We understand the growing concern surrounding Coronavirus Disease 2019 (COVID-19) and the issues and uncertainties many nonprofit organizations throughout the country are facing as a result of its impact on everyday life around the world.  From the most immediate issues – such as addressing workplace safety issues for employees and community stakeholders – to long term budgetary concerns – such as contingency planning for reduced funding due to the current bear market – we have provided a recap of the various issues the nonprofit executives should address.

A. Clarity in Understanding Coronavirus.

Nonprofit organizations have the unique opportunity in this time of crisis to help ease the concerns of the community by providing a strong and reliable voice to their communities.  As many people know, nonprofit organizations are trusted leaders of the community and their guidance is often sought by others.  For that reason, we strongly encourage each nonprofit organization to address the health concerns surrounding COVID-19 by disseminating reliable information to their constituents.  In addition, it is imperative that each organization also strive to dispel myths and misinformation relating to the virus. For that reason, we have provided a short list of trusted sources at the end of this article for organizations to use and refer to throughout this period of uncertainty.  In addition, you may review our Coronavirus Toolkit.

B. Addressing Elevated Coronavirus Risks.

We as employers, sponsors, and members of the community are responsible for taking action to address the spread of COVID-19. First and foremost, we must invest time in adopting and most importantly implementing adequate policies and procedures to help curb the spread within our respective organizations and communities. There are a number of policies and strategies organizations can use to avoid spreading the virus, including the following:

    • Implement a sick leave policy compliant with Emergency Paid Sick Leave Act
    • Consider flexible work arrangements and provide necessary resources
    • Provide adequate CDC-approved cleaning and disinfecting supplies to employees
    • Encourage respiratory etiquette and hand hygiene by all employees
    • Restrict business travel and discourage unnecessary personal travel
    • Adopt a self-quarantine policy, including after travel or contact with an individual diagnosed with COVID-19
    • Consider postponing events or creating virtual options
    • Adapt activities and services to fit local guidance, rules, and restrictions (See our State & Local Updates to see what is happening in your community)
    • Provide educational materials to employees on reducing the spread of COVID-19
    • Provide remote or virtual social gatherings to promote unity and boost moral

Nonprofit organizations should carefully consider which strategies and policies best suit their respective organizations.  For more information on how to address COVID-19 in the workplace, please review our Workplace Issues and COVID-19 Guidance.

C. Event Planning.

Virtually all nonprofits have intense focus on fundraising and educational activities, and the travel bans, coupled with prudence in limiting large gatherings, have created an immediate crisis situation for nonprofits.

How should nonprofits address an upcoming nonprofit event, to which hotels, event spaces, restaurants, travel, and speakers, have already committed?

a. Notify all involved (participants, panelists, key donors and sponsors) that options are being evaluated. While it is not necessary to be an alarmist, all participants should be given some notice that options are being considered.  The Coronavirus crisis is significant enough that opinions may vary, and to preserve community relationships, nonprofits should be sensitive to the time and money of those who contribute to their purposes.  The governing body of nonprofits should definitely be consulted.  Our hope is that all involved know we face a crisis on an unprecedented scale and will be motivated to do the right thing.

b.Assess whether the event is high-risk. Any event with a significant number of high risk individuals – think older adults, and those with serious chronic medical conditions – will likely be a candidate for cancellation or rescheduling.  The same goes for events with a larger than usual number of people in close proximity (i.e. arms’-length).  There seems to be no “magic number,” but many municipalities prohibited gatherings above 10 people.

c. Assess relevant contractual obligations. Every contract with hotels, catering companies, restaurants, and the like are going to have various cancellation and “force majeure” or “impossibility of performance” provisions that may release both parties from mutual obligations.  Reaching such a standard is likely very difficult, particularly for smaller events which may not be covered by outright bans.  For more information, please see our article on How COVID-19 affects Contractual Obligations.

d. Assess alternative options. Considering the financial implications and the circumstances in your particular locality, consider moving the event to a later date or offer a reduced scale event or online option.  Most universities have moved to web-based classes for the remainder of the spring session.  It is important to also offer alternative to any sponsors, vendors, or donors as it is always important to recognize and appreciate the difficulties they may also be facing in this uncertain time.

e. Communicate decisions. Obviously, once a final decision has been made, communicate to all involved – attendees, donors, vendors, volunteers and employees – with sufficient detail to respect everyone’s time, efforts, and money.

D. Assessment of Nonprofit’s Liability through Insurance and Otherwise.

One issue that arises is a nonprofit’s own legal liability (particular, healthcare-related nonprofits) if someone is diagnosed with COVID-19 under a nonprofit’s watch.  Generally, such liability concerns are the same as other illness. However, what differs in this particular instance is the guidance implemented by CDC as well as other Federal, State, and local authorities. Nonprofits must be mindful of the guidance provided to them by these authorities and ensure the guidance is consistent with their liability insurance and current policies and procedures.  Has the nonprofit (whether in providing healthcare or otherwise) taken sufficient efforts to minimize the spread of COVID-19 given their particular circumstances?  Have the efforts and thought process been adequately documented for future reference?  Have appropriate policies and procedures been implemented to address employees, patients, and other personnel who have tested positive for COVID-19? Adopting and implementing appropriate measures is an important factor to limiting an organizations liability.

It is important to analyze your entity’s insurance coverage to identify any risks or concerns the organization may need to address.  One form of insurance to examine is business interruption insurance, but policies, if in place, may limit coverage to situations that result in physical loss or damage.  The COVID-19 pandemic and the resulting shutdowns may be events covered by such insurance depending on the policy.  Certainly, nonprofits should review existing policies to determine how such coverage may apply to their organization.

Instead, in terms of liability protection, takes steps to ensure a nonprofit is not somehow deemed liable for a COVID-19 exposure to ensure safety and sanitary practice protocols are in place (per Section B above).  Encourage telecommuting of possible.  Respect the fact that school and other closures disrupt home life as well.

An agreed protocol for isolation and quarantine should be in place in the event an incident arises, further discussed at Workplace Issues and COVID-19.

E. Dealing with External Closures.

Universities are canceling on-campus classes and instituting web-only classes; major sporting events have been cancelled or postponed; resulting in a domino effect.  Obviously if key service providers or customers shut down, nonprofit organizations must assess their obligations and act prudently by minimizing costs while balancing the fact that many employees and contractors may be left without a paycheck.  The first line of defense is to evaluate written and oral agreements that may exist and how they may be implicated. It is important to consider whether external closures are going to impact a nonprofit’s ability to conduct business in the ordinary course or whether adaptations can be made to support essential business functions.  Almost simultaneously, nonprofit organizations must consider their own obligations to provide services and the impact of closures may have on its own employees and staff.   All nonprofit organizations should be cognizant that external closures are likely not done indiscriminately and should not necessarily blame overreaction with an equally quick response.

It is prudent to evaluate your organization’s legal options, including common law contract principles, to see whether there are opportunities to mitigate any damages that occur during a potential breach.  Because the COVID-19 is a novel virus, it is pivotal for organizations to analyze the language in their respective contracts and policies to determine whether this type of event is addressed or covered. It may be the case that no contractual provision covers the contingencies occurring today.

F. Dealing with Restricted Gifts/Designated Funds.

Nonprofits will continue to face financial pressure during and following the COVID-19 crisis.  Budgets will need to be re-evaluated, and questions may arise as to whether restricted gifts can be used to cover other areas, when other sources are decreasing.  Generally, two considerations are addressed – the written and oral agreements, and donor relationships.  Often the only written documentation of a restricted gift will be a gift acknowledgment; other times, there may be a written grant agreement or even trust document.  Decisions may be made on a case-by-case basis; if in doubt, a personal and candid discussion with the donor is the safest course of action

G. Consider Tax Compliance Deadlines.

Although the IRS announced the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020, the May 15 deadline for nonprofits organizations to file Form 990 remains unchanged. Nonprofits may consider filing an extension regardless.  Payroll and benefit filings are still unchanged. For more information on tax relief, please visit https://www.irs.gov/coronavirus.

H. Focus on Purpose.

It goes without saying that nonprofit organizations continually revisit their stated purpose and mission statement.  To the extent that COVID-19 directly implicates such purposes and missions, the nonprofit’s actions, and public statements expressing such actions, are an opportunity to emphasize the nonprofit’s charitable purpose. It addition, nonprofit organizations should mindful of their exempt purpose as they take on additional activities or collaborate with other organizations during this crisis.

I. Stimulus Relief Bill.

On March 27, 2020, Congress passed, and President Trump signed into law, the $2 trillion stimulus bill (Coronavirus Aid, Relief, and Economic Security Act (CARES Act), implementing several incentives substantially helping nonprofits.

a. Charitable Giving Incentive.

There is now a one-time, above-the-line (non-itemized) charitable deduction for cash donations of up to $300 to qualifying charities.  Noncash gifts and gifts to donor advised funds do not qualify (although they may still be claimed as itemized deductions).  In addition, for 2020, the usual limit on an individual’s itemized charitable deductions is suspended (normally being 50% of AGI (60% if cash).  Corporate charitable deduction limits are increased from 10% to 20% of AGI; food donation deductions are increased to 25% from 15%.

b. CARES Loans and Grants.

i. Paycheck Protection Program (PPP). Tax-exempt section 501(c)(3)(charitable) and 501(c)(19)(veteran organization) nonprofits (charitable) and 501(c)(19) nonprofits, with 500 or fewer employees may qualify for up to $10M in loans (along with small businesses).  Per employer, the maximum loan is equal to 2.5 times the average monthly payroll during the 1-year period before the date of the loan.  Specifics will vary based on how long the nonprofit was in existence, newer organizations have different measuring periods.  Loan funds can be used to meet payroll, facilities costs, and debt service.  If the nonprofit maintains employment between February 15 and June 30 or rehire employees by June 30, the loans would be forgiven.

ii. Economic Injury Disaster Loans (IEDL). These loans are also available for other types of nonprofits, including section 501(c)(4) social welfare organization and 501(c)(6) business leagues/trade associations.  They provide for maximum loans of up to $2 million for expenses that could have been met had a disaster not occurred, such as payroll and other operating expenses.  The loans are for a term up to 30 years and the rate for nonprofit organizations is 2.75%. Payments on principal and interest may be deferred for up to 4 years.  In addition, up to $10,000 of the amount can be requested as a grant as opposed to a loan.

iii. Employee Retention Credit. All tax-exempt nonprofit types are eligible for a payroll tax credit, discussed at Employee Retention (CARES Act).  This credit is not available for those nonprofits that received a PPP loan described above; however, nonprofits other that the 501(c)(3) and (c)(19) will not be eligible for a PPP loan.

c. Benefit for Self-Funded Nonprofits.

Self-funded nonprofits (those which elect out of paying state unemployment taxes and self-insure) may be reimbursed for half of the cost of benefits provided to laid-off employees.

A complete discussion of the CARES Act is found here CARES Act Information.

I. Conclusion.

In the midst of uncertainty, it is clear that all organizations must help manage the impact associated with COVID-19.  The rising number of daily Coronavirus cases, quarantines, cancelled events and conferences and the volatile economic markets should be enough to warrant serious discussions about the impact COVID-19 may have on our organizations, employees, families, colleagues and the financial ramifications we may all face.  Nonprofit organizations can contribute by pursuing a pro-active approach to handling the health and economic issues associated with Coronavirus.  We strongly encourage each organization to help support their organizations and the communities around them by taking the necessary steps within their organizations and working with their respective public health officials to combat the spread of COVID-19.

If you require additional resources or guidance, please contact any member of the Husch Blackwell Nonprofit team.

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Photo of Albert Lin Albert Lin

Albert represents hospital districts, large hospital systems, physician groups of all sizes and practice specialties, management companies and nonprofit healthcare organizations at every stage in their lifecycle. He enjoys being a part of a team that can handle complex mergers and transactions in

Albert represents hospital districts, large hospital systems, physician groups of all sizes and practice specialties, management companies and nonprofit healthcare organizations at every stage in their lifecycle. He enjoys being a part of a team that can handle complex mergers and transactions in the healthcare field alongside members of Husch Blackwell’s regulatory team.

Albert has particularly significant experience in the nonprofit, tax-exempt organizations area and is part of the Husch Blackwell nonprofit organizations group, having handled virtually all aspects of tax and transactional matters for the healthcare industry. He has applied for and received tax-exempt status for dozens of organizations and has been a frequent writer on the topic for state and national publications, such as the Texas Tax Lawyer and Wolters Kluwer Exempt Organization Reports.

Photo of Jameson E. Sauseda Jameson E. Sauseda

Jameson advises clients on regulatory matters, mergers and acquisitions and other business transactions. In order to better understand clients’ financial situations, he earned a master’s degree in accounting with an emphasis on taxation. Jameson has experience analyzing financial statements, institutional investments and tax…

Jameson advises clients on regulatory matters, mergers and acquisitions and other business transactions. In order to better understand clients’ financial situations, he earned a master’s degree in accounting with an emphasis on taxation. Jameson has experience analyzing financial statements, institutional investments and tax compliance regulations, including 501(r) compliance. While he is a talented attorney and analyst, his top priority is client communication. He’s known for his dedication to understanding clients’ unique circumstances and goals, and for his ability to clearly explain the legal issues impacting clients. He now applies both his legal skills and his tax background to achieve the best results for clients.