[co-author: Andrew Weiner]

Non-profit organizations are particularly vulnerable during the ongoing economic downturn resulting from the global COVID-19 (coronavirus) pandemic. Many non-profits operate on tight budgets and are often highly dependent on outside funding that can quickly be depleted during periods of economic crisis. In this alert, we describe certain relief measures available to qualifying non-profit organizations through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)—a $2 trillion emergency relief package signed into law on March 27, 2020.

The CARES Act is a massive, 800-page stimulus package that offering economic relief as well as healthcare assistance in response to the COVID-19 economic crisis. The law provides various forms of aid throughout the US economy, including: (1) direct payments to taxpayers under certain income thresholds; (2) a $500 billion financial assistance program for businesses, cities and states, including loans and loan guarantees; (3) a $367 billion employee retention fund for small businesses; and (4) $130 billion to hospitals as well as $150 billion to state and local government.

Financial relief for non-profit organizations is a critical component of the CARES Act. The relief comes in the form of loans, loan forgiveness, direct funding, and tax incentives for organizations and donors. Selected relevant provisions are discussed below.

Who and what does the CARES Act cover under its Paycheck Protection Program?

• Organizations with fewer than 500 employees at a particular location existing on or before March 1, 2020.
• Eligible uses for loans include payroll and employee costs:
  • Healthcare benefits
  • Leave and separation compensation
  • Insurance premiums
  • Salaries
  • Retirement benefits
  • Facilities costs (rent/lease payments, mortgage interest, and utility expenses)

• Maximum loan amounts are the lesser of:
  • An amount calculated in part based on the employer’s prior average monthly payroll costs during the last year (this calculation varies for seasonal employers) multiplied by 2.5, or
  • $10 million

What are the qualifications to receive a loan?

• All four requirements must be satisfied:
  • The loan must be necessary to support the organization’s ongoing operations.
  • The loan must be used for permissible purposes (i.e., payroll and employee costs and/or facilities costs, as described above).
  • The organization cannot have an application pending for the same purpose or duplicative funds.
  • The organization has not received duplicative funds between February 15 and December 31, 2020.
• The loans are nonrecourse, include no administrative fees, and require no collateral.
• Amounts not subject to forgiveness are limited to a 10-year maximum maturity with a maximum interest rate of 4%.

How does loan forgiveness work?

• The amount of loan forgiveness is based in part on the organization’s payroll costs for an 8-week period beginning on the origination date of the loan.
• The amount cannot be more than the sum of:
  • The organization’s payroll costs during the 8-week covered period,
  • Interest payments on certain mortgage obligations,
  • Certain rent payments, and
  • Certain utility payments.
• The federal government is essentially providing grants for organizations that maintain their employees’ payroll and have other covered expenses during the 8-week period beginning on the loan’s origination date.
• Organizations that rehire employees who were laid off due to COVID-19 may still be eligible for the full amount of loan forgiveness.

What about organizations that do not obtain loans under the CARES Act?

• Organizations that do not receive loans under the CARES Act may still be eligible for an employee retention payroll tax credit equal to 50% of qualified wages, with specified limits and if certain conditions are met.

What about larger non-profits?

• Organizations with 500 – 10,000 employees.
• The CARES Act requires that the Treasury Department “endeavor” to establish a program or facility that would provide financing to banks and other lenders that make direct loans to larger, qualifying organizations. If such lending program is created, larger organizations may be eligible for loans with a low-interest rate not higher than 2% with no interest or payments for the first six months.
• Organizations must retain or rehire at least 90% of their staff at full pay to be eligible.
• Loan forgiveness is not available.

Does the CARES Act include any charitable giving incentives?

• Temporary above-the-line deduction (capped at $300) for charitable contributions made in the 2020 tax year.
• The Act eliminates the existing 60% cap on annual cash charitable contributions eliminated for taxpayers who itemize. They may now deduct 100% of cash deductions.
• Annual corporate charitable contributions limit raised to 25% of income, from 10%.
• Corporate contributions in excess of the raised limit are deductible in the 5 succeeding taxable years.

Are there any direct funding provisions in the CARES Act?

• The CARES Act provides direct funding for various organizations, many of which directly support the efforts of non-profits, including hospitals, Head Start, the Supplemental Nutrition Assistance Program, legal service providers, and others.

Conclusion

The CARES Act was drafted, passed, and enacted in a matter of days, leaving some uncertainty around its numerous provisions. The Act requires that regulations be issued in the coming weeks, and those regulations will help to clarify how the Act will be administered, and how non-profit organizations and others can most effectively use the new law during (and, hopefully, after) these uncertain times.

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