Posted by David Rosenberg, Neely Munnerlyn, and Jana Wight
On March 27, 2020, in response to the COVID-19 pandemic, the President signed the “Coronavirus Aid, Relief, and Economic Security Act” (“CARES Act”) in to law. The CARES Act includes the following provisions intended to provide relief to tax-exempt organizations:
Modifications to Charitable Deductions: All individual donors, including those who utilize the standard deduction, are provided with a newly created above-the-line (i.e., a dollar for dollar reduction of taxable income) deduction for charitable contributions up to $300 beginning in 2020. This new deduction does not apply to contributions to donor-advised funds. Additionally, for 2020 only, the percentage limitation on itemized annual charitable contributions is suspended for individuals and increased to 25% for corporations for cash contributions. The limitation on food inventory donations from corporations is also increased to 25% for 2020 only.
Employee Retention Payroll Tax Credit: A new refundable payroll tax credit is created and equals 50% of the first $10,000 ($5,000) for each employee of a tax-exempt organization’s workforce if the tax-exempt organization: (i) carried on a trade or business during the calendar year 2020, (ii) fully or partially suspended its operations due to a COVID-19 related shutdown order, and (iii) experienced a decrease in gross receipts of at least 50% in the first quarter of 2020 compared to the first quarter of 2019. The availability of the credit continues each quarter in 2020 until the tax-exempt organization’s gross receipts exceeds 80% of the corresponding quarter in 2019. Tax-exempt organizations receiving emergency SBA loans (discussed below) are not eligible for these credits. The credit is effective for employee wages paid after March 12, 2020 and before January 1, 2021.
Unemployment Insurance Reimbursement: States are now authorized to reimburse tax-exempt organizations in an amount equal to 50% of the costs they may incur through December 31, 2020 to pay certain unemployment benefits.
Emergency Small Business Administration (SBA) Loans: A new SBA emergency loan program is created to provide loans up to $10 million per eligible tax-exempt organization. To be eligible, tax-exempt organizations must have been in existence on March 1, 2020 and have 500 or fewer employees (full-time or part-time). The proceeds from the loan can be used for payroll and associated costs, including health insurance premiums, facilities costs, and debt service. Tax-exempt organizations that maintain certain employee retention between March 1 and June 30, 2020 are eligible to have their loans forgiven up to 100%.
Economic Injury Disaster Loans (EIDL): Certain creditworthiness requirements are removed and $10 billion will be appropriated to the EIDL program so that eligible tax-exempt organizations can receive a grant under this program of $10,000 within three days.
Mid-sized Non-Profit Funds: Tax-exempt organizations, with between 500 and 10,000 employees, are eligible to receive loans under a newly created “Industry Stabilization Fund.” Unlike the SBA loans described above, these loans are not subject to loan forgiveness and will be subject to an interest rate (up to 2%) which does not accrue or require repayment for the first six months. In order to receive the loan, tax-exempt organizations must retain at least 90% of their workforce at full historical compensation.
Additionally, the IRS recently issued Notice 2020-18 (and a subsequent clarification) which provides tax-exempt organizations that file a Form 990-T, Exempt Organization Business Income Tax Return, with relief from filing and payment until July 15, 2020. However, Form 990, Return of Organization Exempt From Income Tax, and Form 990-PF, Return of Private Foundation, filings are not entitled to this relief. As a result, tax-exempt organizations required to file these information returns on May 15, 2020 (or file for an extension) must do so in order to avoid any applicable interest or penalties.
We continue to track the legal developments related to the COVID-19 pandemic. If you have any questions, please contact one of the above authors or the TK tax attorney with whom you regularly work.
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