Frequently Asked Nonprofit Questions on COVID-19

March 25, 2020 | Article

Many nonprofit organizations are finding themselves sifting through daily updates on the evolving coronavirus pandemic and wondering—does this apply to me?

Here are some of the frequently asked questions when it comes to the effect of COVID-19 on nonprofit organizations:

Stay up to date with resources on the impact of COVID-19 on your organization.

Does the Families First Coronavirus Response Act apply to nonprofit organizations?
Yes. Nonprofits with fewer than 500 employees are included in this temporary relief which provides expanded family and medical leave and paid sick leave for coronavirus-related absences. The legislation takes effect on April 2, 2020, 15 days after being signed by President Trump.

Nonprofits will be reimbursed through a refundable tax credit, applied against the employer portion of payroll taxes, at the end of each quarter. This legislation is heavily tied to existing employment laws with the Department of Labor. Nonprofits may need to consult with experts who specialize in employee benefit issues.

The Families First Act will have a huge impact on nonprofits and businesses.

How should nonprofit organizations account for funds received from tickets for an upcoming event that has been cancelled?
If the nonprofit issues a gift card or gift certificate to be used for a future event or performance rather than refunding the money, the nonprofit would recognize a contract liability for the funds that have already been received. The nonprofit would recognize the related revenue when the gift card or gift certificate is redeemed. On the other hand, if the patron releases the nonprofit from the obligation to perform under the contract, the nonprofit could recognize contribution revenue at the time they are released from the obligation.

Can tuition paid to an independent school be claimed as a charitable contribution deduction due to the closure of the school?
It depends. If school policies and contracts indicate no refunds of tuition, the funds should continue to be treated as program service income. However, it may be possible to treat as a charitable contribution if the school gave parents the choice of rolling the tuition credit into the next year, having the amount refunded or choosing to give the “credit” to the school as a charitable contribution. In this case, there would need to be a clear, documented methodology for determining the amount of credit. In addition, proper documentation for the contribution would need to be maintained and the proper donor acknowledgement letter for the contribution should be provided to the donor.

It is also important to consider other types of financial reporting that pertains to nonprofits. These items include disclosure considerations for subsequent events and investments, as well as accounting estimates and asset impairment. In addition, learn more about how to ensure grant compliance if you receive federal funds.

Can nonprofits provide disaster relief to the community when this activity is not its primary mission?
Yes. Nonprofits engaging in disaster assistance should ensure they have proper procedures in place for identifying and selecting those in need as well as documenting the assistance provided. Additional IRS resources on this topic include IRS Publication 3833 Disaster Relief and Disaster Relief Resources for Charities and Contributors. Nonprofits should consider disclosing this activity on their Form 990 series as a new activity.

Have questions related to your 990?

Can employer-sponsored nonprofits provide disaster relief to employees impacted by COVID-19?
Yes. The president declared COVID-19 a national emergency, resulting in relief payments being considered qualified disaster relief as defined in IRC Section 139. As such, all types of employer-sponsored nonprofits (private foundations, public charities and donor advised funds) can provide payments to employees without facing restrictions. 

Such payments include reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster. Qualified disaster relief payments do not include payments for expenses otherwise paid for by insurance or other reimbursements, or income replacement payments such as lost wages, lost business income, or unemployment compensation. Regardless of the nonprofit type, the records should be maintained to support the process used and the payments made. Additional IRS resources on this topic include IRS Publication 3833 Disaster Relief and Disaster Relief Resources for Charities and Contributors.

Are nonprofit organizations eligible for U.S. Small Business Administration (SBA) Economic Injury Disaster Loans? 
Yes. The SBA uses the term “private non-profit organization,” which has led to confusion concering who is eligible. General guidance from the SBA Office of Disaster Assistance provides an eligible “private non-profit organization” is a non-governmental agency or entity that currently has an effective ruling letter from the IRS granting tax exemption under sections 501(c), (d), or (e) of the Internal Revenue Code, or satisfactory evidence from the state that the non-revenue producing organization or entity is a nonprofit organized or doing business under state law.

The types of nonprofits eligible to apply include such entities as nursing homes, food kitchens, museums, educational facilities, senior citizen centers, daycare centers, playhouses, community centers, shelters, rescue organizations, associations, etc. Nonprofits that are unsure on eligibility should complete the application and await a decision from the SBA.

Check out the different kinds of SBA relief available.

In the wake of Question 31 and the PPP loan, what do nonprofits have to consider when it comes to a fair certification?
In recent weeks some of the Treasury FAQs intended to provide additional guidance have caused major headaches – specifically FAQ #31 which caused uncertainty regarding the certification by organizations that PPP funds received are necessary to support ongoing operations. The FAQs also provided that loans of $2 Million or more would be subject to audit.

FAQ #46 provided substantial relief and clarification, especially for organizations with smaller loan balances. FAQ #46 allows for a safe harbor provision; an organization that receives a PPP loan with a principal amount of less than $2 Million will be deemed to have made the certification for the necessity of the loan in good faith. The assumption here is that borrowers with loans under this threshold are assumed to be less likely to have access to adequate liquidity sources.

The guidance allows for an organization that receives a loan of $2M or more to still have an adequate case for making the required good-faith certification. These loans will be subject to SBA compliance review. If the SBA determines that the organization does not meet the necessity requirement, the SBA will require that the loan be repaid. An organization that repays the loan subject to the SBA’s request in a timely manner will not be subject to additional enforcement.

We broke down how endowments and reserves impact nonprofits.

Do tax-exempt organizations qualify for the automatically extended due date of July 15, 2020?
Yes. The IRS recently expanded tax filing and payment relief due to the COVID-19 pandemic. In Notice 2020-23, the IRS automatically postpones the due date until July 15, 2020, for all taxpayers that have a return filing or tax payment deadline that falls on or after April 1, 2020, and before July 15, 2020.

In addition, eligible taxpayers may defer federal income and estimated tax payments to July 15, 2020. It is important to note the automatic extension of time to file and deferral of income tax payments applies only to the federal return. State income tax return filing dates and payment dates are determined by the respective states.

Also, several states have charitable tax credits which may be impacted by the extended due date.

Stay up to date on changes to income/franchise tax, sales tax and other taxes.

Lastly, the automatic extension of time to file and deferral of payment does not apply to payroll tax and associated filings.

The IRS has provided guidance around the extended tax filing date.

Is there other relief on the horizon for the nonprofit sector?
A collective group of nonprofit organizations have requested $60 billion in capital to maintain operations, expand scope to address increasing demands, and stabilize losses from closures throughout the country in a letter titled The Charitable Sector: COVID-19 Relief and Economic Stimulus Package.

Specific recommendations and support for the assistance include:

  • As 10% of U.S. GDP, nonprofits employ 12 million workers. They need to retain them.
  • Nonprofits are on the frontlines serving people, especially those in need. They need business continuity relief.
  • Give nonprofit payroll tax credit relief as this is the most significant tax they pay.
  • Provide an “above-the-line” or universal charitable deduction for contributions through the end of 2021.

Additional organizations continue to sign-on to this request, but at this time Congressional packages have been passed that provide relief to a variety of industry sectors as well as taxpayers. Eide Bailly will continue to monitor this and other potential impacts for the nonprofit sector.

The Impact of COVID-19 on Nonprofits
The coronavirus pandemic is having lasting implications on nonprofit and for-profit organizations alike. As we embark on these unchartered times, it’s important to keep up to date with the latest information so you can ensure compliance as you work to protect your nonprofit organization.

The impact of the coronavirus pandemic is far reaching. We’ve compiled resources to help you make sense of it all.

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