TAX ALERT |
Authored by RSM US LLP
The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the 2021 Act), signed into law on Dec. 27, 2020 as part of the Consolidated Appropriations Act, 2021, includes additional funding for the Paycheck Protection Program (PPP), a new shuttered venue operator grant program, and funding for new Economic Injury Disaster Loan Assistance (EIDL) grants for eligible entities located in low-income communities. In addition, the Act expands PPP eligibility to certain organizations described in section 501(c)(6).
The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) established PPP forgivable loans administered by the Small Business Administration (SBA) to provide economic assistance to certain small organizations affected by the COVID-19 pandemic. Under the original terms of the program, the only nonprofit organizations eligible to participate were organizations described in sections 501(c)(3) and (19) that employed no more than 500 individuals, subject to SBA affiliation rules.
The 2021 Act provides another $284 billion in funding for the PPP, allows borrowers to select a forgiveness period between eight and 24 weeks, and expands the eligible nonprofit organizations to include entities described in section 501(c)(3), (6), and (19) if they otherwise meet the borrower criteria. In addition, public colleges and universities (described in section 511(a)(2)(B)) may be eligible if they are FCC license holders and represent that the PPP funds will be used by the relevant component to support locally-focused or emergency information.
After the SBA begins accepting applications, the expanded PPP will be open through March 31, 2021. For first-time borrowers that are not section 501(c)(6) organizations, the CARES Act eligibility requirements continue to apply (e.g., employing no more than 500 employees and being in operation as of Feb. 15, 2020). However, for repeat borrowers or for section 501(c)(6) organizations, more restrictive criteria apply, including employing no more than 300 employees. In addition, there are additional limitations imposed on section 501(c)(6) organizations:
- Must not be a professional sports league
- Must not have a purpose of promoting or participating in a political campaign or other activity
- May not receive more than 15% of its receipts from lobbying activities
- Lobbying activities may not comprise more than 15% of the organization’s total activities
- Cost of lobbying activities of the organization did not exceed $1 million during the most recent tax year ended before Feb. 15, 2020.
Finally, the 2021 Act adds “destination marketing organizations” as eligible PPP borrowers, adding the same restrictions to the eligibility criteria as apply to section 501(c)(6) organizations (including the 300 employee cap). These entities are described in section 501(c), quasi-governmental, instrumentalities, or political subdivisions. They must be engaged in marketing and promoting communities and facilities through a range of activities (e.g., assisting with the location of meeting and convention sites, providing maps, and organizing group tours of local, historical, recreational, and cultural attractions) or must be engaged in and derive the majority of its operating budget from revenue attributable to providing live events.
The SBA has not yet opened applications for the expanded PPP. We expect additional guidance, interpretation, and rules to be issued in the coming weeks. More information about the 2021 Act is available here.
This article was written by Alexandra Mitchell, Ryan Corcoran , Morgan Souza and originally appeared on 2021-01-06.
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