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Mergers and Acquisitions Between Nonprofit Organizations

Posted By Kelly Koepsell, Director of Membership & Operations, Wednesday, August 26, 2020
Mergers and Acquisitions Between Nonprofit Organizations
By Stephanie A. Mattoon


If you practice in the nonprofit arena, you are likely to be asked at some point to guide a nonprofit organization through the process of combining with another nonprofit organization. In some cases, nonprofits utilize mergers and acquisitions as a strategy to advance their mission by increasing geographic reach, broadening services, or otherwise expanding through inorganic growth. On the other hand, many nonprofits are facing a challenging environment with reduced funding sources and choose to combine resources to enhance operational efficiencies and avoid financial distress. Whatever the rationale, the process and documentation necessary to combine two nonprofit organizations will look similarly to that involved in a “conventional” business combination in the for-profit sector; lawyers for both parties may be engaged to prepare a letter of intent, conduct due diligence, negotiate definitive agreements, and close the deal. However, there are additional and distinct issues, both legal and nonlegal, that must be considered when the transaction involves a nonprofit organization.

As in the for-profit sector, business combinations between nonprofit corporations may come in a variety of flavors. This article focuses on mergers and asset transfers as basic alternatives available to a nonprofit organization, discussing the mechanics and legal considerations associated with a decision to combine. Procedurally, business combinations are governed by state law; in Nebraska, mergers and asset purchases between nonprofit corporations are governed by the Nebraska Nonprofit Corporation Act (NEB. REV. STAT. ANN. § 21-1901, et. seq.) (for purposes of this article, the “Nebraska Act”). Many of the considerations facing a nonprofit board of directors evaluating a business combination decision in the state of Nebraska flow from this Nebraska Act. In addition, the Federal tax-exempt status of one or both parties to the business combination may result in added complexity at the federal level.

It should be noted that nonprofits are frequently parties to joint ventures, collaborations, affiliations, and other arrangements involving the sharing of goals and resources in a manner that allows each organization to maintain some degree of separateness and autonomy. While beyond the scope this article, such collaborations also involve important legal issues and should be carefully considered and documented. In addition, this article primarily focuses on combinations between nonprofit organizations classified as public charities, and does not generally address transactions involving a private foundation or between a nonprofit and a for-profit entity (which can trigger significant additional legal and tax issues).

Mergers between nonprofit corporations
In a simple two-party merger, one organization (typically, a smaller entity) will merge into a second organization (typically, a larger entity), such that the first organization is merged out of existence and the second organization emerges as the sole surviving entity. There are numerous variants on this basic merger structure, although this section of the article will focus only on the simple two-party case.

A merger may be a desirable form of business combination between two nonprofit corporations because of its relative simplicity and efficiency, particularly from the perspective of the merged-out corporation. Merger procedures are governed by state law and, if complied with, have numerous effects by operation of law. Most significantly, the assets and liabilities of the merged-out corporation automatically transfer to the surviving corporation and no dissolution procedures are required for the corporation that is merged-out of existence. The correlating disadvantage of course is that the surviving corporation assumes all liabilities of the merged-out entity, known and unknown, so it is essential for the board of directors of the survivor to conduct thorough due diligence.

State law merger procedures
Mergers involving nonprofit corporations in the state of Nebraska are governed by Subchapter (j) of the Nebraska Act. Procedurally, the first step in a merger between one or more nonprofit corporations is the adoption of a plan of merger, which must be approved by the board of directors of the participating entities, as well as their members (if any). (For this purpose, a “member” is defined under the Nebraska Act as a person with the right to vote for the election of directors. Many nonprofits may refer to supporters or other interested persons as members for a variety of other purposes, but those persons do not have the right to vote for directors and thus their approval would not be required.) Prior court approval may be required for mergers involving a public benefit or religious corporation in some circumstances. Among other requirements, the plan of merger must explicate the identity of the surviving corporation and the manner and basis for converting memberships of each merging corporation into memberships of the surviving corporation. After approval, the articles of merger must be delivered by the surviving corporation to the Secretary of State.

The merger between two nonprofit corporations has the following legal consequences: 1) the separate existence of the corporation that is not the surviving corporation ceases; 2) all assets and liabilities of the merged entities are transferred to the surviving corporation; and, 3) the articles of incorporation and bylaws of the surviving corporation are amended to the extent provided in the plan of merger. Notwithstanding the foregoing, a proceeding already pending against any party to the merger may be continued as if the merger did not occur, with the surviving corporation substituted in the proceeding for the corporation that no longer exists. Any bequest or gift contained in a will or other instrument made to a party to the merger, that takes effect after the merger, inures to the surviving corporation unless the instrument specifies otherwise.

Additional legal requirements
Various state law and Federal law requirements may be triggered depending on the status of each of the participating organizations under both the Nebraska Act and Federal tax law. Most frequently, both organizations will have the same status; usually, each organization constitutes a “public benefit” corporation under the Nebraska Act and a 501(c)(3) public charity under Federal tax law. In that scenario, the Nebraska Act does not require specific notice to or approval of the Nebraska Attorney General and the Federal tax exempt status of the surviving corporation will typically survive. The merged-out corporation would need to file a final Form 990 to notify the Internal Revenue Service of the merger.

Occasionally the merging organizations fall under different categories of tax exemption. For example, an organization classified as a “mutual benefit corporation” under the Nebraska Act and tax exempt as a “social welfare organization” under Section 501(c)(4) of the Internal Revenue Code could potentially merge with a 501(c)(3) public benefit corporation. In that scenario, the surviving corporation may need to file a new application with the IRS for federal tax exemption. In addition, the Nebraska Act imposes specific requirements as a condition to effectuating the merger of a charitable organization with a mutual benefit or for-profit corporation, including prior notice to the Attorney General (and potentially prior court approval), to ensure the fair market value of the charitable assets continue to be used for charitable purposes following the merger.

Special Considerations
The unique nature of nonprofit mergers also triggers special considerations at the board of directors and staff level. The directors of a nonprofit corporation owe fiduciary duties similar to for-profit directors when making decisions related to a combination. However, a nonprofit director’s duty is not to maximum shareholder value (since the nonprofit has no owners) but rather to further the organization’s mission. Regardless of which entity survives the merger, both parties to a merger will seek some degree of alignment of charitable purpose from the outset to ensure that the combination is a beneficial strategy for achieving each respective mission (and is likely to obtain the requisite approvals to move forward). Because strategic mergers generally have a greater likelihood of success than an expedient merger driven solely by financial rescue, nonprofits considering a merger often look to organizations with which they have a preexisting relationship.

In addition to ensuring that its mission will be carried on by the surviving organization, the board of directors of the merged-out organization should be cognizant of how it frames the transaction to members, donors, or other constituents. The board may frame the merger as a "strategic alliance" or "merger of equals" (despite that the entity will cease to exist) to cast the transaction in a positive and cooperative light. Recent studies have found that the language of merger between nonprofit corporations can potentially damage the merger's prospects of success. In certain circumstances, the merging organization may propose that its mission and services (and perhaps even its brand or logo) maintain some degree of formal recognition within the surviving corporation via a separate “division” with a distinct subset of interests, management, and finances. While this model adds complexity, it can be accomplished with clear expectations and proper documentation.

Asset transfers between nonprofit corporations
In a simple two-party asset transfer, one organization (typically, a smaller entity) will sell or otherwise transfer all or substantially all of its assets to the second organization (typically, a larger entity). In contrast to a merger, each party to an asset transfer remains in existence after the transaction is complete. However, in connection with the transfer of substantially all of its assets, the transferring organization will frequently commence dissolution proceedings.

As with mergers, there are many potential variants on the basic asset purchase structure, although this article will focus only on the simple, two-party case. Like mergers, the approval procedure for transferring a nonprofit corporation’s assets are governed by state law. Unlike mergers, however, the consequences of asset transfers do not automatically take effect by operation of law. Rather, the terms of the transaction are governed by an asset transfer agreement, which may produce various legal consequences depending on the nature of the assets and liabilities subject to transfer.

An asset transfer may be a desirable form of business combination because of its flexibility. Unlike a merger, not all of the assets and liabilities of the acquired organization are necessarily transferred through the combination. Rather, the asset transfer agreement will specify the assets (and potentially liabilities) subject to transfer. Therefore, this structure may be particularly desirable from the perspective of the acquiring organization. If the transferring organization has significant liabilities (including contingent liabilities), those liabilities may be carved out from the transaction by a contractual provision stating that the acquirer is assuming only expressly identified liabilities. (Even so, the acquirer should evaluate any risks of successor liability, under a potential theory that the acquirer is a mere continuation of the transferor or the transfer constituted a de facto merger or fraudulent transfer.) Not only does an asset transfer allow the acquirer to limit its liability exposure, but it also imposes on the acquirer less onerous approval and filing requirements. Namely, the acquirer need not seek member approval (unless required by its bylaws) and its receipt of the assets will not typically impact its Federal tax-exempt status. In addition, because the acquirer is merely absorbing assets (and not liabilities unless specifically agreed), the due diligence required of the board of directors is typically less rigorous.

However, this enhanced flexibility comes at the cost of greater complexity. An asset transfer agreement between two nonprofit corporations is likely to resemble an asset purchase agreement in the for-profit context, but may also include special provisions unique to nonprofits. Because the assets do not automatically transfer by operation of law, they must be specifically identified in the purchase agreement and conveyed by appropriate transfer instrument. Similarly, any liabilities to be assumed by the acquirer (such as obligations under assigned contracts) must be specifically documented, and the closing is usually contingent upon obtaining consents from all required third parties. In addition, the asset transfer structure may be less desirable than a merger to the transferring organization due to the additional procedure required to dissolve the corporation and the difficulty framing the transaction as one between organizations on “equal footing”.

State law asset transfer procedures
A nonprofit business combination structured as an asset transfer is governed by Subchapter (k) of the Nebraska Nonprofit Corporation Act. Just like a for-profit entity, a nonprofit corporation may sell or otherwise transfer substantially all of its assets (or purchase substantially all of the assets of another nonprofit corporation) as a step precedent to the dissolution of the transferring corporation and as an alternative to business combination through merger. Procedurally, the transferring organization must obtain the approval of its board and its members (if any), by a specified vote. A nonprofit corporation classified as a public benefit or religious corporation under the Nebraska Act must give written notice to the Nebraska Attorney General at least 20 days before it transfers substantially all of its property outside the regular course of activities. (A sale of an organization’s assets preceding its dissolution will not be considered in the regular course of activities.) The board of the acquiring organization must approve the transaction, but the approval of the acquiring corporation's members is not required.

Special considerations
As with mergers, asset transfers may involve unique considerations arising from the status of one or both of the parties as a nonprofit organization. Although the form of asset transfer agreement will often include representations and warranties and indemnification provisions similar to those in a for-profit asset purchase agreement, the acquiring organization will typically have limited or no redress for a breach of those provisions, since the transferring organization will often have no remaining assets (and may dissolve shortly after the transfer). Whereas the principle shareholders of a selling for-profit corporation would often sign the purchase agreement and assume some liability for the seller’s indemnification obligations, the transferring nonprofit corporation has no shareholders (and its volunteer directors are unlikely to agree to assume any personal liability). If the transferring organization has members that will be integrated into the acquiring organization, the details of that integration will need to be set forth in the purchase agreement or restated bylaws. The asset purchase agreement must also stipulate whether bequests, restricted funds, gifts and donations, and donor information, will be included in the transfer. Restrictions on the transfer of these items must also be considered, as well as the process for transferring donor information (if applicable).

The transfer agreement involving the assets of a nonprofit corporation may also significantly differ from a for-profit asset purchase agreement as it relates to the purchase price. When the transfer is between two nonprofit corporations with the same status (for example two 501(c)(3) charitable organizations), the parties may consider structuring the asset purchase as a gift of assets, rather than a transaction for fair market value. This may be desirable if the acquiring organization is in a position to continue carrying on the mission and operations of the transferring organization and would be permissible so long as the transferor’s creditors are paid in full. Even if the transaction is structured as a gift of assets, however, a formal written agreement is recommended for the legal protection of both parties. In that scenario, the acquirer should be aware that it is unlikely to receive full disclosure with respect to the assets transferred. Indeed, the gifting organization may propose to transfer the assets “as is” and thus the parties may agree to disregard traditional representations and warranties regarding the condition of assets. The board of the acquirer must still engage in due diligence in an effort to fully understand the extent and conditions of the assets subject to the gift (and any potential accompanying obligations).
The transfer of substantially all of an organization's assets is usually a step precedent to dissolution; however, in contrast to a merger, the transferring organization does not automatically cease to exist. Rather, the transferring organization will continue to exist as a legal entity unless it takes the additional affirmative steps required to dissolve. Dissolution of a Nebraska nonprofit corporation requires compliance with the applicable sections of Subchapter (m) of the Nebraska Act. In short, the board of directors of the dissolving corporation must approve a plan of dissolution, obtain member approval (if applicable), provide certain notices to the Nebraska Attorney General (if a public benefit or religious corporation), file articles of dissolution with the Secretary of State, publish notice of dissolution, provide notice to known and unknown creditors (if desired to dispose of claims), make provision for payment of remaining liabilities, and distribute remaining assets pursuant to the approved plan. When the transferring organization is a charitable organization (tax exempt under Section 501(c)(3) and a public benefit corporation under the Nebraska Act), its assets must be distributed exclusively to one or more other charitable organizations.

Conclusion
Although mergers and asset purchases between nonprofit corporations largely mirror those between for-profit companies, there are myriad legal considerations unique to the nonprofit sector. In evaluating a potential combination, the board of directors of a nonprofit corporation must consider not only whether the proposed transaction will further its nonprofit mission but also how to structure the transaction in a manner that most efficiently and effectively achieves its objectives. With proper planning and strategic vision, business combinations between nonprofit corporations may present a promising opportunity for mission advancement and heightened impact.

DOCS/2113868.3

NEB. REV. STAT. Ann. § 21-19,118 et. seq.
NEB. REV. STAT. ANN. § 21-19,118; NEB. REV. STAT. ANN. § § 21-19,120.
NEB. REV. STAT. ANN. § 21-1914(20).
NEB. REV. STAT. ANN. § 21-19,119.
NEB. REV. STAT. Ann. § 21-19,118.
NEB. REV. STAT. ANN. § 21-19,121.
NEB. REV. STAT. ANN. § 21-19,122.
Id.
NEB. REV. STAT. ANN. § 21-19,124.
See NEB. REV. STAT. ANN. § 21-19,119.
See Haider, Nonprofit Mergers that Work, STAN. SOC. INNOVATION REV. (Mar. 2, 2017); Haider, Nonprofit Mergers: New Study, Stan. Soc. Innovation Rev (Jan. 11, 2017).
Haider, Nonprofit Mergers: New Study, supra note 11.
NEB. REV. STAT. ANN. § 21-19,125 - § 21-19,126.
NEB. REV. STAT. ANN. § 21-19,126(b).
NEB. REV. STAT. ANN. § 21-19,126(g).
See generally Major Asset Transfers Between Charities: Corporate Law Considerations, Miller Thomson (Apr. 2011), http://www.millerthomson.com/en/publications/communiques-and-updates/social-impact-newsletter-formerly-the/april-2011/major-asset-transfers-between-charities/.
NEB. REV. STAT. ANN. § 21-19,129 et. seq.
Treas. Reg. § 1.501(c)(3)-1(b)(4); NEB. REV. STAT. ANN. § 21-19,134(a)(6)

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Paycheck Protection Program + Flexibility Act of 2020 – H.R. 7010

Posted By Administration, Friday, June 5, 2020

This bill was passed in the House on Thursday, May 28, 2020, and the Senate on Wednesday, June 3, 2020. Once the President signs the bill, it will become law; it is anticipated the President will sign the bill. The below commentary contains Lutz’s interpretation of the updates. Note, the below may change upon the SBA’s implementation of the bill.

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Tags:  COVID  COVID-Finance 

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From Seim Johnson: Paycheck Protection Flexibility Act

Posted By Administration, Friday, June 5, 2020

On Wednesday evening, June 3rd, 2020, the Senate passed the House version of the Paycheck Protection Flexibility Act, sending the bill to President Donald Trump, who is anticipated to sign it. This legislation would give flexibility for those small businesses that are receiving Paycheck Protection Program (PPP) funds.

Among the amendments included within the Paycheck Protection Flexibility Act (Flexibility Act) are the following:

  • PPP borrowers would be able to choose to extend the 8-week covered period to a 24-week period or December 31, 2020, whichever is earlier. Limits still remain on the maximum that can be forgiven per employee. The maximum amount paid to any one employee that will be forgiven is capped at an annualized salary of $100,000. We will have to wait for guidance for how this affected by the new 24-week covered period.
  • Under the original PPP program, the Small Business Administration (SBA) stated that 75% of costs must be spent on payroll related expenditures in order to be eligible for loan forgiveness (although this was never explicitly listed in the legislation). If the amount is less than 75% for payroll expenditures, borrowers are currently required to reduce the amount eligible for forgiveness. The Flexibility Act would reduce this percentage to 60% payroll expenditures and 40% non-payroll expenditures. However, if borrowers spend less than 60% of the PPP funds on payroll expenditures, then none of the loan would be forgivable. Some in Congress have already noted that they are uncomfortable with this "cliff" effect and have asked the SBA to address this issue favorably in regulations.
  • Borrowers can use the extended 24-week period, if elected, to restore their full-time equivalent (FTE) workforce levels and wages to those on February 15, 2020.  Under the original PPP program, employers only had until June 30, 2020 to restore their workforce levels and wages.
  • The Flexibility Act includes three new exceptions to allow for full forgiveness in relation to a reduction in FTEs that cannot be restored by the December 31, 2020 deadline:
    • The employer was unable to rehire individuals who were employees of the eligible recipient on February 15th;
    • The employer was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020, or;
    • The employer was unable to return to the same level of business activity as such business was operating at before February 15th due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.

This essentially provides that if on December 31st, restaurants and bars, for example, are unable to fully open due to government orders, any loss in FTEs resulting from such restrictions should NOT be taken into account in computing a required reduction in the forgivable amount.

  • Currently the period for paying back any portion of the loan that is not forgiven is 2 years with a 1% interest rate. The new legislation would increase the payback period to 5 years with a 1% interest rate; however, it appears that this option is only automatic for loans made after the effective date of the new law. The new law does give flexibility to lenders to extend paybacks for up to 5 years for loans made before this change, but that option is up to the lender.
  • The bill would allow businesses that took out PPP loans to also delay payment of the employer portion of Social Security taxes. Deferral would still not apply to employee income tax withholding, employee or employer portion of the Medicare tax, or the employee portion of the Social Security tax. Prior to the Flexibility Act, you were unable to utilize the deferral of payment of payroll taxes if you received a PPP loan.

The deadline for applying for a PPP loan remains at June 30, 2020. This new Act definitely provides PPP loan recipients with much needed relief; however, there are still some questions that have been left unanswered.  We will provide you with any clarification the SBA provides in the coming weeks.

Tags:  COVID  COVID-Finance 

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COVID-19 fiscal response survey results

Posted By Administration, Wednesday, May 27, 2020

A heartfelt thanks to those who responded to our survey request about the fiscal responses by government entities and nonprofits to COVID-19. The survey was a great success, helping us publish an article in our field's top journal, Public Administration Review. The article focuses on Nebraska and puts us at the forefront of such research.

To read the PAR article, click here.

A number of respondents asked us to provide the survey results. To see the survey results, click here.

Again, I extend my gratitude to all of you who helped us with this survey. I hope all of you are doing well during this difficult time.

Dr. Craig Maher
Director, School of Public Administration
University of Nebraska at Omaha
csmaher@unomaha.edu

 

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PPP Loan Forgiveness, EIDL Updates, and COVID-19 Tax Reform

Posted By Administration, Wednesday, May 27, 2020

In case you missed it, the recording from the Lincoln Chamber of Commerce Growth and Development Forum held on Wednesday, May 20 featuring HBE tax manager, Brian Klintworth, CPA, MT is now available. 

 

Brian's presentation covers many of the tax reform items under the CARES Act, as well as new information surrounding the Paycheck Protection Program (PPP) and the U.S. Small Business Administration's Economic Injury Disaster Loan (EIDL) that has been released in the past few weeks. While there are still a lot of unknowns and rapidly changing information, this presentation covers what we know now. 

 

View the webinar...

 

Download the slides...

 

 

Tags:  COVID  COVID-Finance  COVID-Webinars 

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Guidance for Iowa Businesses and Organizations

Posted By Administration, Monday, May 18, 2020

The Iowa Department of Public Health (IDPH) and the Center for Disease Control & Prevention (CDC) have many online resources available for businesses and organizations to help provide guidance during this time. Please see the links below for details.

The Council Bluffs Fire Department has also provided guidance for businesses to determine occupancy in accordance with the state mandate.


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Tips To Make Online Meetings Less Exhausting

Posted By Administration, Monday, May 18, 2020

It’s easy to wing meetings with no formalised planning or an agenda. According to Beth Kanter, a good meeting is based on good design.

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Tags:  COVID  COVID-HR 

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Bringing Workers Back: When, Who, and How?

Posted By Administration, Monday, May 18, 2020

When state and local governments ease COVID-19 restrictions, employers must carefully plan when to bring employees back, who to bring back, and how to safely reintroduce them to the workplace. Here are some guidelines to consider.

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Staying a Step Ahead – Employee Retention and COVID-19

Posted By Administration, Tuesday, May 12, 2020

The Department of Labor recently released its seasonally adjusted data on jobless claims. Over 30 million Americans have filed for unemployment since COVID-19 began to spread throughout the country. Employers who are able to preserve their talent pool during COVID-19 will be well positioned as the economy turns the corner. If you are looking for ways to retain valued employees, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and Families First Coronavirus Response Act (“FFCRA”) offer several tax credits.

 

CARES Act Employee Retention Tax Credits

 

With certain limitations, this employee retention tax credit (“ERTC”) is available to almost all employers, regardless of size, including tax-exempt organizations. It is not available to state and local governments, or small businesses that take loans from the Paycheck Protection Program unless the loan is repaid by May 14, 2020.

 

Eligible Employers

 

The ERTC applies to qualified wages paid during each calendar quarter the employer’s business remains “eligible.” An employer’s business is eligible if the employer’s business has fully or partially suspended because of COVID-19 during the quarter, or if their gross receipts decline by more than 50%.

 

  • A fully suspended business is one where a government order has declared that all non-essential businesses must close, and the employer’s business is non-essential.
  • A partially suspended business is a retail business that has its brick and mortar store closed due to COVID-19, but online ordering and fulfilment system are unaffected, or a restaurant has closed for dine-in purposes but still operates take-out and delivery.
    • If employers operate in multiple locations and are subject to governmental orders limiting operations in some, but not all jurisdictions, then that employer’s business is considered partially suspended.

If employees are teleworking despite the closure of the business, the business is not fully or partially suspended, but it may still be eligible for ERTC depending on whether its gross receipts have declined.

 

  • Gross receipts decline by more than 50% during the 2020 calendar quarter when compared to the same 2019 quarter.
    • If gross receipts reach more than 80% of the same 2019 calendar quarter, the business no longer qualifies for the ERTC after that quarter.

Credit for Qualified Wages

 

Eligible employers may take a credit for 50% of the qualified wages paid to retained employees, both full-time and part-time, from March 13, 2020 through December 31, 2020 (up to $5,000 per employee).

 

  • Eligible employers that averaged more than 100 full-time employees in 2019 may claim a credit only for those employees paid who are not providing services, such as furloughed employees. 
    • An employer that furloughs employees and does not pay wages while the employees are not providing service but continues to pay health plan expenses for those employees may take a credit for those health plan expenses.
  • Those employers with 100 or fewer employees during 2019 may claim credits for any employees retained in 2020.

All entities within a controlled group of corporations are considered one employer. Wages paid under the aforementioned circumstances are considered “qualified wages.”

 

  • A “full-time employee” is any employee who has, on average, 30 hours of service per week or 130 hours per month.
  • “Wages” generally means all cash compensation and includes the employer’s health plan expenses paid for the employee.
    • If employees are working reduced hours, but the employer is paying full-time wages, the employer is entitled to a credit for the wages paid while the employee is not working.
  • The ERTC is fully refundable.
    • If the employer is entitled to an ERTC in the calendar quarter and it exceeds the Social Security payroll taxes paid in that quarter, the employer can apply for a refund by filing Form 7200; or
    • An employer may reduce its federal employment tax deposit by the qualified wages paid without incurring a failure to deposit penalty.

Limitations

 

The ERTC must be reduced by tax credits taken for wages paid toward expanded FMLA or emergency paid sick leave under the FFCRA.

 

FFCRA Paid Sick Leave Credits

 

The FFCRA requires certain employers to provide employees with two types of COVID-19-related leave. You can learn more about the aspects and requirements of the leave in our COVID-19 summary chart of paid sick leave laws.

 

Employers can relieve the burden FFCRA paid leave places on their business through a reimbursable tax credit.

 

  • Leave tax credits are refundable against the 6.2% Social Security payroll tax imposed on employers; if the credit exceeds an employer’s payroll tax obligations, the employer may seek an expedited refund.
  • Tax credits are capped at $200 or $511 per day, depending on the reason for the leave.

Eligible employers may apply for an expedited refund for these tax credits by using the same Form 7200 used to receive the ERTC.

 

 

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Updates and New Guidance on SBA Disaster Relief

Posted By Administration, Tuesday, May 12, 2020

May 11, 2020

The U.S. Small Business Administration (SBA) continues to update their FAQ document and provide additional guidance on the Paycheck Protection Program (PPP). Recently, the document was updated to address safe harbor repayment deadline, Employee Retention Credit, and affiliation rules. A summary of the new guidance is provided below. We have also included a timely update on the issue of the deductibility of forgivable expenses related to the PPP.

Extension of PPP Safe Harbor Repayment Date

The SBA's safe-harbor period for returning PPP funds has now been extended to May 14, 2020. Borrowers do not need to apply for this extension as it will be automatically implemented by the SBA. A May 7 deadline for returning funds was initially provided by the SBA for companies that received PPP funds but later determined that they were unable to certify in good faith that their PPP loan was necessary to support ongoing operations.

One situation in which a business might consider returning the funds is if, in fact, the PPP funds are not necessary to support ongoing operations or if there is sensitivity to the public nature of these loans. Any business that repays the loan in full by May 14, 2020 will be deemed by the SBA to have made the required good faith certification on their PPP loan application.

Employee Retention Credit

Employers who take advantage of the PPP loan and forgiveness are not eligible to receive the Employee Retention Credit that is part of the CARES Act. However, those who elect to return the PPP funds by the May 14 safe harbor deadline will be eligible for the credit (as long as they are otherwise an eligible employer for purposes of the credit).

The tax credit is equal to 50% of qualified wages paid to employees after March 12, 2020 and before January 1, 2021, up to $10,000 per employee. It is a refundable tax credit against certain employment taxes, equal to 50% of the qualified wages paid during the period referenced above. All employers are eligible for the credit including tax-exempt organizations, provided they have had a 50% reduction in revenue or full or partial suspension as a result of a government order as outlined in the credit.

Affiliation Rules

There is also new guidance on how SBA's affiliation rules apply to counting the employees of affiliates in regard to the PPP's 500-or-fewer employee size standard. For purposes of the PPP size standard, all employees and employees of U.S. and foreign affiliates must be counted, absent a waiver of or an exception to the affiliation rules.

Deductibility of Forgivable Expenses

Legislation has been introduced in the Senate that would overrule an IRS notice and clarify that ordinary expenses funded by PPP loans are deductible by taxpayers. Notice 2020-32 states that taxpayers receiving loans through the PPP are not permitted to deduct normally deductible expenses to the extent the expenses were reimbursed by a PPP loan that was forgiven. If the new bill is enacted it would overturn that position and allow taxpayers to deduct covered expenses paid or incurred by an eligible recipient of a PPP loan that is forgiven. This legislation would be good news for our clients who have received PPP forgivable funds that are being used for the purpose of the program.

 

Tags:  COVID  COVID-Finance 

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Updates and New Guidance on SBA Disaster Relief

Posted By Administration, Tuesday, May 12, 2020

May 11, 2020

The U.S. Small Business Administration (SBA) continues to update their FAQ document and provide additional guidance on the Paycheck Protection Program (PPP). Recently, the document was updated to address safe harbor repayment deadline, Employee Retention Credit, and affiliation rules. A summary of the new guidance is provided below. We have also included a timely update on the issue of the deductibility of forgivable expenses related to the PPP.

Extension of PPP Safe Harbor Repayment Date

The SBA's safe-harbor period for returning PPP funds has now been extended to May 14, 2020. Borrowers do not need to apply for this extension as it will be automatically implemented by the SBA. A May 7 deadline for returning funds was initially provided by the SBA for companies that received PPP funds but later determined that they were unable to certify in good faith that their PPP loan was necessary to support ongoing operations.

One situation in which a business might consider returning the funds is if, in fact, the PPP funds are not necessary to support ongoing operations or if there is sensitivity to the public nature of these loans. Any business that repays the loan in full by May 14, 2020 will be deemed by the SBA to have made the required good faith certification on their PPP loan application.

Employee Retention Credit

Employers who take advantage of the PPP loan and forgiveness are not eligible to receive the Employee Retention Credit that is part of the CARES Act. However, those who elect to return the PPP funds by the May 14 safe harbor deadline will be eligible for the credit (as long as they are otherwise an eligible employer for purposes of the credit).

The tax credit is equal to 50% of qualified wages paid to employees after March 12, 2020 and before January 1, 2021, up to $10,000 per employee. It is a refundable tax credit against certain employment taxes, equal to 50% of the qualified wages paid during the period referenced above. All employers are eligible for the credit including tax-exempt organizations, provided they have had a 50% reduction in revenue or full or partial suspension as a result of a government order as outlined in the credit.

Affiliation Rules

There is also new guidance on how SBA's affiliation rules apply to counting the employees of affiliates in regard to the PPP's 500-or-fewer employee size standard. For purposes of the PPP size standard, all employees and employees of U.S. and foreign affiliates must be counted, absent a waiver of or an exception to the affiliation rules.

Deductibility of Forgivable Expenses

Legislation has been introduced in the Senate that would overrule an IRS notice and clarify that ordinary expenses funded by PPP loans are deductible by taxpayers. Notice 2020-32 states that taxpayers receiving loans through the PPP are not permitted to deduct normally deductible expenses to the extent the expenses were reimbursed by a PPP loan that was forgiven. If the new bill is enacted it would overturn that position and allow taxpayers to deduct covered expenses paid or incurred by an eligible recipient of a PPP loan that is forgiven. This legislation would be good news for our clients who have received PPP forgivable funds that are being used for the purpose of the program.

 

Tags:  COVID  COVID-Finance 

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Nebraska Pilots New Database for Families in Need of Childcare

Posted By Administration, Tuesday, May 12, 2020

Nebraska is piloting a searchable database of licensed child care providers at https://www.nechildcarereferral.org/

During the COVID-19 pandemic, many essential workers are desperate to find safe places for their children. This website can help those who need quality emergency child care find it. It is also a valuable tool for the hundreds of licensed child care professionals struggling to keep their businesses open.

 

Tags:  COVID  COVID-HR 

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Five Tips for Nonprofits to Avoid Virtual Fatigue

Posted By Administration, Wednesday, May 6, 2020

It is uncertain exactly when we will be able to work together in our offices, although it is clear that our work will involve primarily digital connections with others for a while longer   While the cloud of the global health and financial crisis are weighing on us, the technology we are using as our life line is prompting a new ailment – exhaustion.  Now more than ever we must create a robust workplace culture and stronger relationships to retain our humanness.

Read more...


Tags:  COVID  COVID-HR 

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PPP Lending Update – Tuesday, May 5, 2020

Posted By Administration, Wednesday, May 6, 2020

SBA & Treasury have released additional information regarding the Paycheck Protection Program (PPP).

PPP information can be found at www.sba.gov/paycheckprotection or www.treasury.gov/cares

Bill Briggs
Deputy Associate Administrator, Office of Capital Access
U.S. Small Business Administration

Tags:  COVID  COVID-Finance 

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SBA Clarification on PPP Qualifications

Posted By Administration, Tuesday, May 5, 2020

April 30, 2020

HBE LLP has been monitoring the updates that the SBA has been releasing since it began funding the Paycheck Protection Program (PPP) and we have communicated those updates to you as we have become informed. The guidance is now becoming more defined and we feel it is important to share the new clarification on PPP qualifications with you.

Recently, the SBA updated its Frequently Asked Questions Document. The new FAQ provides additional guidance regarding program qualifications specific to businesses with access to other sources of liquidity to support their ongoing operations. The certification at time of application that "current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant" has not changed.

Any business that received a PPP loan prior to the issuance of this new guidance, and who now believes that they do NOT demonstrate the necessity for the loan, can repay the loan in full by May 7, 2020. Any business that does so, will be deemed by the SBA to have made the required good faith certification on their PPP loan application.

It is important to note that, like all funds from federal programs, PPP loans will be public information at some point in time. If you have a sensitivity to this information about your business and its loan amount becoming public knowledge, the payback may be something to consider. Additionally, Treasury Secretary Mnuchin has indicated that the government will perform a full audit on any company receiving $2 million or more from the PPP loan program.

We know it is a challenge to assess how your business will be affected by the ongoing pandemic. If you have not yet started doing so, we strongly encourage you to begin documenting all disaster-related business impacts you have experienced or believe you will experience in the coming months. Things to consider would include declines in sales, increases in costs, customer losses, shutdown periods, etc.

We recognize that these are difficult times and we remain committed to supporting you. HBE is here to help you navigate these decisions and to help provide tools for managing the forgiveness aspect of this program going forward. For additional PPP information, please click here.

Tags:  COVID  COVID-Finance 

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Update on PPP Applications

Posted By Administration, Wednesday, April 29, 2020

(From the Council Bluffs Chamber of Commerce...)

Lenders will be able to begin submitting PPP applications again starting on Monday, April 27, 2020 at 9:30 a.m. CDT

We still do not have information on how to report loans as dispersed to the SBA, and there are many questions about loan forgiveness and guidelines for what can be used etc.  We expect to get more clear guidance very soon and will get that out to you.

Sue Pitts with Iowa Western Small Business Development Center has written a blog post to our small businesses inspired by a video of Simon Sinek and his team.  It addresses the need for businesses to start transitioning from survival mode to a reinvention mode. Please check it out here

Council Bluffs Chamber, Iowa Western SBDC, Advance Southwest Iowa Corp. are open and can help you navigate through the COVID-19 crisis. All three of these organizations are ready and willing to help you through The SBA Economic Injury loan application process or The Iowa Business Relief Program and other local, state and federal programs that are being put in place. All assistance can be offered through one-on-one counseling that can be done through video conferencing or phone conference calls.

Tags:  COVID  COVID-Finance 

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Problematic DOL Guidance on Nonprofit Unemployment . . . and How to Fix It

Posted By Administration, Wednesday, April 29, 2020

Last night, the U.S. Department of Labor (DOL) issued guidance (Unemployment Insurance Program Letter No. 18-20) on how states can implement a new federal law (Section 2103 of the CARES Act) intended to help minimize nonprofits’ liability for unemployment insurance (UI) claims related to COVID-19. The DOL guidance cuts against the intent of this CARES Act provision by:

  1. Delaying payments to nonprofits that would offset a portion of the costs related to their workers’ COVID-19 related UI claims; and

  2. Penalizing some states that try to provide additional assistance to these nonprofits.

Practically, the impact of this DOL guidance will be devastating for many nonprofits. They will need to delay the rehiring of laid-off or furloughed workers, make further cuts to essential programs and services, and, in some cases, close their doors altogether.

Read more...

Tags:  COVID  COVID-HR 

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Best Care EAP Resources

Posted By Administration, Monday, April 27, 2020
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How to Apply for the PPP - live help and Q&A (recorded webinar)

Posted By Administration, Monday, April 27, 2020
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The PPP: The Experience of It All and Advice for New Nonprofit Applicants

Posted By Administration, Wednesday, April 22, 2020

From The Nonprofit Quarterly:

Yesterday, we asked readers to tell us what their experiences were with the now fully spent-down Paycheck Protection Program (PPP), Part One. One reason we’re doing this is in anticipation of the planned Part Two of this federal response to the COVID-19 crisis. We figure you should go into it with eyes wide open, because those who applied found it a mixed bag.

Read more...

Tags:  COVID  COVID-Finance 

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$484B More in Stimulus Funds Headed for Release: What’s Included, What’s Not

Posted By Administration, Wednesday, April 22, 2020

From The Nonprofit Quarterly:

By voice vote on Tuesday afternoon, the US Senate approved a $484-billlion bill designed to boost the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed last month. Two Republican Senators, Mike Lee of Utah and Rand Paul of Kentucky, voiced opposition to the bill on the floor of the Senate but let it go forward without objection. A vote by the US House of Representatives is expected tomorrow.

Read more...

Tags:  COVID  COVID-Finance 

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USDA Announces Coronavirus Food Assistance Program

Posted By Administration, Tuesday, April 21, 2020

U.S. Secretary of Agriculture Sonny Perdue today announced the Coronavirus Food Assistance Program (CFAP). This new U.S. Department of Agriculture (USDA) program will take several actions to assist farmers, ranchers, and consumers in response to the COVID-19 national emergency.

Read more...

Tags:  COVID  COVID-Resources 

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Quick Guide to CDBG Eligible Activities to Support Coronavirus and Other Infectious Disease Response

Posted By Administration, Tuesday, April 21, 2020

The document below shows allowable uses of the CDBG COVID-19 funds available through the city of Omaha. If you have questions, please contact Lisa in the Planning Department.

Download the document (PDF)...

Tags:  COVID  COVID-Finance  COVID-Resources 

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Best Practices for Nonprofits Receiving COVID-19 Relief Funding

Posted By Administration, Tuesday, April 21, 2020

Many nonprofit organizations are currently receiving COVID-19 relief funding, whether it be from the Paycheck Protection Program (PPP) loan, the EIDL, or other CARES Act allocations. Nonprofits must exercise fiscal responsibility in expending the funds as has always been the case with federal and other grants. Below are some best practices to consider during this time.

Download the document (PDF)...

 

Tags:  COVID  COVID-Resources 

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Overview of SBA Programs

Posted By Administration, Tuesday, April 21, 2020

The overview of SBA programs below was presented by local banks, the SBDC, and TS Bank (Iowa).

Meeting Recording...

 

Tags:  COVID  COVID-Finance 

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