September 26, 2023
September 26, 2023

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COVID-19 Considerations for Non-Profits Under the CARES Act and NJ Programs

A recent survey jointly conducted by the New Jersey Center for Nonprofits and the Council of New Jersey Grantmakers reveals that 96 percent of New Jersey charitable organizations expect moderate or significant disruptions of their operations as a result of the COVID-19 pandemic. More than 90 percent of respondents indicated that they already had or would soon need to cancel programs or fundraising events.

In the Jewish community, the mature ecosystem of schools, camps, shuls, charitable organizations and other institutions is a credit to our community. Already, organizations of all shapes and sizes have undertaken an unprecedented transition to our new social distancing reality, instituting distance learning, virtual programming and increased support for those in need. However, these institutions will require unparalleled support during these challenging times.

The Federal CARES Act and New Jersey Programs Provide Support to Nonprofits

The bipartisan Coronavirus Aid, Relief and Economic Security Act (CARES) was signed into law on March 27. The $2.2 trillion of emergency appropriations represents the largest economic stimulus package in the history of the United States. The CARES Act provides several avenues for nonprofits to secure financial support, including the following:

Paycheck Protection Program: 501(c)(3) charitable organizations with not more than 500 employees are eligible for up to $10 million of Small Business Administration loans that can be used for payroll costs, mortgage interest and debt obligations, and rent and utilities. (Payments for salary, wages, and independent contractor payments are limited to $100,000 per individual.) These loans are eligible for forgiveness (transforming these loans into grants) if they are used for qualified purposes between February 15 and June 30, 2020, but loan forgiveness will be reduced to the extent that employee counts are reduced or to the extent that employee compensation is reduced by more than 25 percent. This program will be facilitated through lenders approved by the Small Business Administration.

Enhanced Charitable Giving Incentives: In addition to direct aid to charitable organizations, the CARES Act also provides increased tax incentives for donors to 501(c)(3)s.Charitable donations made in 2020 are now eligible for a new universal (non-itemized) deduction of up to $300. In addition, for those individual taxpayers who itemize, the CARES Act increases the deduction limit from 60 to 100 percent of adjusted gross income. For corporations, the limitation is increased from 10 to 25 percent of taxable income. (Donations to donor advised funds would not qualify.)

Emergency Economic Injury Disaster Loans (EIDL) Advances: Unlike the previous sections that apply only to 501(c)(3) charitable organizations, all private nonprofit organizations with not more than 500 employees are eligible for emergency loans. These loans from the Small Business Administration are generally available during declared disasters, and the CARES Act both expands access to these loans and also allows nonprofits to apply for a $10,000 emergency advance. Under the law, these advances must be processed in no more than three days (even while the application is under consideration) and can be used to pay salaries and operating expenses. For qualified organizations, this program is a great method to secure near immediate liquidity.

Employee Retention Credits: For those nonprofits that do not participate in the Paycheck Protection Program—for example, those with more than 500 employees or organizations that are exempt under a provision of the Internal Revenue Code other than 501(c)(3)—the CARES Act creates a refundable payroll tax credit of up to $5,000 per employee. This credit is available for organizations that have had operations suspended due to COVID-19 or that have had a revenue reduction of at least 50 percent when comparing the relevant business quarter of 2020 to that of 2019.

In addition to these federal programs, the New Jersey Economic Development Authority (NJEDA) has enacted its own initiatives to support New Jersey nonprofits.

Under the NJEDA’s Small Business Emergency Assistance Loan Program, a nonprofit may receive up to $100,000 in direct loans provided that the organization has been in existence for at least one year and has less than $5 million in annual revenue. In addition, the nonprofit must have endured a negative impact due to COVID-19, such as a reduction of business hours or a decline of revenue of at least 20 percent. This program is available to a nonprofit qualified as a 501(c)(3), 501(c)(4), or 501(c)(7) and is limited to organizations registered to do business in New Jersey.

In addition, the NJEDA has instituted a pilot program that offers first loss guarantees to specified lenders that issue working capital loans or lines of credit to nonprofits that can demonstrate a negative impact on operations due to COVID-19.

Nonprofits Must Ensure Good Process and Compliance During Challenging Times

As nonprofits consider the new programs and initiatives outlined above, it is also important for organizations to consider their broader legal efforts. For example, I have worked over the last three weeks with a nonprofit to navigate the force majeure (unforeseeable circumstances that prevent someone from fulfilling a contract) and cancellation provisions of a contract worth more than $250,000. Nonprofits of all sizes will need to reconsider their existing and future contracting needs as force majeure becomes a household phrase. Similarly, organizations need to ensure that proper human resources and employment policies are in place that reflect new realities. Last, especially in challenging times, nonprofits must be certain that their bylaws, policies, boards and committees, IRS tax-exempt status and state obligations conform to legal requirements.

Avi D. Kelin, Esq. is an attorney in the Newark office of Genova Burns LLC and advises nonprofits from initial organization to ongoing compliance.

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