SeattleCPA's new blog post - timely for me. Q1 and Q2 covered by Q1 gross receipts decline for our church. But hadn't considered "starting a new line of business". Q3 and 4 look doubtful on gross receipts, although you never know until the money is in.
https://evergreensmallbusiness.com/houses-of-worship-and-nonprofits-miss-the-boat-on-employee-retention-credits/
I'm wondering if there isn't a way to get that new line of business going for the church quickly. It would take us 3 years to actually decide to buy that rental property as in the example in the blog post. Been thinking "what if we ran a co-working space out of our mostly unused building during the week". But of course we already do rent the place out from time to time for various events (I mean, not so much since pandemic, but we did). We also received some artwork with reproduction rights since pandemic started - vague ideas of "put it on a coffee mug!", but that's going to be more like a fundraiser either for the church in general or for an already existing program of the church.
I think the easiest way to become eligible, no matter if you're a for-profit or not-for-profit, is to have a government order fully suspend your "business." Where I live, for example, churches, mosques, temples, synagogues were prohibited from congregating through, I think, June 30, 2021... And even now, I would wonder whether they can really conduct normal operations given the newest delta related restrictions.
The second easiest way, IMHO, is to be down the required percentage. So down more than 20 percent in 2021 quarter as compared to 2019 quarter.
Third easiest way, again IMHO, is to be partially suspended. I.e., some more than nominal part of the "business" is closed due to a government order.
The hardest way, sorry again IMHO, is to use the recovery startup business route. That route works. But you need to start a new trade or business after 2/15/2020, need the organization to have average annual gross receipts over previous three years of not more than $1M, and need to have the new trade or business fully "going concern" by the quarter for which you claim ERC.
The other semi-awkward issue here. The recovery startup business guidance (appears in I
RS Notice 2021-49) says the thing you start needs to rise to the level of a Section 162 trade or business. That's sort of a wispy concept to grab ahold of. But basically it means you're motivated by profits and then engaging in the activity with regularity and continuity. So three key concepts there: profit-motivated, regularity and continuity.
And so now--and sorry for the long ramble--when you circle back to your church, or my church, or other readers' houses of worship or nonprofits, they probably aren't "profit motivated"... that's probably not critical. The statute (sections 2301(c)(2)(A)(i)) itself says the trade or business requirement doesn't apply to tax-exempt organizations. IRS says in its guidance that tax-exempts are considered just as a matter of law to be conducting trades or businesses. But it's all a little awkward.
And then you still have the regularity and continuity requirements.
So I guess what I think is, you can get the recovery startup business thing to work. But it's not a great way for something like a church to get ERCs. Further, because you're going to be weaker at least optically because of the lack of profit motive, I would think you'd want to be really robust on the regularity and continuity thing.
You'd also want to make sure the new thing wasn't an expansion of the existing "business". And keep separate or separable books and records.