UPDATE: Congress acting on COVID-19 stimulus

The NIC and NPC, in consultation with Arnold & Porter, have been closely monitoring the third COVID-19 stimulus package for its impact on our industry. We wrote last week regarding our advocacy efforts aimed at expanding the definition of eligible nonprofit companies to include 501(c)(6) and (c)(7) organizations.

In the early hours of Wednesday, March 25, we learned that congressional leadership had reached a deal on the legislation, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The Senate passed CARES 96-0, and the House passed the legislation midday Friday.

The legislation is nearly 900 pages long, so this is not intended to be a comprehensive summary. Rather, below we recap several provisions that could be important to our community. We hope to meet with the Arnold & Porter Small Business Administration Task Force on Monday and if anything in our analysis changes we will let you know immediately.

Section 1102: Paycheck Protection Program (PPP)

Who is eligible to participate?       

  • Small business concerns, nonprofits, veterans’ organizations and tribal business concerns; however, the legislation specifically defines nonprofits an organization designated as a 501(c)(3).
  • There is another section of the bill—Waiver of Affiliation,1102 (a)(1)(D)(iv)—which references NAICS code 72 that has causes some confusion because NAICS code 72 can describe fraternity and sorority houses. We continue to ask questions and investigate this topic to see if/how a 501(c)7 excluded through the nonprofit definition could still be eligible through this provision.

While we are in the process of consulting with experts, our current understanding continues to be that the only charitable nonprofits—501(c)3 entities—are eligible and this waiver of affiliation provision is not a “backdoor” for the majority of our housing corporations. However, if a housing entity in question is not organized as a nonprofit and meets the requirements of this section, it may be eligible for the PPP as a “business concern.” If you are unsure about whether a housing entity in question may qualify, we suggest consulting with your primary bank/banker.

How much can be loaned?           

  • The maximum is the lesser of the product of a formula set out in 1102(a)(1)(E)—which takes into account average monthly payroll—or $10,000,000.

Does the loan have to be used in a certain way?         

  • Yes. The PPP sets out allowable uses for the loan, including: payroll costs, costs related to certain employee benefits (e.g., group health care benefits), employee compensation, interest payments on mortgage obligations, rent, and utilities.

Will the loan be forgiven?  

  • Eligible recipients may have loans forgiven in an amount no greater than the sum of the recipient’s costs in the following areas between February 15 and June 30, 2020: payroll, interest on a mortgage, rent or utility payments. Eligible payroll costs specifically exclude compensation above $100,000.

The amount eligible for forgiveness is

(1) reduced proportionally by any reduction in employees retained compared to the prior year, and

(2) reduced by the reduction in pay of any employee beyond 25 percent of their prior year compensation.

Any amount not forgiven at the end of one year is carried forward for a maximum of ten years and maximum of four percent interest. Any canceled indebtedness will not be included in the borrower’s taxable income.

Note that in the coming days and weeks the Small Business Administration (SBA) will promulgate rules regarding the mechanics of how to complete the forgiveness process. 

Where can I get one of these loans?

  • Any qualified SBA lender may opt in to participation in the program. You should speak to your primary bank/banker to see if they are participating. If they are not, ask that they recommend an approved lender.

What information do I need to prepare to apply?          

A borrower must certify that:

  • The uncertainty of current economic conditions makes the loan necessary to continue business operations
  • Funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and/or utility payments
  • The eligible recipient is not applying for or has received duplicative loans to cover the same purpose.

Additionally, the applicant must provide the following documentation:

  • Payroll tax filings reported to the Internal Revenue Service;
  • State income, payroll, and unemployment insurance filings;
  • Financial statements verifying payment on debt obligations incurred before the covered period; and
  • Any other documentation the Administrator determines necessary.

The lender must issue a decision on the application no later than 60 days after the receipt of the application.

What else do I need to know?

  • By participating in the PPP, businesses may become ineligible for other relief provided in the bill. For example, an employer who receives a PPP loan is ineligible for the employee retention credit.

Summary of Other Provisions

  • Employee Retention Credit for Employers: Nonprofits organized under 501(c) are eligible for the new partially refundable employee retention credit authorized by the legislation. The provision provides a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis. The credit is available to employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shut-down order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year. The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020 through December 31, 2020.
  • For employers with more than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above.
  • For employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order.
  • Delay of Certain Payroll Tax Payments: Under the proposal, employers, including tax-exempt organizations, and self-employed individuals may defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. The provision requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022.

Questions can be directed to Clark Brown, general counsel.