Federal Nonprofit Policy Updates

Posted By: Madeleine McGee Advocacy , Covid-19 Response ,

Updates on Congressional legislative action.

Based on material from the National Council of Nonprofits and the North Carolina Council of Nonprofits. 

Advocacy efforts regarding pending legislation can be found on Speaking Together.

Update Oct. 23

US Labor Department Seeks Input on Executive Order to Limit Race and Gender Equity Trainings
Last week, the U.S. Department of Labor (DOL) issued a Request for Information seeking input from federal contractors related to President Donald Trump’s recent executive order limiting workplace trainings on equity, diversity, and inclusion. The executive order, which takes effect on November 21, limits the ability of federal contractors and grantees to use workplace training “that inculcates in its employees any form of race or sex stereotyping or any form of race or sex scapegoating."
The executive order covers most trainings that include topics like race equity, gender equity, implicit bias, or systemic racism. Specifically, the executive order requires federal agencies to add provisions to contracts prohibiting contractors from offering these types of workplace trainings and allows federal agencies to prohibit grantees from using federal funds on these types of workplace trainings. Federal agencies are required to provide reports on how this will affect their grantees by November 21.
The Request for Information is focused on the government contractors rather than on grantees. While DOL encourages federal contractors to submit copies of their materials from “workplace trainings that involve race or sex stereotyping or scapegoating,” nonprofits with federal contracts may want to be cautious about submitting these materials, since they could provide the federal government evidence that could lead to enforcement of the executive order.
Nonprofits can also submit comments to DOL about the impact of the executive order. Together SC hopes to submit comments sharing nonprofits’ concerns about the way this misguided executive order could limit the ability of some nonprofits with federal grants and contracts to offer workplace trainings on important topics related to equity, diversity, and inclusion. The deadline to submit comments or materials is December 1, 2020.
Last week, Together SC joined 160 other national and statewide nonprofit and business organizations in a letter from private sector employers (both for-profit and nonprofit) urging the White House to withdraw the executive order.
The National Council of Nonprofits has also published a thorough analysis highlighting the problems with the executive order.

Update Oct. 12

Nonprofits Express Outrage Over Executive Order to Limit Race and Gender Equity Trainings
Over the past two weeks, many nonprofits have expressed outrage over an executive order issued by President Donald Trump to limit the ability of federal contractors and grantees to use workplace training “that inculcates in its employees any form of race or sex stereotyping or any form of race or sex scapegoating.” The executive order would cover most trainings that cover topics like race equity, gender equity, implicit bias, or systemic racism. Specifically, the executive order would require federal agencies to add provisions to future contracts prohibiting contractors from offering these types of workplace trainings and would allow federal agencies to prohibit grantees from using federal funds on these types of workplace trainings. 
The National Council of Nonprofits has published a thorough analysis of the executive order. This analysis articulates many of the concerns that Together SC and other nonprofits have about the ways that this misguided executive order could limit the ability of some nonprofits with federal grants and contracts to offer workplace trainings on important topics related to equity, diversity, and inclusion. 
Together SC supports the work of the National Council of Nonprofits and other nonprofit and business leaders to stop the implementation of this executive order.
Your input is important in this advocacy effort. Please email Madeleine@TogetherSC.org if your business or nonprofit has a federal grant or contract and might be affected by this executive order.

Update Sept. 25

Congress Continues to Struggle to Provide Additional COVID-19 Relief

Leaders in Congress and the White House have made little progress in negotiations on much-needed additional COVID-19 relief. The bipartisan Problem Solvers Caucus released a Bipartisan COVID Relief Framework that is a middle ground between the HEROES Act that the House passed in May and the scaled-down COVID-19 relief bill that was defeated in the Senate earlier this month. Additional relief is critical for the thousands of nonprofits (and the millions of South Carolinians they serve) that continue to struggle because of the pandemic. Specifically, the Center and other nonprofits are asking Congress to enact these four policy solutions:

1 Continue Emergency Funding Programs. Specifically, it is important for Congress to: (a) enable a second round of Paycheck Protection Program loans; and (b) appropriate funds for federal grant programs to state and local governments that depend on nonprofits to deliver services to the public. A policy solution like the WORK NOW Act, which would provide a grant program to help nonprofits serving critical needs related to the pandemic, would help create new jobs AND maintain critical services in our communities.

2 Strengthen Charitable Giving Incentive by making meaningful improvements to the above-the-line charitable deduction in the CARES Act from $300 in 2020 to about $4,000 per individual and $8,000 per married couple in 2020 and 2021 so the incentive is universally available to all Americans, not just the wealthy. 

3 Extend Loan Programs to Mid-Sized and Larger Nonprofits with more than 500 employees because the CARES Act largely excluded them. Many larger nonprofits have not received any government assistance for their financial losses during the pandemic and are having to turn to individual donors and foundations for more support, possibly at the expense of private contributions to smaller nonprofits.

4 Provide Full Federal Unemployment Coverage for self-insured nonprofits by increasing the federal unemployment insurance reimbursement from 50% to 100% of costs.

Update Sept. 14

U.S. Senate Unable to Pass Scaled-Down COVID-19 Relief Legislation
The Senate voted down a new scaled-down COVID-19 relief bill. The Senate voted on the bill mostly along party lines, so the bill didn’t receive the 60 votes necessary to pass. Even though the Senate didn’t pass this proposal, it signals the next step in the (very slow moving) negotiations between the two major political parties over the next iteration of COVID-19 relief. Notable provisions in the bill for nonprofits include:
  • Universal Charitable Deduction. The bill would have increased the universal deduction in the CARES Act from $300 per tax taxpayer to $600 for individuals and $1,200 for married couples filing jointly. It would not have extended the temporary charitable giving incentive beyond its current expiration date of December 31, 2020. To help prevent tax fraud, the bill also would have doubled the penalty for non-itemizers who overstated the amount of their donations. This provision is an encouraging sign for nonprofits, since neither the previous Senate relief bill (the HEALS Act) nor the HEROES Act that passed the House in May would have improved upon the universal charitable deduction from the CARES Act. Nonprofits continue to advocate for Congress to expand this provision to allow all taxpayers to deduct their charitable contributions up to one-third of the standard deduction (more than $4,000 for individuals, and more than $8,000 for married couple filing jointly). 
  • Paycheck Protection Program (PPP). The bill would have created a second round of PPP loans, limited to employers with 300 or fewer employees that experienced a 35% decline in “gross receipts” in any quarter of 2020. The calculation of “gross receipts” would have been problematic for many nonprofits, since it would have excluded federal grants and many foundation grants. The bill also would have simplified the PPP loan forgiveness process for borrowers (including many nonprofits) receiving loans of $150,000 or less. 
  • Unemployment Compensation. The bill would have provided for $300 per week in supplemental unemployment insurance benefits for workers who have been laid off or furloughed due to COVID-19. This is only half of the $600 weekly benefits provided through July 31 in the CARES Act. Unlike the HEALS Act, the latest Senate proposal does not increase the federal reimbursement for self-insured nonprofits.
  • No State and Local Government Funding. The bill included no additional support for state and local governments. Its only support for state and local governments – the extension of the deadline to use CARES Act money through September 30, 2021.
  • Liability Relief. Many nonprofits have expressed concern about the possibility of legal liability if someone who has been in their facilities contracts COVID-19 and sues the nonprofit. This is a particular concern since many insurance providers are excluding COVID-19 claims from coverage. Like the HEALS Act, the latest Senate bill would have limited liability for nonprofits and businesses for personal injuries arising from alleged COVID-19 exposure at their facilities.
After the Senate’s vote yesterday, the National Council of Nonprofits and other national organizations issued a statement explaining why it is essential to communities across the country for Congress to pass additional relief legislation soon.
The statement concludes: “It is imperative that Congress enact significant bipartisan coronavirus relief legislation as soon as possible. Final legislation should include not only an increase to the universal charitable deduction and extend that deduction at least through 2021, but it should also extend a new round of Paycheck Protection Program (PPP) loans to nonprofits of all sizes, expand refundable payroll tax credits, provide forgivable loans to mid-size and large nonprofits that have thus far been unable to access this necessary aid, provide full unemployment benefit reimbursement for nonprofits that self-insure, and continue emergency funding programs to provide nonprofits with financial support to maintain services protecting vulnerable families and frontline responders. These are all provisions with broad bipartisan support in both chambers.”
U.S. Labor Department Issues Guidance on Charging UI Costs to Self-Insured Nonprofits -August 14
On Wednesday, the U.S. Department of Labor (DOL) issued new guidance clarifying that self-insured nonprofits are not required to pay 100% of the costs of COVID-19 related unemployment insurance (UI) claims and wait for repayment of half or all of these costs from their state employment security agencies. The guidance comes a week after President Trump signed into law the Protecting Nonprofits from Catastrophic Cash Flow Strain Act (S. 4209). The new law and DOL guidance means that reimbursing nonprofits in South Carolina will not be charged for their COVID-19 related UI claims since the CARES Act provides funding for 50% of the cost of nonprofits’ UI claims and the state of South Carolina is not charging nonprofits for the other 50% of these costs.
While the guidance is generally good (if expected) news for self-insured nonprofits, DOL made clear that it will still penalize states that are too generous in holding harmless reimbursing employers for their UI claims; it would require states that forgive 100% of these costs to return the 50% share covered by the federal government under the CARES Act. Together SC continues to work to ensure that the process for protecting reimbursing nonprofits from UI liability due to COVID-19 is done in a way that protects the finances of both nonprofit organizations and the state of South Carolina.
BTW - Here's a shout out to Senator Scott and SC DEW from The Post & Courier for their work in making this happen.
Competing Proposals for PPP Extension Are Mixed News for Nonprofits -August 14
For now, negotiations between Congress and the White House over the next COVID-19 relief bill have stalled.
Once Congress returns to Washington next month and negotiations resume, the future of the Paycheck Protection Program (PPP) will be particularly important for many nonprofits. Various congressional proposals would renew, alter, or expand the PPP. The HEROES Act, which was approved by the U.S. House of Representatives in May, includes access to PPP loans for nonprofits of all sizes. The HEALS Act, a U.S. Senate proposal, would create a second PPP forgivable loan opportunity for nonprofits and businesses. The RESTART Act, a bill that has been introduced in both houses of Congress, would improve on maximum loan amounts but would give nonprofits less favorable loan forgiveness terms than for-profit businesses would receive. The National Council of Nonprofits developed a good comparison of the pros and cons for nonprofits in each of these PPP proposals.
Executive Actions Provide No COVID-19 Relief for Nonprofits - August 14
Last Saturday, President Donald Trump took four executive actions in an attempt to provide economic relief to some individuals and businesses affected by the COVID-19 pandemic. Most notably, two of the President’s memoranda would:
  1. Create a temporary new $400 per week supplemental payment for unemployed workers. The federal government would pay for 75% of these payments, but states would be required to cover the other 25%. The Governor and legislators will have to work out details once the U.S. Department of Labor issues guidance for states in the coming weeks. These expanded unemployment insurance (UI) benefits are particularly important to South Carolinians who are out of work, since our state UI benefits are capped at $326 per week – among the lowest in the country – and the $600 weekly federal payments under the CARES Act expired two weeks ago. 
  2. Defer payroll tax obligations from September 1, 2020 through December 31, 2020. The memorandum leaves many unanswered questions for nonprofits and their employees about the logistics and implications of the payroll tax deferrals. There are also concerns that this action may create funding shortfalls for Social Security and Medicare (the programs funded through payroll taxes) and that employers will need to payer higher payroll taxes in early 2021 as a result of deferring their taxes this fall. 
Nothing in the President’s executive actions would address the needs of nonprofits responding to the pandemic, such as expanding the Paycheck Protection Program, strengthening the universal charitable deduction, and providing needed funding for state and local governments and nonprofits providing services during the pandemic. Ultimately, Congress will need to reach an agreement on another COVID-19 relief bill to provide these types of assistance which are critical to nonprofits and the communities they serve.

Congress Negotiating Additional COVID-19 Relief - July 31
On Monday, U.S. Senate leaders released the Health, Economic Assistance, Liability Protection and Schools Act (HEALS Act), the Senate’s roughly $1 trillion proposal for the next COVID-19 relief legislation.
In May, the U.S. House of Representatives passed the Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES Act), its $3 trillion proposed COVID-19 relief bill. Leaders in Congress and the White House are trying to negotiate a compromise bill by the end of next week.
Several provisions in the proposed COVID-19 relief bills would affect the work of nonprofits, including:
  • Paycheck Protection Program (PPP) Expansion. Thousands of South Carolina nonprofits received forgivable PPP loans over the past few months. The HEROES Act would set aside 25% of PPP funding for nonprofits and would expand eligibility to non-501(c)(3) nonprofits and to nonprofits with more than 500 employees. The HEALS Act would expand eligibility to 501(c)(6) trade associations and would create a second round of PPP funding for businesses and nonprofits with 300 or fewer employees that experienced at least a 50% reduction in gross receipts from the same period in 2019.
  • Funding for State and Local Governments.  The HEROES Act would provide about $875 billion in additional appropriations for state and local governments. While the HEALS Act does not provide new funding for state and local governments, it would provide states, counties, and municipalities greater flexibility in spending unappropriated CARES Act money to fill budget holes.
  • Universal Charitable Deduction. The CARES Act created a very limited universal charitable deduction (capped at $300) for 2020. Nonprofits continue to advocate for Congress to expand this provision to allow all taxpayers to deduct their charitable contributions up to one-third of the standard deduction (more than $4,000 for individuals, and more than $8,000 for married couples filing jointly). This expansion would be a much more meaningful way to increase charitable giving to help nonprofits respond to the pandemic. Neither the HEALS Act nor the HEROES Act would expand the universal charitable deduction.
  • Employee Retention Tax Credit. The CARES Act included a very limited Employee Retention Tax Credit (ERTC) that was only available to businesses and nonprofits that did not receive PPP loans and suffered severe economic loss due to the pandemic. Both the HEROES Act and HEALS Act would significantly increase the value of the ERTC, ease eligibility standards (so that nonprofits with drops in gross receipts of 10% to 25% may be eligible), and enable businesses and nonprofits that received PPP loans to also use the ERTC. The expanded ERTC could be a significant new financial relief program for nonprofits that suffered economic harm due to the pandemic.
  • Unemployment Coverage for Self-Insured Nonprofits. The CARES Act provided federal funds to cover 50% of the COVID-19 related unemployment insurance (UI) costs of self-insured nonprofits (i.e. organizations that elect to reimburse their state unemployment trust funds for UI claims rather than pay state unemployment insurance). The HEALS Act would improve upon this by providing federal funds to cover 75% of self-insured nonprofits’ UI costs. The HEROES Act would maintain the 50% provision from the CARES Act. 
  • Liability Protections. Many nonprofits have expressed concerns about the possibility of legal liability if someone who has been in their facilities contracts COVID-19 and sues the nonprofit. This is a particular concern since many insurance providers are excluding COVID-19 claims from coverage. The HEALS Act would limit liability for nonprofits and businesses for personal injuries arising from alleged COVID-19 exposure at their facilities.  The HEROES Act does not include any liability protections for nonprofits or businesses.
  • Appropriations. The HEROES Act includes a wide range of appropriations, including increased funding for the Supplemental Nutrition Assistance Program (SNAP), food banks, the 2020 U.S. Census, arts and humanities nonprofits, domestic violence organizations, legal services nonprofits, hospitals, mental health service providers, and the Community Development Block Grant. The HEALS Act includes far fewer appropriations for nonprofits and government agencies, but it would include additional funding for healthcare and mental health providers. Nonprofits have asked Congress to pass the Work Opportunities and Resources to Keep Nonprofit Organizations Well Act (WORK NOW Act), which would provide $50 billion in grants to nonprofits that have experienced increased demand for services during the pandemic. Neither the HEROES Act nor the HEALS Act includes the $50 billion in nonprofit grant funding from the WORK NOW Act.
The National Council of Nonprofits has prepared a good summary of the key nonprofit provisions in the HEALS Act and the HEROES Act.

Congress is expected to pass its next piece of COVID-19 legislation this month -  July 19
On Monday, thousands of nonprofits sent a letter to congressional leaders asking them to include four nonprofit policy solutions in the final package:
  1. Continue Emergency Funding Programs including improvements to the Paycheck Protection Program, creation of a nonprofit jobs-expansion program, and funding for community support grants programs that enable nonprofits to serve vulnerable populations.
  2. Provide Low-Cost Loans to Mid-Size and Larger Nonprofits that have been left out of and not able to access government funding.
  3. Strengthen Charitable Giving Incentives by expanding the incentives to all taxpayers, not just itemizers, via an above-the-line or universal charitable deduction of one-third of the standard deduction.
  4. Provide Full Unemployment Benefit Reimbursement benefits paid to laid off or furloughed employees of self-insured or reimbursing nonprofit employers.
Thank you if your nonprofit signed on to this letter! See which South Carolina nonprofits took time to sign on to the letter.

Main Street Lending Program to Support Lending to Nonprofit Organizations

Statement from Treasury Secretary Steven T. Mnuchin, July 17, 2020

Congressional Bills Would Expand Universal Charitable Deduction - July 2
Identical bipartisan bills were filed in both the U.S. Senate (S.4032 - Senator Scott is a sponsor) and the U.S. House of Representatives (H.R. 7324) to expand the temporary universal charitable deduction that was established in the CARES Act.  The Universal Giving Pandemic Response Act would significantly increase the limit on the deduction (currently set at $300 in contributions per year for all taxpayers) to one-third of the amount of the standard deduction ($4,133 for individuals and $8,266 for married couples filing jointly).
It also would encourage immediate donations to nonprofits by allowing taxpayers to take the deduction for 2019 for contributions made before July 15, 2020 and to file amended tax returns to claim this deduction.
 
An enhanced universal charitable deduction is particularly important in light of two recent reports that show declines in charitable contributions. The recent Giving USA report found that, when adjusted for inflation, overall charitable giving was lower in 2019 than in 2017. A quarterly report from the Fundraising Effectiveness Project showed that donations to nonprofits declined by 6% during the first quarter of 2020 as many donors faced financial uncertainty due to the COVID-19 pandemic.
 
Extension of PPP through August 8th - July 2
The Senate and House both unanimously approved legislation to extend the Paycheck Protection Program (PPP) through August 8. The president signed S. 4116 on July 4th enabling eligible nonprofits that have not yet received PPP loans can submit applications through their financial institutions. Of the funding that Congress appropriated for PPP loans, about $130 billion is still available.
Senate Unanimously Approves Bill to Improve UI Process for Self-Insured Nonprofits - July 2
The Senate unanimously approved the Protecting Nonprofits from Catastrophic Cash Flow Strain Act (S. 4209  - sponsored by Senator Scott!), which would partially fix the unemployment payments challenge for reimbursing nonprofits. Specifically, the bill clarifies that self-insured nonprofits would not have to pay 100% of their unemployment bill upfront and wait for repayment from the state. This would fix problematic guidance from the U.S. Department of Labor. 
Nonprofit advocates hope that the U.S. House of Representatives will quickly approve the bill when it returns to Washington in two week. Be sure to call your Congressman and ask his support. 

Senate Bill S. 4001 introduced - June 19

Senator Tim Scott (R-SC), and a bipartisan group of six senators introduced the Protecting Nonprofits from Catastrophic Cash Flow Strain Act, to help nonprofits, remain financially viable during the COVID-19 pandemic.  The CARES Act only covers 50% of the costs of unemployment claims for nonprofits that self-insure and the Labor Department requires 100% payments upfront. This new bill, S. 4001, corrects the second problem. 

U.S. House Bill Would Improve UI Process for Self-Insured Nonprofits - June 18
A new U.S. House of Representatives bill (H.R. 7066) would partially fix the unemployment payments challenge for reimbursing nonprofits. Specifically, the bill clarifies that self-insured nonprofits do not have to pay 100% of their unemployment bill upfront and wait for repayment from the state. This would fix problematic guidance from the U.S. Department of Labor requiring nonprofits to fully reimburse states for the costs of their COVID-19 related UI claims and then seek reimbursement of their reimbursement
Congressional Committee Considers Expanded Universal Charitable Deduction -June 12
This week, the Congressional Joint Economic Committee held a hearing on Supporting Charitable Giving during the COVID-19 Crisis. During the hearing, six U.S. Senators (three Democrats and three Republicans - including Senator Tim Scott) described plans for their bill to greatly expand the above-the-line deduction for charitable contributions that was included in the CARES Act.
The current universal charitable deduction is limited to $300 per year and only applies on 2020 taxes. The six Senators are proposing a much larger deduction (with caps of $4,000 for individuals and $8,000 for married couples filing jointly) that also could be applied to 2019 taxes (creating an incentive for more immediate charitable contributions, since 2019 tax returns are now due on July 15, 2020). 

Bill Signed to Improve PPP Loan Program - June 5th

The President signed into law a bipartisan bill (H.R. 7010) to strengthen the PPP. Among other things, the bill:

  • Extends PPP loans through December 31;
  • Extends the deadline for borrowers seeking loan forgiveness to rehire employees until December 31, 2020;
  • Expands the covered period for loan use from eight weeks to 24 weeks; and
  • Replaces the SBA’s rule that at least 75% of the forgivable funds from PPP loans must go to payroll expenses with one that allows up to 40% of funds to be used for non-payroll expenses.
IRS Releases Guidance on Refundable Payroll Tax Credits for Emergency Leave - Late May
The Internal Revenue Service released a new fact sheet on the refundable tax credits that nonprofits and other employers can claim when paying for sick leave or family and medical leave pursuant to the Families First Coronavirus Response Act. The fact sheet address questions about covered employees, sick leave requirements and the credit, how to claim the credits, and recordkeeping.
IRS Ends Donor Disclosure Requirements for Non-501(c)(3) Nonprofits - Late May
The IRS released final regulations eliminating donor disclosure requirements for non-charitable tax-exempt organizations. The final regulations remove the longstanding requirement that non-charitable tax-exempt organizations, such as 501(c)(4) social welfare organizations, disclose – on a confidential basis – the names of their donors and amounts given. Charitable nonprofits continue to submit the Form 990 Schedule B Schedule of Contributors, as required by the Internal Revenue Code.
Together SC supports the public comments of the National Council of Nonprofits opposing this rule change.

Internet Regulator Blocks Sale of Dot-Org Domain to Private-Equity Firm - May 1

Congress Approves Bill to Reopen Paycheck Protection Program - April 23
The U.S. House of Representatives approved legislation to provide $310 billion in additional funding for the Paycheck Protection Program (PPP), which ran out of funding last week. Together SC has heard from many nonprofits that have applied for (or attempted to apply for) this emergency relief program, which allows for forgivable loans for nonprofits and small businesses to pay for up to eight weeks of payroll expenses and other operational costs.
Financial institutions could begin processing PPP loans again as soon as the 27th of April. If your nonprofit is still seeking a PPP loan, we strongly encourage to contact your financial institution as soon as possible to apply. If your organization has a pending application, you can contact the lender to see whether you need to update your application to be eligible for the additional PPP funds. 
The latest PPP funding bill sets aside $30 billion of the funding to be used by community development financial institutions (CDFIs), credit unions, and banks with less than $10 billion in assets. This provision is intended to provide greater access to PPP loans to nonprofits and other entities that had difficulty securing loans in the initial round of PPP funding. Many nonprofits – and businesses in communities of color – have better access to CDFIs and credit unions than to larger banks. However, there are concerns that much of the $30 billion set-aside will be used by banks with less than $10 billion in assets, potentially providing minimal additional support to financial institutions serving nonprofits.
In addition to replenishing funding for PPP, the bill adds $50 billion in funding for the Economic Injury Disaster Loan (EIDL) program (which are not forgivable) and $10 billion for EIDL advance grants. It also provides $75 billion in additional funding for hospitals and $25 billion for COVID-19 testing.

April 10 Update

Form 990 Due Date

As reported earlier, the IRS announced today that it is extending to July 15 relief to all taxpayers that have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020. The announcement, Notice 2020-23, identifies the Form 990-T return for unrelated business income taxes, the Form 990-PF excise tax payments and return, and Form 990-W estimated UBIT form, among others. Although the news release and Notice don’t say so expressly, the annual Form 990 filing deadline is also delayed by operation of this notice and a pre-pandemic decision.

Mid-Size Loan Program

The Treasury Department announced the initial details about its progress in implementing the portion of Section 4003 of the CARES Act calling on the Secretary to “endeavor” to create a loan program for nonprofit and for-profit employers with between 500 and 10,000 employees. In a news release, Treasury said that it is setting up the Main Street Business Lending Programthat will apply to employers with up to 10,000 employees or annual revenues of less than $2.5 billion. Notably, the Department is removing the 500-employee floor so smaller organizations can also apply. It’s setting up two programs, the Main Street New Loan Facility and the Main Street Expanded Loan Facility. The Federal Reserve would oversee loans of at least $1 million and a maximum of $25 million (New) or $150 million (Expanded). Loans would have a four-year maturity and would not be forgivable. Details of the program are still in process. The Fed is asking for recommendations/input up until April 16 at

https://www.federalreserve.gov/apps/contactus/feedback.aspx?refurl=/main/.

March 31 Update

In rapid succession over the last two weeks, Congress passed and the President signed two far-reaching pieces of legislation designed to provide relief to the American people and businesses – including nonprofits. Included in the provisions of these bills are major victories for nonprofits, operational relief, and new obligations.
 

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) passed in late March authorized more than $2 trillion in spending to inject cash into the economy, businesses, and nonprofits. There is a great deal to unpack:

  • Mandated paid sick and family leave and refundable payroll tax credits
  • Generous loan funds for small (< 500 employees) and mid-size (between 500 and 10,000 employees) nonprofit employers; which program is best for your organization?
  • Above-the-line or universal charitable deduction available for 2020
  • Employee retention refundable tax credit
  • Expanded unemployment and enhanced funding for social support programs
Four provisions of the bill are of particular importance to charitable nonprofits:
  1. Most nonprofits with fewer than 500 employees will have access to forgivable small business loans to nonprofits with 500 or fewer employees that will allow them to cover the costs of payroll, operations, and debt service during the COVID-19 crisis. These loans, known as SBA 7(a) loans, will be forgiven for organizations that maintain their staff between March 1 and June 30, essentially turning them into grants. 
  2. The bill includes significant unemployment relief for workers and (partially) for many nonprofits. Workers who lose their jobs for Coronavirus-related reasons – including employees of churches, religious nonprofits, and small charitable nonprofits (under four employees) – will be eligible for $600 per week of supplemental unemployment benefits (paid by the federal government). The federal government will also pay for half of the unemployment claims of self-insured nonprofits, leaving these organizations responsible for reimbursing states for the other half of these costs.
  3. Regardless of whether they itemized, taxpayers can use a (limited) universal charitable deduction for 2020, capped at $300 per year. The bill also strengthens incentives for businesses and high-income Americans to give more generously to support the work of nonprofits. 
  4. To help preserve jobs and businesses, Congress included a wide variety of appropriations that will help many types of nonprofits
The CARES Act also includes direct payments to Americans, including payments to adults of $1,200 and $500 per child ($3,400 for a family of four) to be sent out by mid-April. The amount of the payments phases out for high-income adults
 
The Families First Coronavirus Response Act passed in mid March created new workplace obligations for employers and expanded supports for individuals affected by the COVID-19 pandemic.
 
Among other things, the law provides significant refundable emergency paid sick leave and family and medical leave benefits, which should provide some immediate help to nonprofits and their employees. Details include:
  • Two weeks of emergency paid sick leave: The law requires employers with fewer than 500 employees (including nonprofits) to provide their employees two weeks of paid sick leave, paid at the employee’s regular rate, to quarantine or seek a diagnosis or preventive care for the Coronavirus. It also requires payment at 2/3 the employee’s regular rate to care for a family member for those purposes or to care for a child whose school has closed or child care provider is unavailable due to the Coronavirus. These provisions expire at the end of December 2020.
  • 12 weeks of emergency family and medical leave: The law expands the number of workers who can take up to 12 weeks of job-protected leave under the Family and Medical Leave Act for Coronavirus-related reasons. After the two weeks of emergency paid leave (above), employees of employers with fewer than 500 employees will be eligible to receive at least 2/3 of each employee’s usual pay. Employees must have been employed for at least 30 days to qualify and meet a “qualifying need related to a public health emergency.” The qualifying reasons for the emergency paid leave are caring for a child if the child’s school or childcare center is closed due to Coronavirus. The provisions also expire at the end of 2020.
  • Reimbursable payroll tax credits: Employers – including nonprofits – paying for the mandated paid leave are entitled to claim a refundable tax credit. Specifically, the tax credit is allowed against the employer portion of payroll taxes, and any paid leave costs that exceed the amount of payroll taxes owed will be refundable to the employer at the end of each quarter. 

 February 29 Update 

Fixing the Rules on Federal Government Grants with Nonprofits
Governments rely on nonprofits to provide services to individuals at all stages of their lives. But governments are not always good partners when it comes to hiring and reimbursing nonprofits for the costs of providing those services. The federal Office of Management and Budget (OMB) recently proposed revisions to the primary law governing government grantmaking – the OMB Uniform Guidance. These changes could result in greater reimbursements for indirect costs, reduced administrative burdens, and increased transparency. 
 
Many nonprofits are asking: What would these changes mean? Do the revisions go far enough? Is there anything I can do to make things better?
 
New Resources Provide Fiscal and Policy Snapshots of South Carolina and Other States
 
The Urban Institute recently released fiscal briefs for all 50 states and the District of Columbia. These fiscal briefs – including the one for South Carolina – provide an overview of the state budget, sources of state and local revenue, and economic and demographic trends. These resources may be helpful tools for nonprofits to understand the overall state policy environment in North Carolina and how it compares to other states.

February 14 Update 

President Trump Recommends Steep Cuts to Safety Net Programs in Budget Proposal

On Monday, President Donald Trump began the annual federal budget process by releasing his budget proposals for FY2021 that begins on October1, 2020. The documents released by the White House call for steep cuts to many safety net programs, including Medicaid, Medicare, Supplemental Nutrition Assistance Program, and Temporary Assistance for Needy Families. Although anxiety-inducing for many nonprofits, the reality is that the President’s proposals are only a wish list and are extremely unlikely to be passed by Congress this year.

IRS Guidance Expected on Silo-ing of Unrelated Business Income Tax

Next month, the IRS is expected to issue final regulations on unrelated business income taxes on separate trades or businesses. The 2017 federal tax law changes added Section 512(a)(6) to the Internal Revenue Code. This new subsection requires nonprofits to calculate taxes on a business-by-business basis, rather than aggregating all revenues and expenses and paying the tax only on the profit of the whole. The National Council of Nonprofits submitted public comments on the IRS’s original proposed regulations with suggestions for ways they could be improved.

New IRS Guidance Suggests that 501(c)(3) Subsidiaries Cannot Form PACs

Last month, the IRS issued a private letter ruling that suggests that a 501(c)(3) hospital system would be engaged in impermissible political activity if its for-profit subsidiary created a political action committee (PAC) that solicited funds from hospital employees. Charitable nonprofits are, of course, not permitted to engage in partisan political activities like making campaign contributions or supporting or opposing candidates for office. While this ban on electioneering means that it is impermissible for 501(c)(3) nonprofits to form PACs, some charitable nonprofits have related 501(c)(4) social welfare organizations that are allowed to participate in the political process. Some observers wonder whether the latest IRS ruling, which is not binding precedent, could call into question the common practice of the creation of PACs by 501(c)(4) organizations that have an affiliated 501(c)(3) nonprofit.

IRS Holds Hearing on Donor Disclosure Requirements for Non-501(c)(3) Organizations

Last Friday, the Internal Revenue Service (IRS) conducted a public hearing on proposed regulations to eliminate the requirement that 501(c)(4) social welfare nonprofits confidentially disclose the identities of their significant donors. Representatives of a few organizations expressed support for the proposed change in longstanding law, saying the IRS doesn’t need the Form 990 Schedule B for law enforcement purposes and expressing fear the information could be accidentally leaked to the public. However, the proposed regulations drew strong criticism from a few witnesses who said that failure to disclose the names of donors to groups that can engage in partisan, election-related activities would invite foreign nations to illegally and surreptitiously interfere in American elections. Previously, the National Association of State Charity Officials, the National Council of Nonprofits, and many other groups submitted public comments in opposition to the proposed changes. The Internal Revenue Code requires 501(c)(3) nonprofits to disclose significant donors to the IRS, so the IRS can’t change this requirement through the regulatory process.

January 31 Update 

IRS Requiring Tax Exemptions to be Filed Electronically

Beginning today, the Internal Revenue Service is requiring nonprofits seeking tax exemption as 501(c)(3) organizations to file their Form 1023 application for exemption electronically. The IRS is allowing a 90-day grace period when nonprofits can still submit paper forms. Small nonprofits that use the short-form (and controversial) Form 1023-EZ already have to file electronically. To help nonprofits avoid common errors in applying for tax-exempt status, the IRS has also developed an interactive version of the Form 1023.

IRS Provides Guidance to Help Nonprofits Get Refunds of Parking Tax

On Wednesday, the IRS issued guidance that will help nonprofits quickly get back taxes paid on the recently repealed tax on nonprofit parking and transportation expenses. Nonprofits that paid this tax in 2017 or 2018 can get a refund by filing an amended Form 990-T with the IRS and writing “Amended Return” (or “Amended Return – Section 512(a)(7) Repeal” if the amended return is only being filed to claim a refund of unrelated business income tax (UBIT) paid for parking and transportation expenses). Nonprofits may file for refunds within three years of the filing date of their Form 990-T or within two years of the time they paid the tax, whichever is later. 

OMB Proposes New Rules to Improve Uniform Guidance Indirect Cost Guarantee

On Wednesday, the U.S. Office of Management and Budget (OMB) proposed revisions to the Uniform Guidance, the rules governing federal grants to nonprofits. Most notably, the proposed revisions to the OMB Uniform Guidance would strengthen the guarantee that grantees receive reimbursement of indirect costs of at least 10 percent of their modified total direct costs (de minimis rate).

The proposed rules also clarify that all granting agencies paying nonprofits with federal funds – whether federal, state, or local governments, native tribes, or other nonprofits – must pay nonprofits using the nonprofit's existing negotiated indirect cost rates and, if no negotiated rate exists yet, then they have the obligation to negotiate rates, at the option of the nonprofit. To date, various granting agencies have misinterpreted the rules in ways that deny nonprofits' rights under the Uniform Guidance. 

 In other changes, the proposed rules would:

  1. Provide greater flexibility under procurement standards;
  2. Implement standard data elements across agencies and grants;
  3. Promote the collection of data in machine-readable formats;
  4. Allow federal agencies greater flexibility in terminating grants to nonprofits if the agencies’ policy goals change; and 
  5. Strengthen end-of-grant closeout procedures and enforcement.  

The National Council of Nonprofits has prepared an excellent analysis of the proposed regulations and what they mean for nonprofits with federal grants.

OMB is accepting public comments on the proposed regulations through March 22, 2020.

Recent Change in Retirement Laws Does Not Affect IRA Charitable Rollover

As part of Congress’s year-end spending and tax legislation, several federal retirement laws are changing this year. One of the changes raises the age when individuals must start making minimum distributions from their individual retirement accounts (IRAs) from 70 ½ to 72 years of age. Nothing in this law made changes to the IRA charitable rollover – a popular federal tax incentive for charitable giving. Individuals aged 70½ and older may still make tax-free distributions to nonprofits from their IRAs, even if they are not yet required to make distributions from their IRAs because they have not yet turned 72.

 
January 15 Update
 
IRS Increases Standard Business Mileage Rates for 2020

The IRS has announced that the standard business mileage rate will decrease to 57.5 cents per mile in 2020 (down from 58 cents per mile in 2019). Many nonprofits use this rate when reimbursing their employees for work-related driving. The volunteer mileage rate – the amount that's tax-deductible when your nonprofit's volunteers drive on behalf of your organization – remains at 14 cents per mile and can only be changed by Congress. The Nonprofit Relief Act (H.R. 3323), which was introduced last year, would raise the volunteer mileage rate to be consistent with the standard business mileage rat

Report Documents Failures of Flawed Form 1023-EZ

In its annual report to Congress that was filed this week, the National Taxpayer Advocate noted that the IRS’s flawed Form 1023-EZ (short form application for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code) remains a major compliance issue. The report cites a 2019 study showing that the IRS erroneously granted tax-exempt status to nearly half (46%) of the organizations using Form 1023-EZ. Notably, the rate of erroneously granted tax exemption determinations increased after the IRS revised the form in 2018 to require applicants to provide a description of their mission or most significant activities. Some organizations were granted 501(c)(3) status despite being organized and operated for overly broad and vague purposes such as “helping people in need” and “community outreach.” The Center has expressed concerns that the IRS's continued use of the overly-simple Form 1023-EZ could harm the public's trust in nonprofits by allowing some organizations to be granted tax-exempt status as 501(c)(3) public charities even though they do not satisfy the basic legal criteria to merit this tax exemption. 

Taxpayer Advocate Report Highlights Recent Court Challenges to Charitable Contributions

The National Taxpayer Advocate report to Congress also included an analysis of 17 cases decided between June 1, 2018 and May 31, 2019 challenging the deductibility of charitable contributions. The three main reasons the IRS (mostly successfully) challenged taxpayers’ charitable donations were: 

  1. Failure of taxpayers to adequately substantiate their contributions;
  2. Improper valuation of donations of property; and
  3. Misapplication of the laws on contributions of conservation easements.

Nonprofits receiving large contributions of property or conservation easements may want to work closely with their donors to ensure that they are complying with federal tax law when making these donations.

New Federal Budget and Tax Laws Include Many Provisions Affecting Nonprofits

On December 20, 2019, President Donald Trump signed into law two massive federal appropriations bills that provide $1.4 trillion in funding for the federal government for the remainder of the current fiscal year (through September 30, 2020) and make several tax law changes. The Center has published summaries of the tax policy changes and of the spending provisions affecting nonprofits. 


December 19 Update

E-Filing

The IRS has clarified the new online filing requirements for tax-exempt organizations (IR-2019-206). The new e-filing requirements, enacted as part of the Taxpayer First Act, will be in effect for most nonprofits in tax years after July 1, 2019. As a result, electronic filing of the Form 990 will be required for the December 15, 2020 due date. Form 990-EZ filers were granted a one-year extension for paper submissions, leaving online filing as a voluntary option in those cases. In 2020, the IRS will continue to accept paper forms that have not yet been converted to electronic format, such as the Form 990-T used for reporting unrelated business taxable income.

Protect Your Website’s .ORG Registry from Price Hikes

Prices for nonprofit website addresses ending in .org may soon increase dramatically, and censorship may become a distinct possibility because of two seemingly connected events. Earlier this year, the Internet Corporation for Assigned Names and Numbers (ICANN) – the governing body overseeing the .org domain – removed price caps on domain names. The removal leaves nonprofits vulnerable to abrupt, unanticipated, and significant cost increases at a moment’s notice. Then, last month, the nonprofit Internet Society announced it had sold its ownership of the .org Public Interest Registry to a private equity firm, Ethos Capital

The proposed sale would put the rights to more than 10 million domains in the hands of venture capitalists, who – without the longstanding cost controls in place to protect nonprofits – could take more than $750 million dollars from nonprofit missions. The conversion of the .org registry to for-profit control raises the specter of corporate interests shutting down websites that do what nonprofits do: speak truth to power.

A new letter sent to the Internet Society in opposition to the sale, which the Center and more than 11,000 others have already signed, also states, “Decisions affecting .org must be made with the consultation of the [nonprofit] community, overseen by a trusted leader. If the Internet Society can no longer be that leader, it should work with the [nonprofit] community and [ICANN] to find an appropriate replacement.”

Your nonprofit can help protect its .org domain name as well as the entire nonprofit community by signing on to the letter in opposition to the sale found at SaveDotOrg.org. The National Council of Nonprofits has resources on additional actions nonprofits can take to protect .org domain names.

NC Congressman Introduces Universal Charitable Giving Act

On Giving Tuesday, Congressman Mark Walker (R-NC) re-introduced the Universal Charitable Giving Act (H.R. 5923). The bill would increase giving among low and middle class Americans by creating a new, above-the-line, non-itemizer charitable deduction. The Center strongly supports this bill, which has bipartisan support.

The Universal Charitable Giving Act is particularly important in light of recent trends in charitable giving. Because of the structural federal tax changes in the 2017 Tax Cuts and Jobs Act, more than 21 million Americans stopped using the charitable deduction last year. Preliminary data suggests that this tax law change has led to a small reduction in individual donations supporting the work of charitable nonprofits.