CARES Act 2

The CARES Act – Affiliation Rules for Nonprofits and Faith Based Organizations

 

BLUF  –Secular nonprofits are subject to standard SBA affiliation rules under 13 CFR 121.301(f); faith-based organizations are largely exempt from those rules.

INTRODUCTION

As the Small Business Administration (SBA) and the Department of the Treasury roll out their emergency relief programs under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), guidance related to those programs is still being finalized. The Payroll Protection Program (PPP) is open to more organizations than are typically permitted to participate in SBA loan programs, as nonprofits and faith-based organizations are not normally permissible recipients of SBA loans, which is what prompted the SBA to issue  an interim final rule interpreting its affiliation rules for these new recipients.

Under the SBA’s affiliation rules, a small business must take into account employees of any affiliate entities in determining whether it qualifies for the SBA loan programs, which generally require qualifying organizations to have less than 500 employees. Determining whether an affiliation exists between entities is primarily a facts and circumstances analysis. SBA decided to treat secular nonprofits to the same affiliation rules as most other applicants, while faith-based organizations that are affiliated with other faith-based organizations can generally claim an exemption from the affiliation rules.

NONPROFITS

The CARES Act, while expanding eligibility to nonprofits, also subjects nonprofits to existing affiliation rules. Those rules are described in the Code of Federal Regulations at 13 CFR 121.301(f). While these rules are designed to apply to for-profit companies, many of the principles are transferable to nonprofits.

When considering how the affiliation rules apply, nonprofit leaders should think about the degree of control and commonality between two or more entities. The regulations provide a number of different ways to think about affiliation. For instance, it is not enough to consider whether one entity actually controls another, but whether it has the right and power to do so. Overlapping management or boards can also create affiliation, even where one entity doesn’t have the express right to control another.

One indicia of affiliation is when two organizations contract with one another but their dealings are not at arms-length – perhaps a transaction’s terms are more friendly to one entity than they would otherwise find in the market due to the organizations’ close connection. In determining affiliation, the SBA considers all facts and circumstances, but will not overturn the determination of a lender, so long as the lender’s determination was reasonable.

Let’s look at some examples of affiliation in the nonprofit context. If a nonprofit and another organization have overlapping boards where a majority of one board is comprised of members of the other organization’s board, the organizations could be considered affiliated under the SBA’s rules. Similarly, if a nonprofit uses a sole member structure that allows another organization, acting as the sole member, to appoint and remove directors on the nonprofit’s board, block actions by the nonprofit’s board of directors, or otherwise control the nonprofit, the organizations could be considered affiliated under the SBA’s rules.

Even if the boards of the two organizations are entirely separate, if two organizations share overlapping management such that the same executive staff runs both organizations, the organizations could be considered affiliated. Affiliation can also arise where one organization is economically dependent on the other, which the SBA’s regulations define as receiving over 85% of an organization’s receipts over the previous three fiscal years from a contractual relationship with another organization.

FAITH-BASED ORGANIZATIONS

While the SBA has generally applied its existing affiliation rules to most nonprofits, the agency has taken a different approach to faith-based organizations (FBOs). SBA determined that the Religious Freedom Restoration Act (RFRA) requires the SBA to exempt faith-based organizations from affiliation rules[1] when such affiliation is part of the FBO’s exercise of religion. The SBA stated that it will not apply its regulations in a way that imposes substantial burdens on the religious exercise of faith-based loan recipients, unless such application is the least restrictive means of furthering a compelling governmental interest.

According to the SBA guidance, if an affiliation between an FBO and another entity is based on a religious teaching or belief or is otherwise a part of the exercise of religion, the organization will qualify for an exemption from the SBA affiliation rules.  The SBA allows each faith-based organization to make its own good-faith determination related to its affiliation to any other organization, and has stated that it “will not assess, and will not permit participating lenders to assess, the reasonableness of the faith-based organization’s good-faith determination that this exception applies.”

The SBA provided the following sample language for FBOs to include in an application to a lender for purposes of claiming exemption from the affiliation rules:

“The Applicant claims an exemption from all SBA affiliation rules applicable to Paycheck Protection Program loan eligibility because the Applicant has made a reasonable, good faith determination that the Applicant qualifies for a religious exemption under 13 C.F.R. 121.103(b)(10), which says that “[t]he relationship of a faith-based organization to another organization is not considered an affiliation with the other organization . . . if the relationship is based on a religious teaching or belief or otherwise constitutes a part of the exercise of religion.”

CONCLUSION

Standard SBA affiliation rules apply to nonprofits, except that faith-based organizations whose affiliations are part of the exercise of their religion are exempt from affiliation rules for purposes of PPP. We do caution, however, that the rules issued by SBA are subject to change.  If you have any question about how to apply to SBA’s affiliation rules to your organization, please reach out to us.


 

[1] The RFRA generally prohibits the federal government from imposing a substantial burden on a person’s exercise of religion except in furtherance of a compelling government interest by the least restrictive means available.

 

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who we work with

Our clients are diverse nonprofit organizations with a broad range of missions, as well as for-profit companies in evolving areas such as social enterprise, corporate philanthropy, joint ventures, technology-driven fundraising, and impact investing.

A.B. Data
AB InBev Foundation
Absolut Company
American Committee for the Weizmann Institute of Science
American Diabetes Association
American Friends of the Hebrew University
American Parkinson Disease Association
Americans for Ben Gurion University
Association of Fundraising Professionals
Avalon Consulting
Baton Rouge Area Foundation
Black Lives Matter Global Network Foundation
Bleeding Blue for Good Fund
Bradley Cooper’s One Family Foundation
BrightFocus Foundation
Brooks Brothers
Chadwick Boseman Foundation for the Arts
Changing Our World
Charity Defense Council
Christian Appalachian Project
Doctors of the World/ Medecins du Monde
Doctors Without Borders/ Medecins San Frontieres
Drug Policy Alliance
Duke University
Emory University
Estee Lauder Companies, Inc.
Feed The Children
Food For The Poor
Gerald R. Ford Presidential Foundation
Grameen Foundation USA
Hope for New York
International Campaign for Tibet
International Crisis Group
International Justice Mission
J. Crew Group
Johns Hopkins University
Lautman Maska Neill & Company
Lawyers Committee for Civil Rights Under Law

LSU Foundation
Marts & Lundy
Meyer Partners, LLC
Milken Institute
NAACP Foundation
National Alliance on Mental Illness (NAMI)
National Marrow Donor Program
National Park Foundation
Natural Resources Defense Council
North Carolina State University
North Shore Animal League
Operation Smile
PBS Foundation
Pernod Ricard USA
PetSmart Charities
PopSockets
Population Action International
Project ORBIS International
Public Interest Communication
Rails to Trails
Redeemer Presbyterian Church
Rockefeller Philanthropy Advisors
Save the Children Federation
Sesame Workshop
Simon Wiesenthal
SOS Children’s Villages – USA
Subaru of America
The Little Market
Touro University
United States Equestrian Team Foundation
United Way Worldwide
University of Connecticut
University of Virginia
Vote.org
Whitney Museum of American Art
World ORT
World Wildlife Fund
YWCA USA

A.B. Data
Absolut Company
American Committee for the Weizmann Institute of Science
American Diabetes Association
American Friends of the Hebrew University
American Parkinson Disease Association
Americans for Ben Gurion University
Association of Fundraising Professionals
Baton Rouge Area Foundation
BrightFocus Foundation
Burger King McLamore Foundation
Cancer Care
Carnegie East House and James Lenox House Association
Center for Car Donations
Changing Our World
Charity Defense Council
Christian Appalachian Project
Coca-Cola Scholars Foundation
Convoy of Hope
Cornell University
Doctors Without Borders/ Medecins San Frontieres
Drug Policy Alliance
Duke University
Emory University
Feed The Children
Gerald R. Ford Presidential Foundation
Grameen Foundation USA
Helen Keller Services
Hope for New York
Human Rights Watch
Humane Society of US
Indiegogo
International Campaign for Tibet
International Crisis Group
International Justice Mission
Japanese American National Museum
Johns Hopkins University
Lane Bryant Charities
Lautman Maska Neill & Company
Lawyers Committee for Civil Rights Under Law
LSU Foundation
Mattel
Meyer Partners, LLC
Milken Institute
National Breast Cancer Coalition
National Marrow Donor Program
Natural Resources Defense Council
North Carolina State University
North Shore Animal League
Obama Foundation
Operation Smile
PBS Foundation
Pernod Ricard USA
PetSmart Charities
Population Action International
Project ORBIS International
Public Interest Communication
Rails to Trails
Redeemer Presbyterian Church
Rock and Roll Hall of Fame and Museum
Rockefeller Philanthropy Advisors
Sesame Workshop
Simon Wiesenthal
SOS Children’s Villages – USA
Steinhardt Foundation
Subaru of America
United States Equestrian Team Foundation
University of Montana Foundation
University of Nevada, Las Vegas Foundation
Whitney Museum of American Art
World ORT
World Wildlife Fund
YMCA USA
YWCA of New York City
YWCA USA

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news & events

Our attorneys’ recent contributions to the media and nonprofit sector publications.

news & events

Check out our attorneys’ recent contributions to the media and industry publications.

Secure Your Data – Seriously, AFP New York Chapter News
As Jon Dartley, a data privacy and security attorney at Perlman and Perlman says, “It is vital to have the appropriate legal terms in the contract to protect your interests.”  Find out what your liability limit is.  Have it in writing who bears the responsibility and cost of a data breach.  And, have the vendor agree on a specific timeframe within which they need to advise you of a data breach.

Warning: Don’t Cut Legal Corners When Mixing Social And Business Impact,  Forbes
Particularly striking is that (Karen) Wu believes this is the “first multi-state regulatory activity involving cause marketing in almost two decades.”

Is stealing, then giving back, OK?
Cliff Perlman lends his advice on theft within a nonprofit.

Buyer Beware: Negotiating Terms in Technology Agreements
Jon Dartley provides tips on negotiating contracts with technology vendors.

Four Ways Charitable Giving Could Change with a Tax Overhaul
Cliff Perlman remarks on the possible threat of a change to charitable deduction.

How To Deal With Residual Data, Nonprofit Times
Jon Dartley’s advice on addressing “data exhaust”.

Secure Your Data – Seriously, AFP New York Chapter News
As Jon Dartley, a data privacy and security attorney at Perlman and Perlman says, “It is vital to have the appropriate legal terms in the contract to protect your interests.”  Find out what your liability limit is.  Have it in writing who bears the responsibility and cost of a data breach.  And, have the vendor agree on a specific timeframe within which they need to advise you of a data breach.

Warning: Don’t Cut Legal Corners When Mixing Social And Business Impact,  Forbes
Particularly striking is that (Karen) Wu believes this is the “first multi-state regulatory activity involving cause marketing in almost two decades.”

Is stealing, then giving back, OK?
Cliff Perlman lends his advice on theft within a nonprofit.

Buyer Beware: Negotiating Terms in Technology Agreements
Jon Dartley provides tips on negotiating contracts with technology vendors.

Four Ways Charitable Giving Could Change with a Tax Overhaul
Cliff Perlman remarks on the possible threat of a change to charitable deduction.

How To Deal With Residual Data, Nonprofit Times
Jon Dartley’s advice on addressing “data exhaust”.

perlman & perlman philanthropic sector law firm blue and green logo

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perlman & perlman philanthropic sector law firm blue and green logo

click to exit page

silk lanterns

who we work with

Our clients are diverse nonprofit organizations with a broad range of missions, as well as for-profit companies in evolving areas such as social enterprise, corporate philanthropy, joint ventures, technology-driven fundraising, and impact investing.

who we work with

Our clients are diverse nonprofit organizations with a broad range of missions, as well as for-profit companies in evolving areas such as social enterprise, corporate philanthropy, joint ventures, technology-driven fundraising, and impact investing.

A.B. Data
AB InBev Foundation
Absolut Company
American Committee for the Weizmann Institute of Science
American Diabetes Association
American Friends of the Hebrew University
American Parkinson Disease Association
Association of Fundraising Professionals
Avalon Consulting
Baton Rouge Area Foundation
Black Lives Matter Global Network Foundation
Bleeding Blue for Good Fund
Bradley Cooper’s One Family Foundation
BrightFocus Foundation
Brooks Brothers
Chadwick Boseman Foundation for the Arts
Changing Our World
Charity Defense Council
Christian Appalachian Project
Doctors of the World/ Medecins du Monde
Doctors Without Borders/ Medecins San Frontieres
Drug Policy Alliance
Duke University
Emory University
Estee Lauder Companies, Inc.
Feed The Children
Food For The Poor
Gerald R. Ford Presidential Foundation
Grameen Foundation USA
Hope for New York
International Campaign for Tibet
International Crisis Group
International Justice Mission
J. Crew Group
Johns Hopkins University
Lautman Maska Neill & Company
Lawyers Committee for Civil Rights Under Law
LSU Foundation

Marts & Lundy
Meyer Partners, LLC
Milken Institute
NAACP Foundation
National Alliance on Mental Illness (NAMI)
National Marrow Donor Program
National Park Foundation
Natural Resources Defense Council
North Carolina State University
North Shore Animal League
Operation Smile
PBS Foundation
Pernod Ricard USA
PetSmart Charities
PopSockets
Population Action International
Project ORBIS International
Public Interest Communication
Rails to Trails
Redeemer Presbyterian Church
Rockefeller Philanthropy Advisors
Save the Children Federation
Sesame Workshop
Simon Wiesenthal
SOS Children’s Villages – USA
Subaru of America
The Little Market
Touro University
United States Equestrian Team Foundation
United Way Worldwide
University of Connecticut
University of Virginia
Vote.org
Whitney Museum of American Art
World ORT
World Wildlife Fund
YWCA USA

A.B. Data
Absolut Company
American Committee for the Weizmann Institute of Science
American Diabetes Association
American Friends of the Hebrew University
American Parkinson Disease Association
American Rivers
Association of Fundraising Professionals
Baton Rouge Area Foundation
BrightFocus Foundation
Burger King McLamore Foundation
Cancer Care
Carnegie East House and James Lenox House Association
Center for Car Donations
Changing Our World
Charity Defense Council
Christian Appalachian Project
Coca-Cola Scholars Foundation
Convoy of Hope
Cornell University
Doctors Without Borders/ Medecins San Frontieres
Drug Policy Alliance
Duke University
Emory University
Feed The Children
Gerald R. Ford Presidential Foundation
Grameen Foundation USA
Helen Keller Services
Hope for New York
Human Rights Watch
Humane Society of US
Indiegogo
International Campaign for Tibet
International Crisis Group
International Justice Mission
Japanese American National Museum
Johns Hopkins University
Lane Bryant Charities
LSU Foundation
Mattel
Meyer Partners, LLC
Milken Institute
National Breast Cancer Coalition
National Marrow Donor Program
Natural Resources Defense Council
North Carolina State University
North Shore Animal League
Obama Foundation
Operation Smile
PBS Foundation
Pernod Ricard USA
PetSmart Charities
Population Action International
Project ORBIS International
Public Interest Communication
Rails to Trails
Redeemer Presbyterian Church
Rock and Roll Hall of Fame and Museum
Rockefeller Philanthropy Advisors
Sesame Workshop
Simon Wiesenthal
SOS Children’s Villages – USA
Steinhardt Foundation
Subaru of America
United States Equestrian Team Foundation
University of Montana Foundation
University of Nevada, Las Vegas Foundation
Whitney Museum of American Art
World ORT
World Wildlife Fund
YMCA USA
YWCA of New York City
YWCA USA
Lautman Maska Neill & Company
Lawyers Committee for Civil Rights Under Law

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