Implications of the Paycheck Protection Program (PPP) on Form 990
The Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (Economic Aid Act), which was included in the signed Consolidated Appropriations Act, 2021, provided approximately $284.5 billion of Paycheck Protection Program (PPP) funding to the Small Business Administration (SBA). On March 11, 2021, an additional $7.25 billion was allocated to the PPP through The American Rescue Plan Act.
The PPP was created to provide small businesses and eligible nonprofits a direct incentive to keep their workers on payroll. The loan amount is generally 2.5 times average monthly payroll costs in 2019, 2020 or over the last 12 months, with a maximum of $10 million for the first draw and $2 million for the second draw. The loan may be fully forgiven if funds are used for allowable costs, including payroll, interest on mortgages, rent, utilities and other allowable expenses. If there is any remaining non-forgivable PPP loan, the loan generally has a maturity of 5 years and a 1% interest rate.
Reporting on Form 990
Form 990 presentation will generally follow the audited financial statements. If the loan is treated as a “conditional contribution” on the audited financial statements, the nonprofit should report on Form 990, Part VIII, Line 1e government grants (contribution) as the contribution is recognized and no interest expense would be incurred. If the loan is treated as a “loan” on the audit report, the nonprofit should report on that amount on Form 990, Part X, balance sheet, until the loan is forgiven and report any interest expense accrued.
- Part VIII, statement of revenue, line 1e government grants (contributions): PPP loan forgiveness should be reported on line 1e as contributions from a governmental unit in the tax year that the amounts are forgiven. The forgiven PPP loan should not be reported as “program service revenue” or “miscellaneous revenue.”
- Schedule A, public support testing: Under both IRC Section 170(b)(1)(A)(vi) and IRC Section 509(a)(2), PPP loan forgiveness should be treated as a contribution and reported on Section A public support line 1 as a “contribution,” consistent with the reporting on Part VIII. Since it is a government grant, the amount will not be treated as an excess contribution consistent with the treatment of other government grants.
- Schedule B, Schedule of Contributors: Report the name, amount, the date the loan was received, and the mailing address of the SBA if the PPP loan exceeds the Schedule B reporting threshold.
- If the forgiven PPP loan exceeds $5,000, the nonprofit should report the name, amount, the date the loan was received, and the mailing address of the SBA on California Form 199.
- If the nonprofit is required to file the California Form RRF-1, the nonprofit should check “Yes” to Form RRF-1, Part B, Question 5, “During this reporting period, did the organization receive any governmental funding?” and report the name, mailing address, contact person name and phone number of the SBA.
Economic Injury Disaster Loan (EIDL) Advance and PPP Loan
- EIDL Advance: As part of the Economic Aid Act, the COVID-19 EIDL advance provides up to $10,000 for small businesses (including private nonprofit organization) in low-income communities. The advance doesn’t have to be repaid and the nonprofit recipient no longer receives a reduction in PPP loan forgiveness for the amount of EIDL advance received. The EIDL advance should be reported as a grant on Form 990, Schedules A and B, similar to PPP loan forgiveness.
Form 990 reporting of PPP loans and EIDL advanced grants should be consistent with both the book treatment of the loans or grants and the required treatment of the loans and grants from governmental entities.