PPP and tax advice for not-for-profits; honoring pioneering CPAs

The requirements for Paycheck Protection Program applicants who are not-for-profits are different from those for for-profit businesses. Dave Moja, CPA, a member of the AICPA Not-for-Profit Advisory Council, explains some of those differences and more about completing Form 990 and Form 941.

Also, hear a section of a two-part podcast series that documents the triumphs and struggles of some of the first Black CPAs.

What you’ll learn from this episode:

• A review of PPP-specific FAQs related to gross receipts.
• Whether gross receipts include proceeds from first-draw PPP loans.
• The documents an NFP can use to substantiate a 25% reduction in gross receipts.
• A short clip from another JofA podcast episode about pioneering Black CPAs.
• News related to the employee retention credit, the PCAOB’s inspections focus for 2021, and a recent report about single audits from the U.S. Government Accountability Office.

Play the episode below or read the edited transcript:

To comment on this episode or to suggest an idea for another episode, contact Neil Amato, a JofA senior editor, at Neil.Amato@aicpa-cima.com.

Transcript:

Neil Amato: The Paycheck Protection Program is not just for businesses trying to make a profit. Not-for-profit organizations can also apply for PPP funding. Their requirements and some of the answers they might put in an application are different than those of for-profit businesses.

To talk about some not-for-profit specifics for second-draw PPP loans, we are joined by Dave Moja, a CPA who advises not-for-profit clients and is a member of the AICPA’s Not-for-Profit Advisory Council.

Dave, first, what are gross receipts for not-for-profits?

Dave Moja: Well, it’s a great question, and it’s something that’s tripping a lot of people up. If you go to the U.S. Small Business Administration’s website, SBA.gov, there’s a great set of FAQs there on how to calculate PPP2 loans. So that’s a good place for people to go.

Gross receipts, as we look across the COVID-19 relief world, there are really six different definitions of gross receipts, which just make me … Aaaah! You know. Why can’t we have a term of art that is gross receipts? But for not-for-profit organizations, basically gross receipts are within the meaning of Sec. 6033 of the Internal Revenue Code. OK, that’s technical. When we get down to it, the key thing we want to look at is it’s actually what it says, gross receipts. So, you don’t take any expenses out of the items as you’re looking through it.

That can be things like contributions, gifts, those kinds of amounts, with no expenses against them. The gross amount received from, say, dues or assessments from members, the gross amount received from sale of assets, the gross sales or receipts from your operating activities. [For] a school, [it] might be tuition and fees. [For] a museum, [it] might be the entry tickets to get in, those kinds of things. Then it’s the gross amount received from interest, dividends, rents, royalties, that kind of thing.

One of the interesting places there is, 6033 of the Internal Revenue Code is basically what we might call 990 accounting. So, if you file a Form 990, which some religious organizations may not, you can go to your Form 990, Part 8. And interestingly enough, they roadmap this for you on the FAQs, but they kind of miss it. It appears they put the wrong line items on there. The Form 990, Part 8, Lines 1–5, are gross amounts. Lines 6–10 are netted out, and then Line 11, other revenues or miscellaneous revenues, are gross. On the rents, the sale of assets, Line 8 is special events, gaming and sale of inventory or that kind of thing, you’ve got the A lines, 6a, 7a, and there’s two columns on both of those, 8a, etc., are your gross income amounts.

And in the FAQ question No. 5, they say for not-for-profit organizations, go to your 990 and look at Line 6b, 7b — those are your expense lines. So, you can’t … (laughs) We’ve emailed them, but we haven’t gotten anything fixed. The issue is if you’re a fiscal-year taxpayer, you don’t have a Dec. 31 year end, it’s likely you will not be able to use actually your Form 990 for these comparison purposes because of the comparable times for the 2019/2020 issue.

So, look at the FAQs, but be advised that the A lines on the Form 990 or Form 990 EZ, not the B lines.

Amato: That’s a good point about those A and B lines. Do gross receipts include proceeds from the first round of PPP funding that have already been forgiven?

Moja: That’s a great question, too, and it’s actually covered in that FAQ No. 2, and their answer is actually a resounding “no.” The amount of or any forgiven first-draw PPP loan, or any of the EIDL advances up to $10,000 which are not subject to federal income tax, is not included in the calculation of gross receipts. So, as we’re going through, you can leave that out.

Amato: What documents can be used to substantiate the 25% reduction? I guess that’s a reduction in overall revenues?

Moja: It’s a reduction in gross receipts, comparing either quarter by quarter, the comparable quarters of 2019 or 2020, or the full year of 2019 and 2020. And again, folks that have a fiscal year end, a non-Dec. 31 year end, are going to have to do some work. This is going to require basically a quarter-by-quarter comparison in Excel. And it’s not just the cash basis piece as you go through it. So, one of the things that really want to look at is you can use those 990 instructions to get your gross revenues, but you want to walk through it.

So, in the FAQs, they say you can use quarterly financial statements for the entity. You can use bank statements. Small organizations, especially if they’re mostly cash basis, can look at their bank statements and say, “Hey, what came in?” And there you go. Another would be the annual income tax filings, the 990, but again that kind of goes out the window if you’re a fiscal-year organization. So that’s kind of just walking through. Those are the documentation amounts; that’s covered in FAQ 4 for not-for-profit entities.

Amato: And finally, for NFPs, what’s the maximum loan amount for a second-draw PPP loan?

Moja: Great question again, and understand you have to qualify. So basically, you’ve gotten a PPP1 loan and either used the money or certify that you will use the money. Second is you have 300 or fewer employees, and next is that you had that 25% drop in gross receipts. Basically, you can either use for the calculation your 2019 calendar year payroll or your calendar 2020 payroll. And we’re considering, in this conversation, folks that were in business for all of 2019. If not-for-profits started in 2019, there are different rules for that. If you have affiliates, there are different rules for how to bring in your affiliates and those kinds of things. Basically, you can use the same calculations you used for PPP1, and that’s kind of the streamlined version, and off you go. But a lot has kind of developed since then as far as additions. So basically, what you would do is take your Forms 941 for 2019 or 2020 and the amounts you would use from those forms would be from Form 941, Line 5c, Column 1 for each quarter of either year.

You’re going to add in anything that might not be in there — some of the employer payments for health insurance, some contributions to Sec. 125 plans, some of those kinds of things may be added. Then you’re going to subtract out anybody who made over $100,000 the amount over $100,000 for them and anybody whose principal place of business was not in the U.S., you’ll subtract out all of that compensation. And then get that annualized number, all four quarters, annualized number, divide it by 12, multiply it by 2.5 and that should give you maximum amount. Again, maximum is $2 million, and if you’re over $150,000, there’s different hoops to jump through than if your ultimate PPP2 loan is under $150,000.

I hope that answers [the question] and I hope that’s good information for our not-for-profits large, small, and medium-size.

Amato: Dave, it is excellent information. Thank you so much for being on the podcast.

Moja: Thank you, Neil. Have a great day.

Amato: An episode of the Journal of Accountancy podcast published earlier this week takes a look back at the societal and structural barriers Black accountants faced in the 20th century.

It’s the first of two parts by senior editor Courtney Vien. The episodes feature the voices of pioneering Black CPAs, who detail their successes and their struggles.

Here’s one clip from Ruth Harris, the first female Black CPA in the state of Virginia. She’s talking about always wanting the follow the lead of her sister, Bernadine Coles Gines, who was the first Black woman in New York to become a CPA.

Ruth Harris: So then when she passed the CPA Exam, I said, well, I guess I can do that, too. She was the valedictorian of her college graduating class and I said maybe I can do that, too. So, she was always, her whole life, my inspiration. She was my role model. I wanted to be just like her.

Amato: You can hear more from Harris and others. Again, that episode is available now on journalofaccountancy.com/podcast or your favorite podcast platform. Part 2 of the story will be published Monday, April 12.

In other news, there is an important update related to the employee retention credit. The IRS issued guidance on how to claim the credit for the first and second quarters of 2021. Also, the maximum credit amount that can be claimed has been increased from 50% to 70% of qualified wages. Guidance on claiming the credit after July 1 will be provided at a later date, the IRS said.

The IRS also said it would automatically issue refunds to eligible taxpayers of income tax paid on 2020 unemployment benefits. Those refunds will begin in May and continue into the summer. The change is designed to help taxpayers who might otherwise have been required to file amended income tax returns.

Resources published by the PCAOB indicate the board’s 2021 inspections will focus on the pandemic’s effect on company financial performance, and it is expected that those inspections will remain remote for the foreseeable future. Also, as reported previously in the Journal of Accountancy, the PCAOB intends to address a concern that firms are disproportionately paying attention to areas of audits that are frequently inspected.

And, a report by the U.S. Government Accountability Office said that yearly federal guidance provided to single audit practitioners should be more timely and more responsive to auditors’ input and needs.

We will post the links to coverage of these topics in the show notes for this episode. For more information and the latest accounting news, visit journalofaccountancy.com. I’m Neil Amato, and this is the Journal of Accountancy podcast. Thank you for listening.