The Consolidated Appropriations Act Of 2021: An Update For Tax-Exempt Organizations

On December 27, 2020, “The Consolidated Appropriations Act of 2021” (H.R. 133) (the “CAA”) was signed into law by the President. The CAA includes various updates to, and additional funding for, programs established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Programs and changes of particular interest to 501(c)(3) organizations include the Paycheck Protection Program, the Economic Injury Disaster Loan and Grants Program, the Higher Education Emergency Relief Fund, grants for shuttered venue operators, and temporarily expanded charitable deductions to incentivize charitable giving.

Paycheck Protection Program

The CAA modifies and reopens the Paycheck Protection Program (the “PPP”) through March 31, 2021. The PPP is available for first-time borrowers and additional second draw loans are now available to certain borrowers as well. 501(c)(3) tax-exempt organizations may qualify for a second draw loan from the PPP if they (i) employ less than 300 employees, (ii) used or will use the full amount of the first draw PPP loan on or before the date the second draw PPP loan is disbursed to the borrower, and (iii) demonstrate at least a 25% reduction in gross receipts in one quarter in 2020 as compared to the same quarter in 2019. The maximum loan amount is $2 million. In addition, under the CAA, certain 501(c)(6) organizations that engage in limited lobbying activities can now apply for a PPP loan.

See Goodwin’s January 5, 2021 Client Alert “U.S. Paycheck Protection Program Restarts: Summary of Key Updates” for further details on the PPP.

Targeted Economic Injury Disaster Loan Advance

Funding is now available for eligible entities, including private nonprofit organizations, specifically located in low-income communities. Eligible entities that received less than the full $10,000 grant under the CARES Act will be prioritized and may receive a grant equal to the difference between $10,000 and the amount of the grant they received under the CARES Act. Entities that did not receive an emergency grant under the CARES Act because funding had run out may be eligible to receive up to the full $10,000.

Emergency Economic Injury Disaster Loan Grants

The covered period during which an eligible entity may request an emergency grant is extended through December 31, 2021. Additionally, there is now more flexibility in the methods used to verify and approve an application as well as the timeframe to approve and disburse grants.

Higher Education Emergency Relief Fund

The CAA provides an additional $22.7 billion to the Higher Education Emergency Relief Fund (the “Relief Fund”), of which $20.2 billion will be granted to public and private nonprofit higher education institutions. Note that recipients must continue to use at least 50% of the funding to provide emergency financial aid grants to students for expenses related to the disruption of campus operations due to COVID-19.

Historically Black colleges and universities, Tribal colleges and universities, and Hispanic-serving institutions will be eligible to receive grants with fewer restrictions from a portion of the Relief Fund equal to $1.7 billion, in addition to applying for grants from the more general $20.2 billion portion of the Relief Fund.

Grants for Shuttered Venue Operators

The CAA allocates $15 billion in grants to support both for-profit venue operators and certain venue operators that are tax-exempt as defined under section 501(a) of the Internal Revenue Code that have been shut down as a result of the pandemic. Entities such as tax-exempt museums, performance venues, and motion picture theater operators, among others, may be eligible to receive grants of up to $10 million per entity to help with operational costs if, among other criteria, they experienced a 25% reduction in gross revenue in a given quarter in 2020 as compared to the same quarter in 2019 and have already resumed or intend to resume operations.

Charitable Contributions and Deductions

The CAA extends the “above the line deduction,” first made available under the CARES Act, to taxpayers who do not itemize their deductions. Thus, such taxpayers can continue to take deductions of up to $300 for cash charitable contributions made to certain charitable organizations in 2021, and those who file a joint income tax return can take deductions of up to $600. Under the CAA, the penalty for overstating cash contributions when claiming this deduction is increased from 20% to 50%.

For taxpayers who itemize their deductions, the CARES Act increased the annual limit on deductions to 100% of adjusted gross income for certain charitable cash contributions, and the CAA now extends this increased annual limit to contributions made in 2021. Note that these increased annual limits continue to not apply to cash contributions made to private non-operating foundations, supporting organizations or donor-advised funds.

The annual limit on deductions for corporate contributions to charitable organizations that was increased under the CARES Act is also extended under the CAA for 2021 and continues to be capped at 25% of taxable income. Again, these increased annual limits continue to not apply to cash contributions made to private non-operating foundations, supporting organizations or donor-advised funds.

The CAA also extends the 25% annual limit on deductions for charitable contributions of eligible food inventory through 2021.