At the end of December 2020, the second round of the Paycheck Protection Program (PPP) funding passed under the Economic Aid Act which provides additional relief to not-for-profit organizations.
In addition to the expansion of the program to include 501(c)(6) organizations, not-for-profit organizations that received the first PPP loan are now eligible to receive a second round of loans if the organization has had a 25% reduction in gross receipts in any comparable quarters of 2019 and 2020 and 300 or fewer employees.
What constitutes gross receipts?
For an eligible not-for-profit organization, gross receipts are defined in section 6033 of the Internal Revenue Code of 1986.
Gross receipts include contributions, grants, dues or assessments, sales or receipts from unrelated business activities, sale of assets, and investment income (excluding unrealized gains or losses).
To calculate gross receipts, not-for-profit organizations can look at their IRS Form 990 (Part VIII), start with total revenue on line 12 and then add back from column A the following amounts:
- 6b – rental expenses
- 7b – cost or other basis of sales of assets sold
- 8b – direct expenses from fundraising events
- 9b – direct expenses from gaming activities
- 10b – inventory cost of goods sold
What documentation is required to support a 25% reduction in gross receipts?
A not-for-profit organization may submit their annual IRS Form 990 as documentation. If the tax return for 2020 has not been filed, then there are other options available such as quarterly financial statements or quarterly/monthly bank statements. If the quarterly financial statements are not audited, then the organization will be required to certify the accuracy of the financial statements.
The first page of the financial statements will need to be signed and dated with all other pages initialed, and the lines that constitute gross receipts will need to be identified as well. If using bank statements, the bank statements will need to show deposits from the relevant period. The deposits being used to calculate gross receipts will need to be identified.
Additional Paycheck Protection Program Resources
More resources regarding the PPP process and any changes within the new relief package including deductibility, the forgiveness application and process, and second draw loans can be found here. You can also read a comprehensive summary of the PPP provisions here.
If you have questions regarding the calculation of gross receipts or documentation required to support the reduction in gross receipts, please contact your local Blue & Co. advisor.