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).
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.”
“I’ve got a HUGE concern about the new FAQs on lost revenue, especially FAQ #4. It appears ED has changed the rules on us yet again, but this new change might be earthshaking for our institution. Although, HEERF reimbursements are permitted for Tuition, fees, and institutional charges, ED then forbids reimbursement of – and I quote, ‘revenues related to sectarian instruction or religious worship.’ So, where do tuition and fees end and sectarian instruction and/or religious worship begin? And, what about the summer camps that we had to cancel?”
“Great questions. First, we have queried ED on this and they have not yet answered. This does cause concern. If you look closely, they did change the nomenclature here. On all of the previous HEERF guidance – including the Certificate & Agreement forms and the oft-amended ‘Amended Quarterly Budget and Expenditure Reporting under CARES Act Sections 18004(a)(1) Institutional Portion, 18004(a)(2), and 18004(a)(3), if applicable’ – the verbiage stated, ‘so long as such costs do not include payment to contractors for the provision of pre-enrollment recruitment activities; endowments; or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship.’ Now, they continue to use the capital outlay verbiage for athletics, but they have recast the wording to ‘revenues related to’ sectarian instruction or religious worship. This is potentially nefarious.”
“So,” asked the CFO, “in the future are we going to have some bureaucrat come and arbitrarily say that we have to pay back some or all of our HEERF funding?”
“Ah, that is the question – and the issue – at hand.”
From ED guidance “Higher Education Emergency Relief Fund (HEERF I, II, and III) Lost Revenue Frequently Asked Questions”:
- Question: What are potential sources of lost revenue that may be reimbursable under the HEERF grant programs?
Answer: Sources of lost revenue associated with the COVID-19 pandemic may include, but are not limited to, the following:
- Academic sources
o Tuition, fees, and institutional charges (including unpaid student accounts receivable or other student account debts)
o Room and board
o Enrollment declines, including reduced tuition, fees, and institutional charges
o Supported research
o Summer terms and camps
- Auxiliary services sources
o Cancelled ancillary events
o Disruption of food service
o Dormitory services
o Childcare services
o Use of facilities or venues, including external events such as weddings, receptions, or conferences (other than facilities associated with sectarian instruction or religious worship)
o Bookstore revenue
o Parking revenue
o Lease revenue
o Other operating revenue
- Question: What are potential sources of lost revenue that are not reimbursable under the HEERF grant programs?
Answer: Sources of lost revenue that are not reimbursable under the HEERF grant programs include the following:
- Capital outlays associated with facilities related to athletics (including fees assessed for capital athletic facility construction)
- Acquisition of real property (including bond revenue)
- Contributions or donations to the institution
- Marketing or recruitment activities
- Revenue related to sectarian instruction or religious worship
- Alcohol sales
- Investment income (including endowment and quasi-endowment revenue)
Generally, lost revenue cannot be used to replace revenues derived from activities and expenditures that are otherwise unallowable under the HEERF grant programs. Please see CRRSAA sections 314(c) and 314(d)(3), 2 CFR part 200 subpart E “Cost Principles,” and 34 CFR §§ 75.532 and 75.533 for additional information. [underlines added]
- The use of some HEERF funds may include a reimbursement for “lost revenue.”
- All of the guidance to date has forbidden the use of HEERF funds for “capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship.”
- Now, ED appears to be changing the rules mid-stream by forbidding capital outlays for athletics – but they have recast their restrictions to “revenue related to sectarian instruction or religious worship.”
- Hopefully, we will get clear guidance on this in the very near future.
The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.
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