The latest COVID-19-related federal stimulus package contained several provisions to benefit not-for-profits, including:
- Expanding the Paycheck Protection Program (PPP) to 501(c)(6) organizations
- Opening another round of PPP loans
- Setting aside funding specifically for performance venues and other cultural organizations
The stimulus package, called the Consolidated Appropriations Act, 2021, also contained nearly $900 billion in emergency COVID-19 aid, including an additional $284 billion for a new round of PPP loans.
Following is an overview of key provisions affecting not-for-profit organizations.
501(c)(6) Organizations and PPP Loan Eligibility
The act broadened the PPP to provide loans to 501(c)(6) organizations, which are generally trade organizations and business leagues.
Under the new law, 501(c)(6) organizations are now eligible for PPP loans if they meet the following criteria:
- The organization has 300 or fewer employees.
- The organization doesn’t receive more than 15% of its receipts from lobbying.
- Lobbying activities don’t make up more than 15% of the organization’s activities.
- The organization’s lobbying expenses didn’t exceed $1 million during the most recent tax year that ended before February 15, 2020.
The new law expanded eligibility from earlier drafts of the bill, which had limited the number of employees to 150 and lobbying activity and receipts to 10%. Advocates for 501(c)(6) organizations welcomed their inclusion in the PPP loan program but warned that the $1 million lobbying expense limit would still make many organizations ineligible.
The act also allows “destination marketing organizations” to be eligible for PPP loans if they meet the same criteria as 501(c)(6) organizations. In addition, to be eligible, a destination marketing organization must be one of the following:
- Described in Section 501(c) of the Internal Revenue Code
- A quasigovernmental entity
- A political subdivision of a state or local government
A 501(c)(6) organization isn’t eligible for these loans if it:
- Is a professional sports league
- Promotes or participates in political campaigns
Key Changes from First Stimulus Package
The second stimulus package included another round of PPP loans, but it altered the eligibility criteria from the first stimulus package in the following ways:
- Employee limitations. Previously, organizations could have up to 500 employees to qualify. Now, they can’t have more than 300 employees.
- Loan caps. Loan amounts are capped at $2 million per organization, instead of the original amount of $10 million.
- Stipulations for recurrent loan recipients. To receive a second PPP loan, organizations must have used, or will use, the full amount of their first PPP loan.
- Decline in gross receipts. Organizations must show a decline in gross receipts of 25% in one quarter in 2020 compared with the same quarter in 2019.
- Expanded loan expenses. The new law expands eligible loan expenses to include personal protective equipment, facility modifications, other expenses related to worker protection, technology operations expenses, and supplier costs on existing contracts and purchase orders.
- Allowable payroll costs. The act clarified that allowable payroll costs include dental, vision, group life, and disability insurance.
- Churches and religious institutions. The act affirmed that churches and religious organization are eligible for the program and that a future administration can’t make them ineligible.
For loans of $150,000 or less, the forgiveness process has been simplified. Under this simplified process, the borrower would sign and submit a one-page certification to the lender that includes:
- Number of employees the borrower was able to retain because of the loan
- Total amount of the loan spent on payroll costs
- Total loan amount
Grants for Shuttered Venue Operators
The act set aside $15 billion for the Small Business Administration (SBA) to make grants to eligible live-venue operators or promoters, theatrical producers, live performing arts organizations, relevant museums, movie theater operators, or talent representatives. The grants are available to for-profit and not-for-profit organizations. To qualify as a relevant museum, however, the organization must be a not-for-profit.
To be eligible for the grants, organizations must:
- Have been fully operational as of February 29, 2020
- Show a decline in revenue of at least 25% from one quarter in 2020 as compared to the same quarter in 2019
The aid is capped at $10 million per organization, and the venue must intend to reopen to be eligible. If an organization receives one of these grants, it can’t also receive a second PPP loan.
Under the act, a relevant museum must meet the following characteristics:
- Its principal business activity must be as a museum.
- It must have indoor exhibition spaces that are a component of the principal business activity and that have been subject to pandemic-related occupancy restrictions.
- It must have at least one auditorium, theater, or performance or lecture hall with fixed audience seating and regular programming.
According to the act, the definition of a relevant museum aligns with that provided for museum in Section 273 of the Museum and Library Services Act. That law defines a museum as an entity that is organized for educational, cultural heritage, or aesthetic purposes; has a professional staff; owns or uses tangible objects; cares for those objects; and regularly exhibits those objects to the public.
Besides traditional museums, the definition includes aquariums, arboretums, botanical gardens, historic houses and sites, nature centers, planetariums, and zoos.
Live Performing Arts Organizations
Venues of the live performing arts organization must have the following features, according to the act:
- A defined performance and audience space
- Mixing equipment, a public address system, and a lighting rig
- One or more individuals who carry out at least two of the following roles: sound engineer, booker, promoter, stage manager, security personnel, box office manager
- Paid ticket or cover charge for most performances, with artists paid fairly
- Performances marketed through print or electronic publications, on websites, by mass email, or on social media
For venues owned and operated by not-for-profit organizations that produce free events, the events must be primarily produced and managed by paid employees, not volunteers.
Additional Grant Information
These grants can be used for expenses such as payroll costs, rent, utilities, and personal protective equipment. The expenses must be incurred between March 1, 2020, and December 31, 2021.
Fewer than 50 Employees
Of the $15 billion, $2 billion has been set aside for eligible organizations that have fewer than 50 full-time employees. Any portion of this set-aside amount that isn’t used 60 days after the program’s implementation will become available to all eligible applicants.
Revenue Loss of 90% and 70%
In the first 14 days of the program’s implementation, grants will only be awarded to organizations that have had revenue loss of 90% or more from April 1, 2020, to December 31, 2020, as compared to the same period in 2019.
In the next 14 days, the program will be open to entities that experienced revenue loss of 70% or more from April 1, 2020, to December 31, 2020, as compared to the same period in 2019. After that, all other eligible organizations may apply.
Charitable Giving Incentives
The act extends the $300 universal charitable deduction for those who don’t itemize on their returns into 2021; however, for 2021, married filing-joint taxpayers can now take a $600 above-the-line deduction. For taxpayers who overstate this deduction, there has been a penalty increase from 20% of the resulting understated tax to 50% of the resulting understated tax.
In addition, the act extends for a year the increased limits on deductible charitable contributions for corporations as well as individuals who itemize. For corporations, the limit remains 25% of taxable income, instead of reverting back to 10%. The cap on food donations from corporations will also remain 25% of taxable income, instead of changing back to 15%. For individuals, the limit remains 100% of adjusted gross income (AGI), instead of the previous cap of 60% of AGI.
Employee Retention Tax Credit
The act extends the employee retention tax credit (ERTC) eligibility period by six months to June 30, 2021. It also increases:
- The allowable credit percentage from 50% of qualifying wages to 70% of qualifying wages
- The maximum allowable credit per employee from $10,000 for all calendar quarters to $10,000 for any calendar quarter
Under the act, the exception for PPP loan recipients to also claim the ERTC has been waived and applies retroactively. That means PPP loan recipients may go back and claim the ERTC if eligible. Qualified wages for the ERTC don’t include wages paid from proceeds from a forgiven PPP loan.
We’re Here to Help
Determining eligibility and applying these benefits can be complex. To learn more about available opportunities and potential benefits for you or your organization, contact your Moss Adams professional.