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. 

In September 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-07, Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets, to provide additional guidance to nonprofit organizations on how to record and disclose in-kind contributions. The overall purpose of the update is to provide more transparency into how organizations are receiving and valuing in-kind contributions. The ASU is effective for annual periods beginning after June 30, 2021.

The ASU now requires nonprofit organizations to present in-kind contributions as a separate line item in the Statement of Activities and to provide additional disclosures in the footnotes covering the following areas:  

• A description of the organization’s policy for monetizing rather than utilizing in-kind contributions;
  
• A listing of in-kind contributions categorized by type with a description about whether each type was monetized or utilized during the reporting period;
  
• For in-kind contributions that were utilized during the reporting period, the nonprofit must include a description of the programs or activities in which those contributions were used; and
  
• A description of the valuation process utilized by the organization to determine the fair value of the in-kind contributions.
  

On August 13, 2020, the Office of Management and Budget (OMB) issued amendments to the Uniform Guidance. Nonprofits receiving funds from the U.S. government should review the amendments carefully and the impact these revisions may have on administrating U.S. government funds. Below are summaries of several of the amendments made.

• Use Exceptions (2 C.F.R. § 200.102). Recognizing that the Uniform Guidance is not a one-size-fits-all approach, this provision grants agencies the flexibility to make exceptions to the Uniform Guidance requirements. This provision now "strongly encourages Federal awarding agencies to add or remove requirements [in the Uniform Guidance] by applying a risk-based, data-driven framework to alleviate select compliance requirements and hold recipients accountable for good performance”.  
• Termination (2 C.F.R. 200.340). This provision now allows an agency to terminate federal awards when the program goals or agency priorities are no longer being met. 
• De Minimis Rate (2 C.F.R. § 200.414(f)). The use of the de minimis rate of 10 percent was expanded to include not just organizations that have never obtained a NICRA but also those organizations that may have had NICRAs in the past but whose rates may now be expired. This change also allows organizations who may have previously had a NICRA but did not want to continue with the exorbitant expense of establishing a new NICRA.
• Publication of NICRAs (2 C.F.R. § 200.414(h)). This provision requires that certain information relating to NICRAs be collected and displayed publicly. However, to avoid publishing proprietary information, OMB limits the type of information that should be published to the indirect negotiated rate, the distribution base, and the rate type.
• Domestic Preference for Purchasing (2 C.F.R. § 200.322). This new provision encourages recipients to "maximize use of goods, products, and materials produced in the United States". 
• Procurement Methods (2 C.F.R. § 200.320). This provision increased the micro-purchase threshold from $3,500 to $10,000 and the simplified acquisition threshold from $150,000 to $250,000. 
• Project Close-out (2 C.F.R. § 200.344). This provision revised the time period from 90 days to 120 days for recipients to submit closeout reports and liquidate all financial obligations. In addition, agencies are required to now report any failure on the part of a recipient organization to submit final closeout reports as a "failure to comply with the terms and conditions of the award".

Many nonprofits hold events, such as annual conferences and fundraising galas, throughout the year. However, because of COVID-19, many have had to cancel these revenue generating activities. For those organizations that entered into contracts with venues prior to COVID-19, trying to cancel the contract can be a time-consuming and headache-generating process. A recent survey conducted by ANAFP showed that many organizations, especially early-on in the pandemic, were able to exercise the force majeure clause and exit the contract without penalty. Other organizations reported having more difficulty because their jurisdiction had no stay-at-home order in place and therefore the force majeure clause was inapplicable. Thus, when exiting the contract, the nonprofit was required to pay a cancellation fee to the venue. Luckily, some organizations reported having purchased event cancellation insurance (including the rider for communicable disease coverage) prior to the start of the pandemic. These organizations reported needing to provide notice to the carrier once the organization was aware of a circumstance that may lead to a claim. In addition, organizations reported that, prior to making any refunds, processing cancellation charges, or any other claim-impacting decisions, it was necessary to first get the adjuster’s consent. In addition, having sound documentation, such as invoices, copies of checks, bank statements, and financial information from previous years' events, was necessary to support claim amounts. Thus, organizations looking to recover costs through event cancellation insurance in the future should 1) ensure any coverage includes a communicable disease rider, 2) work with the adjuster first before making any claim-impacting decisions, and 3) gather and keep track of all documentation that may support any claim that is filed. 

Many nonprofit organizations received lease concessions (i.e., lease abatements or deferrals) from landlords as a result of COVID-19. These organizations have two options to account for these concessions in the accounting system -- both options affect the straight-line rent calculation on the organization's deferred rent schedule.  A deferred rent schedule can be downloaded here. 

The two options are: