operating expenses during the COVID-19 crisis. Do we need to ask donors, and do we need special documentation to do so?
The answer is, it depends.
If a donor has restricted the funds, the restriction remains even during this crisis. In order to remove a donor-imposed restriction, you need to contact the funder to see if they would be willing to remove the restriction and allow those funds to be used for operating purposes. As far as documentation goes, I would strongly recommend it be in writing and signed by the donor. I would recommend it be clearly stated that the restriction is lifted, and the donor gives you permission to use the funds for operating purposes. This is a recommendation, but I would encourage you to also consult with legal counsel.
If the funds are not donor restricted but rather designated by the board, then these are not truly restricted, and you could vote on as a board to shift the intention of those designed funds.
Our teams at BerganKDV are rallying together and working around the clock to ensure we’re up and running so you can be up and running. Whatever situation you’re faced with, at any time – you can call our task force and we’ll get you the answers, the listening ear and/or the quick support you need: 888-356-2295 or firstname.lastname@example.org.