One of the most significant changes included in the Consolidated Appropriations Act (CAA), signed into law in December 2020, allows nonprofits that received a Payroll Protection Program (PPP) loan to also claim the Employee Retention Credit (ERTC), though the same wages cannot be used for the credit and loan forgiveness. Prior to the passage of the CAA; nonprofits who obtained PPP loans were not eligible for this credit.

Nonprofits that paid qualified wages between March 12, 2020, and December 31, 2020, and experienced full or partial suspension of their operations or a significant (50%) decline in gross receipts when comparing the gross receipts for the same quarter in the previous year are eligible to claim the ERTC. 

The 2020 credit amount equals 50% of qualified wages paid, including qualified health plan expenses, up to $10,000 per employee. The maximum credit available per employee in 2020 is $5,000.

For 2021, the qualifications was amended to be a 20% drop in gross receipts when comparing the first two quarters of 2021 to the same quarter in 2019 and the credit is increased to 70% of qualified wages with a limit of $7,000 for each quarter. 

Recently, the availability of PPP loans was expanded to include most Section 501(c)(6) organizations—including trade associations, professional societies, business leagues, and chambers of commerce—and to destination marketing organizations. Under this expansion, section 501(c)(6) organizations are eligible to apply for PPP loans as long as they:

B. Have 300 or fewer employees.

C. Are not a professional sports league, political campaign, or political activities organization. and 

The new law did not, however, clarify the definition of "lobbying activities" and how such activities would be measured. However, on March 3, 2021, the SBA clarified that the definition of "lobbying activities" set forth in the Lobbying Disclosure Act (LDA) should be used by Section 501(c)(6) organizations for purposes of determining their eligibility for PPP loans. 

The implementation of FASB’s ASU 2020-05 (Topic 606) and IFRS 15 changes the way in which membership associations are required to report membership dues revenue.  Under the new standard, the member benefits specified in the membership agreement embody goods and/or services that the nonprofit has promised to transfer to members. These promises are deemed “performance obligations”, and the transaction price for each good/service must be accounted for when recording membership dues.

Read more on how to account for membership dues under these new standards, see an accounting example, and understand best practices in documentation. 

Under the Consolidated Appropriations Act of 2021, Section 501(c)(6) organizations are now eligible for Paycheck Protection Program (PPP) loans of up to US$10M. This includes local chambers of commerce, labor and trade organizations, business boards, destination marketing organizations, and other similar groups. However, associations that meet the following criteria are excluded from eligibility: 

PPP loans can be used for payroll, rent, covered mortgage interest, and utilities. Borrowers can qualify for a loan of up to 2.5x their average monthly payroll costs and can apply for forgiveness after the completion of the 24-week period in which the funds must be spent.

Many nonprofits utilize QuickBooks Online (QBO) as their accounting system. Tracking grants, however, in QBO can prove difficult. Most organizations tackle this by listing their grants as “Classes” in QBO and then assigning all revenues and expenses to the appropriate Class. 

However, the Association of Nonprofit Accountants & Finance Professionals (ANAFP) actually recommends organizations to track grants differently in QBO, freeing up Classes to be used differently as well.  

Because an organization may have multiple grants, each grant may have a different start and end date. Because of this, utilizing Classes to track grant balances can prove difficult. For example, running a Statement of Activities by Class (P&L by Class) may not provide you with a correct ending balance on each grant if the dates selected to run that report does not incorporate each grants’ start-date. 

A better solution, and the process recommended by ANAFP, is to use “Projects” in QBO. Running reports in the Projects module are not date-bound. This means each Project (which will represent each individual grant) will always provide you with the available balance regardless of each grants’ start and end date.

In addition, the use of Projects for tracking grants frees-up Classes to be used for tracking program activities instead (i.e., “education”, “mental wellness”, “social justice”) -- an essential component needed for nonprofits to track expenses by functional area (and for reporting on IRS Form 990). 

Keep in mind, Projects and Classes must both be activated in QBO before they will appear within the organization’s QBO account.

You can learn more about the use of QBO by reading ANAFP s Step-by-Step Guide to Setting-Up QuickBooks Online for Nonprofits. Additional assistance on setting up QBO and utilizing QBO to track grants can be directed to ANAFP’s partner, Altiga Accounting & Financial Solutions, at info@altigasolutions.com.  

The Consolidated Appropriations Act of 2021 was signed into law on December 27, 2020. 

One of the main components of the Act was the introduction of a second round of Payroll Protection Program (PPP) loans capped at US$2M. This second round of loans is commonly known as "Second Draw".

Nonprofits are eligible for a Second Draw if they meet the following criteria:

• Employ no more than 300 employees in any single location.
• Experienced at least a 25% reduction in gross receipts in any quarter of 2020 compared to the same quarter in 2019.
• Received a First Draw PPP Loan and have used, or will use, the full amount before receiving the Second Draw PPP Loan disbursement.
• Was in operation on February 15, 2020, and has not permanently closed.
• 501(c)6 organizations who meet the criteria above are eligible for PPP2 funding if they have:
  • Fewer than 300 employees.
  • Less than 15% of gross receipts from lobbying.
  • Lobbying that is less than 15% of total activities and less than US$1M during the most recent tax year ended prior to February 15, 2020.

The Second Draw loan is calculated at the lesser of 2.5 times the average total monthly payroll costs incurred or paid by the nonprofit during either calendar year 2019, calendar year 2020, or the one year period before the date of the loan, or the US$2M limit.

Eligible recipients will be able to apply for the Second Draw through March 31, 2021.

As discussed in a previous post, the Internal Revenue Service (IRS) issued Revenue Ruling 2020-27 which states that if there is a reasonable expectation of loan forgiveness, regardless of whether the borrower files a forgiveness application in 2020 or 2021, the expenses are non-deductible for year-end 2020. 

In addition to this, the IRS issued Revenue Procedure 2020-51 which addresses what happens when some or all of the PPP loan is not forgiven or when the borrow decides not to file for forgiveness. Through this Revenue Procedure, the IRS established a “safe harbor” for taxpayers. In order to meet the safe harbor requirements, the taxpayer must:

If these conditions are met, the safe harbor allows for a deduction of the unforgiven eligible expenses either in 2020 by filing an amended tax return or an administrative adjustment request (AAR) or by including the deduction on a 2021 timely filed (including extensions) original income tax return.

**Please note, the Consolidated Appropriation Act of 2021 contains additional COVID-19 relief provisions which, if passed, will impact PPP deductibility. 

The IRS issued last week Revenue Ruling 2020-27 and Revenue Procedures 2020-51 -- both of which address when a borrower under the Paycheck Protection Program (PPP) should exclude PPP-eligible expenses as deductions in determining taxable income. Eligible expenses are those expenses used to obtain PPP loan forgiveness. In short, if there is a reasonable expectation of loan forgiveness, regardless of whether the borrower files a forgiveness application in 2020 or 2021 and of when the actual forgiveness event occurs, the expenses are non-deductible for year-end 2020. 

**Please note, the Consolidated Appropriation Act of 2021 contains additional COVID-19 relief provisions which, if passed, will impact PPP deductibility. 

The Small Business Administration (SBA) released on October 26, 2020, a Loan Necessity Questionnaire as part of the Paycheck Protection Program (PPP) review process.  This questionnaire (SBA Form 3510) will be sent to all nonprofits who received a PPP loan of $2 million or more by their lender, and nonprofits will have ten business days to complete the questionnaire.  This questionnaire is intended to provide the SBA with information regarding a nonprofit’s “good-faith certification” as to the organization’s need for the PPP loan. 

In addition to requiring general information about the nonprofit (including the loan principal and loan number), the questionnaire requires “yes” and “no” answers to two assessment areas: activity assessment and liquidity assessment.  Several of the questions also require the nonprofit to submit supporting documentation including gross receipts and expenses. For more information, the questionnaire can be accessed here: SBA Form 3510.

The SBA cautioned that a nonprofit’s failure to complete the form and provide supporting documentation may result in the SBA’s determination that the borrower is ineligible for either the PPP loan, the PPP loan amount, or any forgiveness amount claimed.  Furthermore, failure to complete the form may result in the SBA seeking repayment of the loan.

The Small Business Administration (SBA) and US Department of Treasury announced a simplified loan forgiveness application for those organizations that received a Paycheck Protection Program (PPP) loan of $50,000 or less.  

This simplified application (Form 3508S) exempts qualified borrowers from the rules governing reductions in headcount (full-time equivalent employees) and employee wages.  More information on how to complete Form 3508S can be found here.