Direct Loans to Small Businesses, Nonprofits, and Churches

One of the major sections of the CARES Act is the $350 billion Payment Protection Program, which creates federally-guaranteed loans (operated by the Small Business Administration (or "SBA")) to small businesses and other entities (including nonprofit organizations) to cover eight weeks of necessary expenses. To be eligible for these loans, the entity must have fewer than 500 employees, or the number designated as "standard" for its specific field—whatever is greater. Including entities in this manner will result in many small businesses and nonprofits being covered by these loan provisions.

For purposes of these loans, the CARES Act defines an eligible nonprofit organization as "an organization that is described in section 501(c)(3) of the Internal Revenue Code of 1986 and that is exempt from taxation under section 501(a) of such Code." Under IRS guidance, this generally includes churches—even if they have not registered with the IRS—as long as they meet 501(c)(3) requirements that:

They are organized and operated exclusively for religious, educational, scientific or other charitable purposes

Net earnings do not inure to the benefit of any private individual or shareholder;

No substantial part of their activity may be attempting to influence legislation; and they do not intervene in political campaigns; and

Their purposes and activities may not be illegal or violate fundamental public policy.

Under the CARES Act, limitations that the SBA places on loans to religious entities (including a requirement that religious entities show they are not principally engaged in teaching, instructing, counseling, or indoctrinating religion or religious beliefs) are waived. As long as the church or nonprofit was operational and paying salaries and payroll taxes on February 15th, 2020, it is eligible for these loans.

Ian Speir, an attorney whose clients at Nussbaum Speir Gleason PLLC include numerous churches and nonprofits, agrees, telling us it would be constitutionally problematic to exclude churches in light of recent Supreme Court decisions, which clarify that generally available public benefits can't exclude religious organizations who are otherwise eligible. Speir also noted his agreement that churches are included within the CARES Act's definition of "nonprofit organizations."

Under the CARES Act, the maximum loan an organization can receive is based on a calculation that will come out to 2.5 times the average monthly payroll, or $10 million, whichever amount is less.

If an organization uses the loan to cover payroll costs, health care benefits and premiums, employee salaries, mortgage or rent payments, or any other interest payments, the loan will be forgiven. There are also provisions for waiving borrower fees and other collateral and credit requirements, as well as automatic deferrals of any payments for six months.

There are also incentives for organizations to keep employees on the payroll. The total amount forgiven will be reduced if the employer lays off any employees or reduces employee pay more than 25 percent during the loan term. The program also encourages organizations to rehire any employee already laid off by not adding any penalties for those employees brought back onto the payroll. So, if the organization certifies with the lender that it used the loan for the appropriate expenses, the loan will act as a federal grant with no need to pay any amount back. If the organization does not use the loan for appropriate expenses, it must pay back outstanding funds with an interest rate of 4 percent.

To help stop the spread of the Coronavirus, local and state authorities are restricting large gatherings, causing many churches and religious organizations not to meet in person, which can cause financial setbacks for them. We are also aware that churches and nonprofits are suffering operationally through no fault of their own, creating significant financial strain. If that is the case with your organization, you may benefit from this new loan program meant to help cover payroll and other essential costs for the next eight weeks.

We recognize not every entity may seek to avail themselves of these loans, but they are there for those who wish to do so. The goal is not increased dependence on the government, but rather temporary assistance that can serve as a lifeboat through unexpected shock. In all this, we want to ensure that churches and religious organizations are not discriminated against, but rather are treated fairly and allowed access to any programs that nonreligious organizations can participate in. The coronavirus has affected all of us—religious and nonreligious alike.

Incentivizing Giving to Churches and Nonprofits

Now more than ever, churches and other charitable organizations need donations in order to meet immediate needs related to the coronavirus outbreak. But simultaneously, many Americans face financial hardship due to job loss, limited working hours, or increased medical costs. Such hardships may lead to a decline in charitable donations. By creating additional tax incentives for charitable contributions, the Phase 3 coronavirus relief package seeks to encourage Americans to continue giving throughout the crisis.

Under the CARES Act, charitable contributions up to $300 can be deducted above and beyond the standard deduction on annual tax returns. This new policy will help offset the negative impact on charitable giving precipitated by the 2017 Tax Cuts and Jobs Act, which simplified and raised the standard deduction to $12,000. This change caused many tax filers to take the standard deduction instead of itemizing their charitable contributions. During negotiations on the CARES Act, the FRC team worked alongside allied organizations to increase the total amount of tax-deductible donations. While the $300 amount was not raised, this new level may apply to tax years 2020 and beyond, leading to more incentive for charitable giving going forward.

Finally, reducing charitable giving limits for those who itemize deductions on their tax return is another positive incentive put in place by the CARES Act. The cap limiting charitable contribution deductions to 50 percent of a person's income has been lifted for the 2020 taxable year. This policy also raises the limit on corporate deductions from 10 percent of taxable income to 25 percent and raises limits on food inventory donations from 15 percent to 25 percent... Subscribe for free to Breaking Christian News here

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