What to Know About PPP Options for Destination Marketing Organizations and 501(c)(6) Organizations

January 15, 2021 | Article

The newest round of legislation via the Economic Aid Act reopens the SBA Paycheck Protection Program (PPP) for both “first draw” and “second draw” loans the week of January 11, 2021.

The legislation expanded eligibility for those who  receive PPP loans,  including destination marketing organizations as well as certain 501(c)(6) organizations, such as  business leagues, chambers of commerce, real estate boards and boards of trade. These types of organizations were previously disallowed from applying. Professional sports leagues and organizations whose purpose is to promote or participate in political activities, are excluded from this expanded provision. Destination marketing organizations are either exempt under 501(c) or are a quasi-government or political subdivision of a state or local government that do one of the following:

  1. Assists with the location of meeting and convention sites; provides travel information on area attractions, lodging and food; provides maps; or organizes tours.
  2. Derives the majority of its operating budget from revenue from live events.

Eligibility Requirements for both destination marketing organizations and 501(c)(6) Organizations Under PPP
Eligibility requirements for 501(c)(6) organizations are:

  • The organization does not receive more than 15% of its receipts from lobbying activities
  • Lobbying activities may not comprise more than 15% of the organization’s total activities
  • Lobbying activity costs did not exceed $1 million during the most recent tax year ended prior to February 15, 2020
  • The organization does not have more than 300 employees

Understanding the definition of lobbying
When reviewing the eligibility criteria, it is important to understand what constitutes lobbying. The Small Business Administration has not specifically defined lobbying nor has it provided clarification on how the above requirements are calculated, although it may do so in the future. Therefore, absent further guidance, it would appear reasonable to consider how the IRS defines lobbying. 

According to the IRS, lobbying is defined as, “an attempt to influence legislation.”  For this purpose, legislation includes actions taken by Congress, any state legislature, any local council or similar governing body, with respect to acts, bills, resolutions, or similar items (such as legislative confirmation of appointive office), or the public in referendum, ballot initiatives, constitutional amendment, or similar procedure.   It does not include actions by executive, judicial or administrative bodies.  

Attempting to influence legislation occurs when an organization contacts, or urges the public to contact, members or employees of any legislative body in order to propose, support or oppose legislation or advocate for the adoption or rejection of legislation. An organization may, however, engage in issues of public policy if the activity is conducted in a manner that is both nonpartisan and educational.

Applying for PPP funding as a 501(c)(6) organization
Organizations that meet the eligibility requirements above may apply for the PPP funds as an initial or ‘First Round’ borrower using SBA Form 2483.

“First Round” borrowers will follow the guidelines under the initial CARES Act funding and do not have to meet the 25% reduction in gross receipts requirements outlined in the new legislation. They are still entitled to a maximum loan amount of $10 million or 2.5 times their monthly average payroll, whichever is greater.

Newly eligible organizations must utilize PPP loan proceeds to fund payroll and other eligible expenditures outlined in the new guidance including the requirement that 60% of the proceeds must cover payroll costs PPP loan proceeds cannot be used by any organization to fund or pay for lobbying or political activities or expenditures. Eligible organizations interested in the PPP loan program should apply as soon as possible, but not later than March 31, 2021.

PPP funds are helping a variety of organizations during a challenging time. But their compliance can be complex and confusing.

A trusted advisor can help you make sense of how to maximize your PPP loans and subsequent forgiveness.

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