Not-for-profit organizations have not escaped the brutal toll that the coronavirus outbreak is having on employers and service providers. With an increased demand for social services, educational organizations providing online learning, a volatile stock market impacting endowments, potentially limited working capital reserves, employees facing child care and health issues, and uncertain economic times impacting potential donors, not-for-profit organizations join other businesses in need of relief. On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provides relief to taxpayers affected by COVID-19. The CARES Act is the third round of federal government aid related to COVID-19 after the enactment of the Families First Coronavirus Response Act (FFCRA) effective as of April 1, 2020. Many of the benefits provided in the CARES Act and the FFCRA are available to not-for-profit organizations, but the available relief and the process for obtaining that relief depend, in part, on an organization’s tax classification under Internal Revenue Code[1] section 501(a).

Tax Return Filing Extensions

Nonprofit organizations, along with other taxpayers, can take advantage of the broad tax filing and payment extensions announced on April 9, 2020. The filing obligation of any not-for-profit organization that has a federal tax return (e.g., Series 990) or other form filing obligation specified in Notice 2020-23 that is due to be performed (originally or pursuant to a valid extension) on or after April 1, 2020, and before July 15, 2020, is automatically extended – with no additional action required by the organization – to July 15, 2020. View: IRS Provides Wide-Reaching Extensions for Tax Filings and Payments, as well as Other Time-Sensitive Actions, Including Section 1031 Identification and Replacement Deadlines.

Included are:

• The time for filing unrelated business income tax returns and making related payments
• The time for making private foundation excise tax payments on investment income and filing related returns
• The time for tax-exempt organization quarterly estimated income tax payments
• The time for filing an “application for recognition of exemption” under section 501(c)
• The time for filing a section 501(h) election or revocation
• The time for filing all political organization notices and reports
• The time for filing a notification of intent to operate as a section 501(c)(4) organization
• The time for filing a community health needs assessment
• The time for a private foundation to notify the IRS of its intent to begin a 60-month termination period

Paycheck Protection Program Eligibility

One of the core pieces of the CARES Act is the availability of federally backed loans under a modified and expanded Small Business Administration (SBA) loan guaranty program called the Paycheck Protection Program. Unlike other SBA programs that are limited to for-profit businesses, the Paycheck Protection Program defines eligible businesses to include nonprofit organizations, but only those organized under IRC section 501(c)(3).[2]

Under the Paycheck Protection Program, nonprofit organizations with 500 or fewer employees, which includes full-time and part-time employees, will be eligible for SBA loans of up to $10 million and expedited loans of up to $1 million. Specifically, these types of nonprofit organizations can receive the lesser of $10 million or 2.5 times the average total monthly payroll costs from the prior year.

Detail regarding the Paycheck Protection Program benefits, including loan forgiveness, and requirements can be found at https://www.carltonfields.com/insights/publications/2020/small-business-admin-loans-summary-under-cares-act.

Charitable Giving Incentives for Donors to 501(c)(3) Nonprofit Organizations

The CARES Act also creates charitable giving incentives for donors to IRC section 501(c)(3) nonprofit organizations in the form of a new above-the-line deduction for total charitable contributions made in 2020 of up to $300 and temporary removal of the adjusted gross income limit on charitable deductions for individuals and an increase in the taxable income limit for corporations, from 10% to 25%. Food donation limits from corporations would also increase from 15% to 25%. View the COVID-19: CARES Act and FFCRA Tax Provisions.

All Other Types of Nonprofit Organizations With 500 or Fewer Employees

Emergency financial relief for other types of nonprofits, such as IRC section 501(c)(4) social welfare organizations and section 501(c)(6) trade and professional associations, is available under a separate section of the CARES Act providing emergency Economic Injury Disaster Loan (EIDL) grants. Section 501(c)(3) and section 501(c)(19) organizations may also apply for an EIDL grant in addition to a loan under the Paycheck Protection Program, provided the loans are not used for the same purpose.

Details regarding the EIDL grants can be found at https://www.carltonfields.com/insights/publications/2020/small-business-admin-loans-summary-under-cares-act.

Employee Retention Payroll Tax Credits and Payroll Tax Credit for Required Sick and Family Leave Pay

Any nonprofit organization that does not receive Paycheck Protection Program loans is also eligible for the employee retention payroll tax credit. In addition, all nonprofit organizations are also eligible for the payroll credits related to any required sick or family leave wages made to employees who are unable to work or telework due to certain circumstances related to COVID-19. The same wages cannot be counted for both credits. View the COVID-19: CARES Act and FFCRA Tax Provisions.

[1] All references herein are to the Internal Revenue Code of 1986, as amended.

[2] Veteran organizations, as defined in section 501(c)(19), are separately referenced outside the definition of “nonprofit organization” but are also considered eligible under the Paycheck Protection Program.