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Religious Institutions and the CARES Act: A Closer LookApril 1, 2020Holland & Knight AlertJason E. Havens | Kelly L. Hellmuth | Nathan A. Adams IV
Highlights
The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), signed into law by President DonaldTrump on March 27, 2020, provides $2.2 trillion of emergency appropriations in response to the COVID-19pandemic.
Although many provisions focus on the private sector industries, certain provisions are also applicable to religiousinstitutions, including various loans as well as other items such as unemployment benefit reimbursements, anemployee retention credit for the employer's share of employment taxes, a delay in the payment of payroll taxes andthe increased ability for credit unions to provide credit to other nonprofit organizations.
President Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) onMarch 27, 2020, providing $2.2 trillion of emergency appropriations in response to the COVID-19 pandemic. Whilemany provisions focus on the private sector industries, certain provisions are also applicable to religious institutions.
This Holland & Knight alert is an overview of the CARES Act programs and the eligibility of religious institutions forsuch business programs but does not cover those programs established specifically for the healthcare industry andeducational institutions. A summary of the latter programs, as well as programs available to private sector industries,can be found on Holland & Knight's website.
Whenever federal public funds are made available to religious institutions, Establishment Clause considerations arerelevant. Each of the programs below are neutral with respect to religion, and provide assistance directly to a broadclass of citizens. They do not single out religious institutions for benefits, nor do they exclude religious institutions fromthe programs. They have a secular purpose and do not have as their purpose government indoctrination or advancingor hindering religion. Thus, excessive entanglement between state and church is unlikely. However, consultation withchurch-state counsel in connection with particular facts and applications is advisable.
Religious institutions also should refer to Holland & Knight's previous alert discussing qualified disaster relief paymentsand emergency hardship assistance, which may be provided not only to unrelated victims and others affected but alsoto the religious institution's own employees. (See "Charitable Giving Tips to Provide Help and Hope During theCOVID-19 Crisis," March 26, 2020.)
Loans for Religious InstitutionsThe CARES Act expands and provides funding for several U.S. Small Business Administration (SBA) programs thatprimarily are intended for "small business concerns." A small business concern for SBA purposes generally onlyincludes for-profit entities that are independently owned and operated, unless specific provisions are carved out fornonprofits. However, some programs in the new CARES Act permit certain nonprofit organizations to participate.
Paycheck Protection Program
The new Paycheck Protection Program permits loans directly to any "nonprofit organization" – defined to mean only
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tax-exempt organizations described in Internal Revenue Code (IRC) Section 501(c)(3), including religious institutions.Thus, religious institutions are eligible for loans during the covered period of Feb. 15, 2020 through June 30, 2020, aslong as the organization does not have more than 500 employees and was operational as of March 1, 2020. TheCARES Act makes religious institutions subject to the SBA's "affiliation" rules in determining size, meaning that theorganization must take into account the number of its own employees as well as any related organizations, whethernonprofit or for-profit. These affiliation rules and regulations are far-reaching and complex, and careful analysis of themis required.
Religious institutions can use the loan proceeds for certain payroll costs, rent, utilities, mortgage interest, and intereston other debt obligations incurred before Feb. 15, 2020. In addition, these organizations are eligible to have suchloans forgiven, effectively turning the loans into grants, if additional requirements are met.
For-profit businesses owned by any religious institution are also eligible for loans under the new Paycheck ProtectionProgram, as long as they meet the other SBA eligibility requirements. For example, as noted above, for a for-profitentity to be considered "small," it must include all its affiliates, including its nonprofit parent in the size calculation.
Assistance for Mid-Size Religious Institutions
The CARES Act provides funding and liquidity in the Federal Reserve System for a new program to provide financingto banks and other lenders that make loans – with no higher than 2 percent interest and no principal or interestpayments due for the first six months – directly to nonprofit organizations. To be eligible, a religious institution musthave between 500 and 10,000 employees and must be a U.S. entity with significant operations in the U.S. and amajority of its employees located in the U.S. A religious institution seeking such a loan must certify that it will use thefunds to retain at least 90 percent of its workforce at full compensation and benefits until Sept. 30, 2020, and that,within four months of the end of the COVID-19 emergency, it intends to restore at least 90 percent of the workforcethat it had as of Feb. 1, 2020. In addition, the religious institution must agree to certain limitations on compensationpaid to highly compensated employees.
Disaster Assistance Loans for Religious Institutions of Any Size
Under the SBA's existing 7(b)(2) program, most religious institutions of any size were already eligible for a disasterassistance loan of up to $25,000 unsecured or up to $2 million with collateral at 2.75 percent interest. To be eligible fordisaster assistance under the existing 7(b)(2) program, the religious institution had to be located in an area affected bya disaster or emergency, and it had to suffer a substantial economic injury as the result of such disaster. The CARESAct expressly includes the COVID-19 pandemic as an applicable disaster. A substantial economic injury is an injurythat results in the inability of the religious institution to meet its obligations as they mature; to pay its ordinary andnecessary operating expenses; or to market, produce, or provide a product or service ordinarily marketed, produced orprovided by the religious institution.
The CARES Act adds that, for a "small" religious institution that applies for a disaster loan, the SBA may provide anadvance on such loan in amount of up to $10,000 within three days of application for the loan. A nonprofit must be"small" under the SBA's standards, according to the number of employees it has or its annual receipts. To receive anadvance, a religious institution must certify under penalties of perjury that it meets the requirements for being eligible.The religious institution would not be required to repay such advance, even if subsequently denied the loan.
Other Provisions Applicable to Religious Institutions
Unemployment Reimbursements
For those religious institutions that are exempt from unemployment laws, such as churches, affiliated religiousorganizations, religious schools and charities with fewer than four employees, the employees of such charities are not
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eligible for receiving unemployment benefits; thus, these charities would not receive any reimbursement unless theyvoluntarily elect to self-insure. If a religious institution self-insures, the CARES Act reimburses the religious institutionfor half of its costs of unemployment benefits provided to laid-off employees.
Employee Retention Credit for Employer's Share of Employment Taxes
The CARES Act allows employers to claim a new credit against applicable employment taxes in an amount equal to 50percent of the qualified wages paid after March 12, 2020, and before Jan. 1, 2021, with respect to certain employees,up to a maximum of $10,000 of wages per employee. For employers with more than 100 full-time equivalent (FTE)employees, this provision includes those employees who were not working due to COVID-19. For employers with 100or fewer FTE, it includes all employees. Such credit is valid for any calendar quarter in which the employer'soperations were suspended due to governmental orders limiting commerce, travel or group meetings due toCOVID-19, or in which the employer had a significant decline in gross receipts as compared to the prior year'scorresponding quarter. Any excess credit is treated as a refundable overpayment. For this credit, any employer that isa tax-exempt organization described in IRC Section 501(c), which covers everything from charities to businessleagues to social clubs to credit unions (and more), is deemed to be an eligible employer with respect to all of itsoperations (notwithstanding that such operations may not be a trade or business); however, if the employer receives aloan under the Paycheck Protection Program (discussed above), then the employer is not eligible for this credit.
Delay of Payment of Payroll Taxes
The CARES Act permits payment of the employer's share of payroll taxes from March 27, 2020, through the end of2020 to be delayed, with half of such amount due Dec. 31, 2021, and the other half due Dec. 31, 2022. This ability todelay payment applies to any employer, including all religious institutions, but does not apply if an organizationobtained a loan and has such loan forgiven under the Paycheck Protection Program.
Credit Unions
The CARES Act increases the ability of credit unions to provide credit to other nonprofit organizations, includingreligious institutions. These provisions temporarily relax the requirement that a credit union primarily serve naturalpersons and expand the ability of a credit union to obtain additional liquidity from the National Credit Union CentralLiquidity Facility. These provisions sunset at the end of 2020.
How Holland & Knight Can HelpHolland & Knight's Religious Institutions Team and Nonprofit and Tax-Exempt Organizations Team have assisted allkinds of religious institutions with federal funds questions, financing transactions, employment law, best practices,litigation and sustainable operations. For more information about pursuing one of these new programs or anyquestions about how the CARES Act may impact your faith-based institution, contact the authors or another teammember, who can coordinate as needed with Holland & Knight's Financial Services Team, Government ContractsGroup, and Labor, Employment and Benefits Group.
DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these
publications may change on a daily basis. Please contact your responsible Holland & Knight lawyer or the author of this alert for
timely advice.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should
not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each
jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge
you to consult competent legal counsel.
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Jason E. Havens is a highly experienced business and tax attorney who uses creative problem solvingand strategic insight to achieve planning objectives for high-net-worth individuals, families, andcharitable organizations. He focuses on complex estate and charitable gift planning (domestic andinternational), wills and trusts, probate and trust administration, and probate and trust litigation.
904.798.5489 | [email protected]
Kelly Hellmuth is a private wealth services attorney based in Holland & Knight's Jacksonville office,where she focuses on charitable and nonprofit issues on a national scale. She represents publiccharities, private foundations, trustees of charitable trusts, religious institutions, trade associations, andother tax-exempt organizations, in addition to donors. Since 2019, The Florida Bar has certified Ms.
Hellmuth as a Board Certified Specialist in Tax.
904.798.7296 | [email protected]
Nathan "Nate" A. Adams IV is a partner practicing in complex commercial and appellate litigation witha special emphasis on healthcare, education and hospitality, as well as nonprofit and religiousorganizations. Dr. Adams has argued in federal courts nationwide and in state courts in Florida,Colorado and the District of Columbia. In addition, Dr. Adams serves as outside general counsel for
several organizations.
850.425.5640 | [email protected]
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