Читать книгу The Tax Law of Charitable Giving - Bruce Hopkins R., Bruce R. Hopkins, David Middlebrook - Страница 36

Formal law as to employee financial assistance and other hardship programs, involving charitable giving and charitable organizations, is close to nonexistent. A provision of the Internal Revenue Code defines a qualified disaster as a disaster that results from a terrorist or military action, a presidentially declared disaster, an accident involving a common carrier, and any other event that the IRS determines is catastrophic.²³⁵ Otherwise, there is no statute, regulation, or court decision on the point. This aspect of the law is currently relegated to an IRS booklet, containing guidance recognizing that exempt charitable organizations can serve disaster victims and those facing emergency hardship needs by providing assistance to individuals and businesses,²³⁶ and a smattering of private letter rulings.

General Guidance. In this booklet, the IRS observes that these charitable organizations must demonstrate that they serve a public rather than a private interest and assist a charitable class. The agency acknowledges that, in the past, employer-sponsored organizations were considered by it to “enhance employee recruitment and retention, resulting in private benefit to sponsoring employers,” and there were “concerns that employers could exercise undue influence over the selection of recipients.” It recognizes, however, that after the September 11, 2001, attacks, “Congress took the position that employer-sponsored private foundations should be able to provide assistance to employees in certain situations.”

According to this publication, charitable organizations may provide assistance to individuals in this regard in the form of funds, services, or goods to ensure that victims have the basic necessities, such as food, clothing, housing (including repairs), transportation, and medical assistance (including psychological counseling). The type of aid that is appropriate is dependent on each individual's needs and resources. The assistance may be for the short term, such as food, clothing, and shelter, but not for the long term if an individual has adequate financial resources. The publication states that individuals who are “financially needy or otherwise distressed are appropriate recipients of charity.” Examples given are of individuals who are temporarily in need of food or shelter when stranded, injured, or lost because of a disaster; temporarily unable to be self-sufficient as a result of a sudden and severe personal or family crisis, such as victims of violent crimes or physical abuse; in need of long-term assistance with housing, child care, or educational expenses because of a disaster; and in need of counseling because of trauma experienced as a result of a disaster or a violent crime.²³⁷

Disaster assistance may be provided to businesses to achieve these charitable purposes: aid individual business owners who are financially needy or otherwise distressed, combat community deterioration,²³⁸ and lessen the burdens of government.²³⁹ A tax-exempt charitable organization can accomplish a charitable purpose by providing disaster assistance to a business if the assistance is a “reasonable means” of accomplishing a charitable purpose and any “benefit to a private interest” is incidental to the accomplishment of a charitable purpose.

The IRS guidelines invoke a needy or distressed test. They state that, generally, a disaster relief or emergency hardship organization must make a “specific assessment” that a potential recipient of aid is financially or otherwise in need. Individuals do not have to be “totally destitute” to be financially needy, the IRS stated, “they may merely lack the resources to obtain basic necessities.” Yet, the IRS continued, “charitable funds cannot be distributed to individuals merely because they are victims of a disaster.” Therefore, a charitable organization's decision about how its funds will be distributed must be based on an objective evaluation of the victims' needs at the time the grant is made.

These guidelines state that a charity may provide crisis counseling, rescue services, or emergency aid (such as blankets or hot meals) in the immediate aftermath of a disaster without a showing of financial need. That is, provision of these services to the distressed “in the immediate aftermath of a disaster serves a charitable purpose regardless of the financial condition of the recipients.” However, the IRS guidelines state that, “as time goes on and people are able to call upon their individual resources, it may become increasingly appropriate for charities to conduct individual financial needs assessments.” Said the IRS: “While those who may not have the resources to meet basic living needs may be entitled to such assistance, those who do not need continued assistance should not use charitable resources.”

The IRS states that an individual who is eligible for assistance because the individual is a victim of a disaster or emergency hardship has “no automatic right” to a charity's funds. For example, a charitable organization that provides disaster or emergency hardship relief does not have to make an individual whole, such as by rebuilding the individual's uninsured home destroyed by a flood or replacing an individual's income after the individual becomes unemployed as the result of a civil disturbance. This “issue,” the IRS writes, is “especially relevant when the volume of contributions received in response to appeals exceeds the immediate needs.” The IRS states that a charitable organization “is responsible for taking into account the charitable purposes for which it was formed, the public benefit of its activities, and the specific needs and resources of each victim when using its discretion to distribute its funds.”

The IRS guidelines address the matter of charitable organizations' documentation obligations. The rule is that a charitable organization in this context must maintain “adequate records” to show that the organization's payments further its charitable purposes and that the victims served are “needy or distressed.” Moreover, these charities are required to maintain “appropriate records” to show that they have made distributions to individuals after making “appropriate needs assessments” based on the recipients' financial resources and their physical, mental, and emotional well-being.

The IRS states that this documentation should include a complete description of the assistance provided; the costs associated with provision of the assistance; the purpose for which the aid was given; the charity's objective criteria for disbursement of assistance under each program; how the recipients were selected; the name and address of, and the amount distributed to, each recipient; any relationship between a recipient and directors, officers, and/or key employees of, or substantial contributors to, the charitable organization; and the composition of the selection committee approving the assistance.

With respect to short-term emergency aid, the IRS guidelines recognize that charities proving that type of assistance are only expected to maintain records showing the type of assistance provided; the criteria for disbursing assistance; the date, place, and estimated number of victims assisted; the charitable purpose intended to be accomplished; and the cost of the aid. By contrast, organizations that are distributing longer-term assistance are required to keep the more detailed records.

The IRS guidance differentiates among employer-sponsored programs utilizing public charities,²⁴⁰ donor-advised funds,²⁴¹ and private foundations.²⁴²

Charitable Giving Considerations. It is common for a for-profit corporation with a large number of employees to have or otherwise participate in a program, administered by a separate organization, by which the employees are provided financial assistance, in the form of gifts and/or loans, in times of temporary extreme hardship due to circumstances such as natural disasters. The IRS has struggled with the tax law aspects of this over the years, ruling on occasion that these organizations are tax-exempt charitable entities, with the private benefit to the employer incidental, and on other occasions that these entities cannot qualify for exemption because the private benefit to the employer is more than insubstantial. Also, if the separate organization is a private foundation,²⁴³ the IRS has on occasion taken the position that the provision of this type of assistance can amount to self-dealing and the making of taxable expenditures.²⁴⁴ Another issue is whether contributions to an organization administering this type of program, often made by the corporation's employees, are deductible as charitable gifts.

In one instance, the IRS ruled that contributions made to such an entity constituted deductible gifts.²⁴⁵ The employer was a large corporation engaged in retail sales worldwide, with many employees. The principal activity of a public charity, not controlled by the employer, was the making of gifts or loans to employees (and their dependents) of the corporation and its subsidiaries who were in demonstrated need. The IRS was of the view that the class of eligible recipients was sufficiently broad to constitute a charitable class.²⁴⁶ (About 5 percent of the employees held salaried management-level positions.) The assistance was provided in cases of “unexpected temporary extreme financial hardship.”

Selection of aid recipients was based on objective criteria and demonstration of need, and was made by an independent selection committee or under adequate substitute procedures. The charitable organization was expected to be principally funded by the corporation's employees; contributions could be made by means of an automatic payroll deduction system. The corporation did not reimburse or otherwise compensate its employees for contributions made to the charity, nor did it require the making of gifts or participation in the payroll deduction plan as a condition of employment. The corporation did not charge the charity for any of its services pursuant to the payroll plan. In this situation, the IRS was of the view that charitable purposes were primarily being furthered, that the benefit to the employer was no more than insubstantial, and that contributions to the charitable organization were, as noted, deductible gifts.²⁴⁷

In another instance, this type of a program was established by a public charity as a fund within it for the benefit of its employees who required emergency services because they had become financially needy or suffered economic hardship due to accident, loss, or disaster.²⁴⁸ Again, the IRS ruled that gifts to the fund qualified for the charitable contribution deduction.