The health and financial strength of many nonprofits is most important during disasters like what we are experiencing globally due to the COVID-19 pandemic. Yet with declining endowments due to market volatility and the prospect of reduced fundraising as donors are distracted or less able to give, many nonprofits find themselves concerned with their viability. Fortunately, the $2 trillion stimulus package passed as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides relief not just for small for-profit businesses, but for nonprofits as well. It also provides incentives for donors to continue to be philanthropic despite these uncertain times. Several provisions for nonprofits to consider are detailed below.
- Incentives for Major Donors to Give: Generally, a taxpayer may take an income tax deduction for contributions to charity, subject to certain limitations. Under the CARES Act, for cash contributions by individuals to qualifying public charities, this limitation is 100% of adjusted gross income for 2020, up from 60% under prior legislation. For corporations, this limitation is increased to 25% of taxable income, up from 10%. Contributions in excess of these amounts may be carried forward for use in future years. These provisions are favorable to individual and corporate donors who wish to make meaningful qualifying charitable contributions in 2020.
- Incentives for Smaller Donors: The CARES Act allows an above-the-line charitable deduction of up to $300 for non-itemizers who make cash contributions to qualifying public charities in 2020. This provision is intended to encourage charitable contributions among the estimated 85% of taxpayers who do not itemize, and therefore would otherwise not see any tax reduction for their charitable contributions. In addition, as many adults will receive direct payments of up to $1,200 under the CARES Act, it might be a good time for nonprofits to connect with these potential donors.
- Potentially Forgivable Loans: Consider borrowing under either the Paycheck Protection Program (PPP), which authorizes the U.S. Small Business Administration (SBA) to offer $349 billion of loans during 2020 to small businesses and nonprofits, or the existing Economic Injury Disaster Loan program, which will receive an additional $10 billion under the CARES Act. These loans offer unique advantages relative to typical borrowing terms, including potential loan forgiveness, no prepayment penalty and deferred repayment. Details of these programs, including eligibility and terms, can be found in this recent BBH article.
- Get in the Application Line Early, as Details Are Still Emerging: Expenditures likely will be frontloaded in 2020, and once funds are allocated, it is not clear whether and when additional funding would be available. As this could create a first-come, first-served situation, nonprofits should consider applying early for funds. The SBA released a draft application for PPP loans on March 31, 2020, and details continue to emerge regarding the process for accessing these funds. SBA lenders may begin taking applications as soon as Friday, April 3.
- Other Funds Set Aside for Organizations Like Yours: The CARES Act includes funds for specific types of nonprofits, including a $31 billion Education Stabilization Fund for K-12 and higher education organizations, $50 million in funding to the Institute of Museum and Library Services, $75 million in funding to the National Endowment for the Arts and $75 million in funding to the National Endowment for the Humanities. Your organization might qualify for additional funding through a grant, which could help to stabilize finances during a time when expenses are outpacing revenues.
Brown Brothers Harriman (BBH) works with Endowments and Foundations (E&Fs) to help manage assets and advise on spending policies, philanthropy, management of operating entities and fundraising. If you would like to discuss any topics related to E&F management or philanthropy, a BBH professional would welcome the conversation.