Among other provisions designed to provide relief to individuals and businesses affected by the novel coronavirus, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) provides incentives to encourage charitable giving and assist nonprofit organizations during these challenging times.
Incentives to Encourage Increased Charitable Giving
Charitable Benefits for Non-Itemizers. An eligible individual (generally an individual taxpayer who does not elect to itemize his or her tax deductions) may claim a qualified charitable contribution deduction of up to $300 against his or her adjusted gross income in 2020. For this purpose, a qualified charitable contribution is a charitable contribution that is (a) made in cash, (b) otherwise eligible for a charitable contribution deduction, and (c) made to certain publicly-supported charities. This deduction may not be used for contributions to donor advised funds or non-operating private foundations.
Increased Limits on Cash Contributions for Individuals. Under current law, individuals who make cash contributions to publicly-supported charities may claim a charitable contribution deduction of up to 60% of their adjusted gross income. Any contributions in excess of this 60% limitation may be carried forward for up to 5 years. Under the CARES Act, this percentage limitation is lifted completely for qualifying cash contributions made in 2020 to the extent such contributions do not exceed such individual’s adjusted gross income, taking into account all other charitable contributions allowed as a deduction in 2020. Those individuals who wish to take advantage of this benefit must make an affirmative election in their 2020 tax returns. This increased deduction limitation may not be used for contributions to donor advised funds or non-operating private foundations.
Increased Limits on Cash Contributions for Corporations. Under the CARES Act, corporations may deduct charitable contributions made in cash during 2020 in an amount up to 25% of the corporation’s taxable income (an increase of 15% from the current 10% limitation). In addition, the limitation on deductions for contributions of food inventory has increased from 15% to 25%.
General Requirements. In all cases, the increased contribution limitations and the benefit for individuals who do not itemize apply only to cash contributions (as opposed to donations of real estate, stock or other items – with the exception of food inventory as discussed above). Recipient organizations must be public charities (but not donor advised funds).
Benefits for Nonprofit Organizations
In addition to these initiatives designed to stimulate charitable giving, the CARES Act allows certain types of nonprofit and tax-exempt organizations to participate in programs that benefit businesses, including the following:
Paycheck Protection Program. Section 501(c)(3) and 501(c)(19) entities are now eligible loan recipients under the Paycheck Protection Program, provided that such organizations otherwise meet the relevant eligibility requirements. These low-rate loans generally cover up to 2 ½ months of payroll costs and may be forgiven completely if certain staffing levels are maintained for an 8 week period after the loan is received. See the Paycheck Protection Program for more details.
Economic Injury Disaster Loans. “Private Nonprofit Organizations” are now eligible for Economic Injury Disaster Loans (“EIDLs”). It is not yet entirely clear what types of tax-exempt organizations are considered to be private nonprofit organizations for purposes of EIDLs, but it is assumed that this includes at least certain types of 501(c)(3) organizations and could include also other types of tax-exempt organizations as well. This SBA disaster relief program provides for immediate grants of up to $10,000 and low-rate loans of up to $2 million, with possible deferent of interest and principal for up to four years.
Payroll Tax Credit. All 501(c) tax-exempt organizations are eligible for the employee retention payroll tax credit equal to 50% of “qualified wages” if (a) they experience a whole or partial shutdown due to a governmental order that limited commerce, travel or meetings due to COVID-19, (b) their gross receipts declined by more than 50%, and (c) they have not received a loan under the Paycheck Protection Program.
Note that in each case additional requirements apply. If you have questions about this program or other options that may be available to you and/or your nonprofit organization during these extraordinary times, Ray Quinney & Nebeker has a team of nonprofit attorneys available to assist you.
Christopher N. Nelson has assisted numerous nonprofit and tax-exempt organizations with corporate and tax issues in connection with a variety of business and charitable transactions. He also represents for-profit corporate and limited liability company entities in a variety of business situations.