As COVID-19 continues to impact our economies, many not-for-profit (NFP) organizations may be experiencing significant decreases in revenue, leaving them to look for new sources. If you find your Wisconsin or Minnesota organization in this situation, it is important to be aware of revenue that may require the organization to pay unrelated business income tax (UBIT). NFP organizations are permitted under federal law to produce a certain amount of revenue that is unrelated to the organization’s purpose, but the organization may be taxed at a rate of 21 percent on the net income derived from this activity.

Unrelated business income is income from a trade or business that is regularly carried on and is not substantially related to the charitable, educational, or other purpose that is the basis of the organization’s exemption.

Trade or business includes any activity that is conducted for the production of income. The activity could produce income from the sale of goods or the performance of services.

To determine if an activity is regularly carried on, the organization must determine how frequent the activity occurs and if it is continuous. The IRS typically compares the time span of the activity to a comparable activity of a non-exempt commercial entity to determine the frequency. It is important to note that income producing or fundraising activities that last only a short period of time, on an annual basis would not be considered as regularly carried on.

Not substantially related means the activity does not contribute importantly to the accomplishment of the exempt purpose of the NFP organization. An NFP organization’s purpose is defined as the reason the organization exists and its basis for qualification as a tax-exempt entity.

If an activity meets all three of the criteria above, it may be considered unrelated business taxable income. Some common activities that may produce UBIT include the following:

This is not an all-inclusive list of activities that produce unrelated business taxable income. There are some statutory exemptions that may cause unrelated business income to not be taxable.

Please contact your Hawkins Ash CPAs representative if you have questions related to new revenue-producing activities you may be considering and whether they may produce unrelated business income.

Accepting online donations can be a great way for nonprofit organizations to grow their donor participation and tap into geographic areas they normally wouldn’t reach. For organizations expanding their online giving options, ensure the factors covered in this article are considered ahead of time to prevent any problems with the process down the road.

Regulatory Requirements

Many states require that nonprofit organizations register with the state before they are allowed to solicit donations from the residents. Before offering this application as a service to donors, it is important to ensure the organization meets all of the applicable requirements. Some types of organizations may be excluded from these registration requirements, but verifying this upfront will prevent any potential issues in the future. State government websites can be used to check on these requirements. The National Association of State Charity Officials (NASCO) conducted the Survey of State Laws Governing Registration of Charities in May 2020. This is a good summary resource for various state reporting requirements.

Procedures and Internal Controls 

Internal procedures and controls should also be updated to include factors that pertain specifically to online giving. These key questions and insights should be evaluated:

Please contact your Hawkins Ash CPAs representative if you have questions related to receiving online donor gifts.

On December 27, 2020, the Consolidated Appropriations Act (CAA) of 2021 was signed into law providing additional relief for those affected by COVID-19. With this, a new grant was approved for eligible live venues along with changes to the Employee Retention Credit (ERC) and Paycheck Protection Program (PPP).

Eligible entities include:

An eligible entity that was in operation on Jan. 1, 2019 could receive the lesser of an amount equal to 45 percent of their 2019 gross earned revenue or $10 Million. An eligible entity that began operation after Jan. 1, 2019 could receive the lesser of the average monthly gross revenue for each full month it was in operation during 2019 multiplied by 6 OR $10 Million.

It is important to note that eligible entities cannot receive this grant AND a PPP loan on or after December 27, 2020. If the entity qualifies for this grant and is considering applying for a PPP loan, it should evaluate which will be more beneficial.

The SBA is not yet accepting applications. When the application period does open, priority will be given to entities with up to 50 employees. Large employers will be eligible later in the application period.

For more information regarding eligibility requirements and this grant, please visit the SBA website.

The ERC began in 2020. Previously, if an employer received a PPP loan, it could not also apply for the ERC which is why many organizations did not qualify for this credit. The Consolidated Appropriations Act (CAA) of 2021 removed this restriction for 2020 and extended the credit into 2021. This will allow eligible organizations to go back and claim credits for 2020 that they may have been ineligible for due to receiving a PPP loan. Along with this, the eligibility requirements for 2021 have changed and maximum wages per employee were increased, allowing more organizations to be eligible for larger credit amounts. For more information, visit our website.

A second round of PPP loans is now available to eligible organizations sustaining a 25 percent reduction in gross income during any quarter of 2020 in comparison to the same quarter of 2019. It is important to note that even if an organization received a PPP loan during 2020, that organization, if it meets certain criteria, could be eligible for a second round. Also, certain 501(c)(6) organizations that were previously ineligible for PPP can now apply for first round PPP loans.

When applying for multiple sources of funding, it is important to read through all of the conditions. In most cases, state and/or federal funds cannot be used to pay for the same expenditures. To help support your organization during these difficult times, it is important to apply costs appropriately while also trying to take advantage of all funding opportunities available. Regarding many of these new funding opportunities, additional clarifications are still needed. Stay up to date on the most recent guidance by visiting our website

Please contact your Hawkins Ash representative, if you need assistance or would like more information.

Serving Manitowoc County in Wisconsin, Painting Pathways Clubhouse is a non-tax funded community support system for adults diagnosed with mental illness who want to be proactive in their recovery. Following the Club House International programming model, Painting Pathways celebrates the talents of their members, provides work opportunities and connects them to community resources.

“Our programming helps our members build a sense of purpose,” said Executive Director Jennifer Schmoldt.

As it weathered COVID-19 safety measures, Painting Pathways Clubhouse has found new ways of supporting its members. In 2020, Painting Pathways, in coordination with other community organizations, delivered personal hygiene items and 10,000 pounds of food. With the use of many different channels, the organization’s intensive outreach program made 4,500 contacts to members. These efforts have continued into 2021. During the holidays, employees and volunteers prepared and delivered meals. Painting Pathways has continued in-person programming three days a week with limited attendance.

Through the challenges COVID-19 presented, Painting Pathways was able to wrap-up a three-year capital campaign to complete construction and move into its new building.

“The facility, which is located on the site of our former building, is twice the size, and when we’re able to get together again, it offers more functional space for everyone,” remarked Schmoldt.

The new facility features an upgraded kitchen for meal preparation and clean up, expanded wheelchair access, reconfigurable furniture, enhanced safety features, a wellness room, retail space, and a conference room.

Looking ahead, Painting Pathways is awaiting the opportunity to show off the new facility to donors and the greater community with an open house and ribbon cutting event. Painting Pathways is excited about expanding programing which the new facility now allows.

Jennifer Schmoldt is the Executive Director of Painting Pathways Clubhouse. In her nine-year tenure with the organization, she has served as both Program Director and Executive Director. Recently, Jennifer oversaw the construction of the new Clubhouse, which is double the size of the previous building. She received her Master of Social Work degree from Barry University in Miami Shores, Fla.

The success of our members is my biggest source of pride and inspiration. Every day I am motivated to do my best as I observe the effort our members put into their mental health recovery.

The successful completion of our new facility is a huge accomplishment and ensures that Painting Pathways will be serving the mental health needs of our community for years to come. This required a tremendous amount of time, effort, and support from numerous individuals for which we are grateful.

As an organization, Painting Pathways is dedicated to raising mental health awareness and reducing stigma. I feel that we have made great strides in this area, with much of the credit belonging to our members and their willingness to share their stories.

In 2020, Painting Pathways was able to establish an endowment fund which is an incredible accomplishment. Once again, it speaks to the support from our community for mental health.

What other executive directors or philanthropic leaders do you look up to?  

I look up to Lt. Jenny Moffitt of the Salvation Army for her amazing talents, energy, and dedication to serving our community. I also commend the leaders of the West Foundation for their commitment to local nonprofits.