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CARES Act Provisions – Impact to Not-For-Profits

April 1, 2020
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On March 27, 2020, President Trump signed into law, the Coronavirus Aid, Relief and Economic Security Act (the CARES Act). The CARES Act is one of the largest federal relief packages in history and is poised to provide much needed aid to the American people and businesses impacted by this pandemic. Furthermore, it includes a number of favorable provisions available to not-for-profit organizations.

Paycheck Protection Program

One of the main provisions of the CARES Act is the Paycheck Protection Program, which offers businesses access to a new loan program from approved banks and other commercial lenders authorized to make SBA loans under the program. This new loan program will be fully guaranteed by the federal government, but unlike other SBA programs, if the funds are used and certified to be used for covered payroll, mortgage interest, lease, and utility payments, then personal guarantees and collateral appear to be waived. To be eligible to participate in the program, a 501(c)(3) not-for-profit must have 500 or fewer employees. The maximum loan under the program is to be the lesser of $10,000,000 or 2.5 multiplied by the applicant’s average total monthly payments for certain covered expenses plus certain other SBA loans that may be refinanced through this program. 

A key provision under the Paycheck Protection Program is that these loans may be forgiven. Not-for-profit organizations are eligible for loan forgiveness equal to the amount of covered payments made during the initial 8-week period of the program, assuming that loan proceeds were used for permitted purposes, maintained certain salary levels for staff, and did not significantly reduce its fulltime employees. The loan forgiveness may be reduced if the not-for-profit reduces its number of employees as compared to the prior year or if it reduced the pay of any employee by more than 25% as of the last calendar quarter. Organizations that re-hire workers previously laid off as a result of the crisis may not be penalized for having a reduced payroll for the beginning of the relevant period. Those seeking loan forgiveness will be required to provide certain documentation to their lenders regarding pay rates, payroll tax filings, payment of utilities and rents, and other documentation, as required by the SBA, as determined appropriate. 

Economic Injury Disaster Loans

Under the SBA’s existing Economic Injury Disaster Loans (EIDL) program, working capital loans up to $2 million, at an interest rate of 2.75 percent, are available for not-for-profit entities that meet the SBA’s industry size standards for employees and revenues. In addition, not-for-profit organizations in need of an immediate infusion of liquidity may receive a $10,000 emergency advance within three days after applying for an EIDL grant. If the application is denied, the applicant is not required to repay the $10,000 advance. The loans may be used to pay fixed debts, payroll, accounts payable, and other expenses that an organization can’t pay because of the COVID-19 impact. 

Charitable Giving Incentives for Donors

The CARES Act establishes a new one-time “above the line” deduction for taxpayers, up to $300, for a charitable donation. This is available only for taxpayers who do not itemize their deductions and does not apply to noncash gifts, or those contributed to donor advised funds.

Furthermore, taxpayers were generally limited to 60% of their Adjusted Gross Income (AGI), for contributions to public charities. This limit has been suspended for 2020, allowing for up to 100% of AGI to be covered by Charitable Giving. For corporations, the limit on deductions for contributions, ordinarily 10% of AGI, increases to 25% for 2020.

Citrin Cooperman remains committed to ensuring we do our part to keep you up-to-date on the latest information available during these difficult times. Please reach out to your dedicated Citrin Cooperman Not-For-Profit Practice team at any time, as we are ready and able to assist you and your organization.