ABHE Blog

HEERF III – Required Uses of Grant Funds

HEERF III – Required Uses of Grant Funds

ISSUE:

On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (ARP) (Pub. L. 117-2). The ARP appropriated approximately $39.6 billion for the Higher Education Emergency Relief Fund (HEERF) and represents the third stream of funding appropriated for HEERF to prevent, prepare for, and respond to coronavirus. Taken together, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (Pub. L. 116–136), the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (CRRSAA) (Pub. L. 116-260), and the ARP represent HEERF I, HEERF II, and HEERF III, respectively.

HEERF III is structured like the HEERF II programs under the CRRSAA, with certain important differences.

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HEERF III – Required Uses of Grant Funds

The “Green Book” – 2022 Tax Proposals

ISSUE

The Department of the Treasury has recently published detailed information about the Biden Administration’s tax proposals for fiscal-year 2022. This 114-page publication is traditionally called “The Green Book” by the tax community.  Given the number of environmental provisions, this “Green Book” is even greener than usual.  Of course, Congress institutes tax law, so…

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HEERF III: Allocations and FAQs

On May 11, 2021, the U.S. Department of Education released a plethora of information about the “HEERF III” funding set forth in the American Rescue Plan Act of 2021 (ARP).  Beyond the allocation table (which includes some schools that were not allocated funds in HEERF I or II), there is guidance on reporting, student and institutional uses, and the new required uses of funds.  Also, it is clarified that HEERF funds may go to international and undocumented students.

SITUATION:

Saltwater Christian College (SCC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

The CFO at SCC called us wondering when the HEERF III funding and guidance was expected to be released by ED.

“It was released last week,” we answered.

“Great.  Can you send us links?”

“Here they are…”

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HEERF III – Required Uses of Grant Funds

HEERF II: Students Enrolled Exclusively in Distance Education

On December 27, 2020, the President signed the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (CRRSAA) (P.L. 116-260).  This law has some similarities—as well as important differences—from the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (P.L. 116–136) that was enacted on March 27, 2020.  One of the differences is that CRRSAA/HEERF II added allocations for students enrolled exclusively in distance education.

SITUATION:

Denali Christian College (DCC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

We talked with DCC’s CFO about HEERF II funding and some of the differences between HEERF I (CARES Act Section 18004) and HEERF II.

“So, we can now give financial aid grants to students who are exclusively enrolled in distance education, correct?”

“Yes,” we answered.  “Students enrolled in exclusively distance education courses are included in the CRRSAA section 314(a)(1) allocation formula.  According to the Department of Education, amounts apportioned for students enrolled in exclusively distance education courses may be used only for financial aid grants to students.”

“Great.  Where can we find out more about HEERF II funding?”

“One of the best resources is ED’s “Higher Education Emergency Relief Fund (HEERF) II Public and Private Nonprofit Institution (a)(1) Programs (CFDA 84.425E and 84.425F) Frequently Asked Questions” (updated March 19, 2021).”

The link to that resource is…

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HEERF III – Required Uses of Grant Funds

Has Your Institution Received a Contribution of “Qualified Intellectual Property”?

ISSUE:

Form 990, Part V, Line 7g, asks, “If the organization received a contribution of qualified intellectual property, did the organization file Form 8899 as required?”

SITUATION:

Troas Bible College (TBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

We were reviewing TBC’s Form 990 with their CFO.  He wondered about whether they might have received “intellectual property” according to Form 990, Part V, Line 7g.

“We aren’t sure what intellectual property is and there is not an entry in the wonderful Form 990 Glossary about it.  Have we missed something?”

We answered. 

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HEERF III – Required Uses of Grant Funds

Opening a Thrift Store?

ISSUE:

As Bible Colleges and Seminaries contemplate alternative sources of revenue in these fast-changing times, could a “thrift store” that operates as a ministry and a money-maker be a viable option?

SITUATION:

Marathon Bible College (MBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

The Controller at MBC called to ask about how the IRS taxes “thrift stores.”

“We have some space in a building on campus where we used to keep our bookstore inventory.  Now, most textbooks are electronic and we’ve moved our T-shirts, coffee mugs, etc. to a storage closet.  With that space freed up, we have been wondering what to do in there.

“MBC formed a task force of faculty, students, staff, and alumni to brainstorm about different ideas for alternative revenue sources.  One of the top ideas was to open a thrift shop that could also operate as a ministry.  The idea would be to have the store open six days a week and take certain donations of clothing, furniture, and household items.  We could also give away items as needs arose.  Part of the plan would be to have events in August and January where students could ‘win’ Monopoly money that could be spent to help furnish their apartments and/or dorm rooms.  As we think this through, would we have to pay taxes on net income from the store?”

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HEERF III – Required Uses of Grant Funds

100% Deduction for Food and Beverages

ISSUE: Although it will not affect most not-for-profit institutions – unless you have UBIT deductions – the Taxpayer Certainty and Disaster Tax Relief Act of 2020 added a temporary exception to the 50% limit on the amount that businesses may deduct for food or...

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HEERF III – Required Uses of Grant Funds

Updated: Form 1098-T and “Student Grants”

ISSUE:

In December 2020, the IRS issued guidance that CARES Act “student grants” from Higher Education Emergency Relief Fund (HEERF I) would not be reported on the 2020 Form 1098-T.  Now, the IRS has issued updated guidance on whether higher education institutions have any requirements under the I.R.C. to report information on Form 1098-T for 2021 with regard to emergency financial aid grants under HEERF I, HEERF II, or HEERF III (from the CARES Act, CRRSA, or ARP.)

SITUATION:

Denali Christian College (DCC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

DCC’s CFO called to ask us about whether student grants might need to be included in the 2021 Form 1098-T – which would be filed in early 2022.

“Some of the HEERF student grants – from all three sets of funding – may be applied to student accounts or used by students to pay us for tuition, fees, other charges.  Do we have to report any of that on Form 1098-T for this year?”

“Great question.  On March 30, 2021, the IRS updated their Higher Education Emergency Grants FAQs.  The FAQs do not specifically cover student grants from HEERF III (ARP).  The Q&A format contains a lot of information for students and schools included in six FAQs.  In FAQ #6, they specify that any amounts of student grants that qualify as ‘qualified tuition and related expenses’ (QTRE) must be reported by institutions in Box 1 of Form 1098-T.  Further, you do not need to report the grants in Box 5.”

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HEERF III – Required Uses of Grant Funds

Form 990-T eFiling

The Taxpayer First Act contains a provision which requires certain exempt organizations to file information and tax returns electronically for tax years beginning after 7/1/19 – this includes Form 990-T, Exempt Organization Business Income Tax Return. For institutions with a June 30 year-end, this would mean the year ended 6/30/21 as their 6/30/20 year began before 7/2/19.

The issue has been that Form 990-T (which first appeared in 1951) has never been positioned by the IRS for eFiling.  Pending conversion of Form 990-T to electronic format, the IRS has continued to accept paper copies of 2019 returns.

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HEERF III – Required Uses of Grant Funds

DE FAQs on Lost Revenue

ISSUE:

On March 19, 2021 the Department of Education (ED) issued several sets of HEERF guidance including “Higher Education Emergency Relief Fund (HEERF I, II, and III) Lost Revenue Frequently Asked Questions.”  FAQs #3 and #4 seem to unearth an unsettling issue that we should all be cognizant of.  These FAQs can be found at:  heerf lost revenue faq (ed.gov).

SITUATION:

Saltwater Christian College (SCC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

SCC’s CFO called us with a question about ED’s recent guidance on HEERF “lost revenue.”

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