Trade Associations, COVID-19 and the CARES Act

Summary of Keypoints

• Trade associations have been significantly impacted by COVID-19, despite limited public discussion, even as these organizations play a critical role in providing advocacy, information, training, and crisis support to their members.
• The CARES Act excluded trade and professional associations from Paycheck Protection Program (PPP) funding, leaving them with access only to the employee retention tax credit and SBA Economic Injury Disaster Loans (EIDL).
• The CARES Act temporarily restored Net Operating Loss (NOL) carrybacks, allowing losses from tax years 2018–2020 to be applied to the prior five tax years, reversing restrictions imposed by the 2017 Tax Cuts and Jobs Act.
• NOL carrybacks enable trade associations to amend prior tax returns and claim refunds, providing faster access to cash intended to support operations and employment during the pandemic.
• While the relief does not fully offset financial strain, the CARES Act provisions offer meaningful tax-based assistance to struggling trade associations facing COVID-19-related losses.

We know there isn’t any industry unaffected by COVID-19.  That said, there’s been little discussion of the impact of the pandemic on trade associations. 

Trade associations are known for their role in providing information, support, advocacy, and training to industry members and to the professionals employed in those industries. They provide important information and resources, particularly in times of crisis. 

Trade Associations, the CARES Act and PPP

While the CARES Act provided significant funds through its Paycheck Protection Program (PPP) to most businesses, these funds were not available to trade and professional  associations. 

This position was, unsurprisingly, wildly unpopular amongst trade association executives. Because the CARES Act specifically excludes trade and professional associations from the benefits of PPP, associations have access to only two sources of aid: the employee retention tax credit, and Economic Injury Disaster Loans (EIDL) through SBA. 

The CARES Act did, however, make Net Operating Loss carry-back’s allowable for tax years 2018 – 2020. For those associations having experienced losses, an amended tax return may be filed to immediately  claim refunds by applying the losses to prior years.  

A carryback of losses occurs when an association experiences a loss and chooses to apply the loss to a prior year’s tax return by amending the prior year return. With the passage of the Tax Cuts and Jobs Act (TCJA) in 2017, carrybacks of net operating losses were disallowed. 

How the CARES Act Helps Trade Associations

The passage of the CARES Act loosens the restriction around carry-backs and allows any net operating loss occurring in tax years 2018 through 2020 to be carried back to each of the five taxable years before the loss year. The intention of the change was to provide access tax refunds, accelerating the return of cash to businesses to support employment and operations. 

The relief is welcome and while it does not put Associations back into the more favorable tax position enjoyed prior to the Tax Cut and Jobs Act, it does provide some relief for struggling trade associations.

To find out more about how COVID-19 and the CARES Act has affected Trade Associations fill out the form below to grab your free book.