Tax Tips for Higher Education

ISSUE:

The Consolidated Appropriations Action, 2021 (CAA) – (enacted December 27, 2020) expanded the Employee Retention Credit to entities that received a PPP loan/grant and extended the credit through June 30, 2021.  A few weeks ago we looked at the concept of “subject to a governmental order to fully or partially suspend its business operations.”  On March 1, 2021, the IRS released Notice 2021-20 which addresses (over the path of 102 pages!) “ERC 2020.”  The Notice – nor the IRS ERC FAQ page – reflects the changes made by the CAA.

ISSUE:

PPP Loans/Grants received differing treatments on audited financial statements for years ended in 2020.  How should those amounts be reported on Form 990?

ISSUE:

The IRS has not updated their Employee Retention Credit (expanded and extended) FAQs.  However, we eagerly await further guidance.  Today we have Part II of a three-part series on the ERC.

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.

MBC’s Controller called to ask us about the 50% reduction in gross receipts.

“I’ve been working on our PPP2 application and the 25% reduction in ‘gross receipts.’ The ERC concept of gross receipts and a 50% decline seems different from that used for the PPP.  Is that true?

We answered.  “Yes.  The “decline” and “reduction” methodologies are different.  And, remember, for “2021 ERC” only requires a 20% decline in gross receipts.  Also, the fourth quarter of 2020 may be used as a qualifying quarter for 2021.

RULES:                                   

ISSUE:

The Consolidated Appropriations Action, 2021 (CAA) – (enacted December 27, 2020) expanded the employee Retention Credit to entities that received a PPP loan/grant and extended the credit through June 30, 2021.  Today we have Part I of a three-part series on the ERC.

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.

TBC’s CFO told us, “Unfortunately, we do not qualify for the Employee Retention Credit because our institution did not show a more than 50% reduction in gross receipts for any quarter in 2020 compared to the same quarter in 2019.”

ISSUE:

The “Taxpayer Certainty and Disaster Tax Relief Act of 2020 – as part of the Consolidated Appropriations Action, 2021 (CAA) – (enacted December 27, 2020) instituted another round of Paycheck Protection Program Loans/Grants.  Eligibility for PPP2 includes a 25% Reduction in gross receipts “test.”

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. MBC’s Controller called to ask us about the “Second Draw Paycheck Protection Program (PPP2) loans that are currently be administered through local lenders.“You’ve already told us that ‘gross receipts’ for PPP2 purposes – when calculating whether we show the required 25% reduction – is basically ‘Form 990 accounting,’ correct?”  “Yes,” we answer.  “And, that information and guidance can be found on the SBA’s new document that was just released this week.  It can be found at:Second Draw PPP Loans — How to Calculate Revenue Reduction and Maximum Loan Amounts Including What Documentation to Provide (1.19.2021).pdf (sba.gov)  “Okay,” he says.  “What about our PPP1 loan that was forgiven.  Is that included in gross receipts?  And, if so, would we include it when we got the funds or when they were forgiven?” “Ahh, great question.  The short answer is no.  PPP1 funds and EIDL emergency advances/grants are not included in ‘gross receipts’ for the 25% reduction calculations.  So, that renders the ‘when’ question a moot point.”  “Cool,” they say.