Читать книгу The Law of Tax-Exempt Organizations, 2021 Cumulative Supplement - Bruce Hopkins R., Bruce R. Hopkins, David Middlebrook - Страница 19

p. 143, note 37. Delete 20.12 and insert 20.13.

p. 143, note 42. Delete text and insert:

Victims of Terrorism Tax Relief Act of 2001, Pub. L. No. 107‐134, 107th Cong., 1st Sess. (2001), enacting (§ 111(a)), inter alia, an exclusion from gross income for qualified disaster relief payments (IRC § 139(a)). The President, on March 13, 2020, declared the COVID‐19 pandemic a national emergency under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, thereby triggering application of the federal tax disaster relief law, enabling employers to provide financial assistance to employees and their family members by means of charitable organizations.

pp. 143 and 144. Delete last paragraph on p. 143, carryover paragraph on p. 144, and two complete paragraphs on page 144, including footnotes, and insert:

The IRS returned to this matter of disaster relief programs provided by tax‐exempt charitable organizations by means of a publication issued in 2005 and revised in 2014.⁴⁴ This guidance recognizes that exempt charitable organizations can serve disaster victims and those facing emergency hardship needs by providing assistance to individuals and businesses.

(i) General Guidance. At the outset, 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 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, childcare, 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.⁴⁵

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,⁴⁶ and lessen the burdens of government.⁴⁷ 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 more detailed records.

The IRS guidance differentiates among employer‐sponsored programs utilizing public charities, donor‐advised funds, and private foundations.

(ii) Public Charities. This guidance states that, “[b]ecause public charities typically receive broad financial support from the general public,” their operations are generally more transparent and are subject to greater public scrutiny.”⁴⁸ Accordingly, the IRS states, public charities may provide a “broader range of assistance” to employees than can be provided by donor‐advised funds or private foundations. The IRS writes that an employer can establish an employer‐sponsored public charity to provide assistance programs to respond to any type of disaster or employee emergency hardship situations, as long as the employer involved does not exercise “excessive control” over the charitable organization. Generally, the IRS observes, employees contribute to the public charity, and rank and file employees constitute a “significant portion” of the organization's governing board.

The IRS states that “[t]o ensure the program is not impermissibly serving the related employer,” these requirements must be met: (1) the class of beneficiaries must constitute a charitable class, (2) the recipients must be selected on the basis of an “objective determination of need,” and (3) the recipients must be selected by an independent selection committee or adequate substitute procedures must be in place to ensure that any benefit to the employer is incidental and tenuous. As to this third requirement, the charity's selection committee is independent if a majority of its members consists of persons who are not in a position to exercise substantial influence over the affairs of the employer.

If these requirements are met, the public charity's payments to the employer‐sponsor's employees and their family members in response to a disaster or emergency hardship are presumed to be made for charitable purposes and not to result in taxable compensation to the employees.

(iii) Donor‐Advised Funds. As to donor‐advised funds,⁴⁹ the IRS observes that, in general, grants cannot be made from the funds to individuals.⁵⁰ The agency notes, however, its recognition of an exception for certain employer‐related funds established to benefit employees and their family members who are victims of a qualified disaster.^50.1

Specifically, a donor‐advised fund can make grants to employees and their family members where (1) the fund serves the single identified purpose of providing relief from one or more qualified disasters; (2) the fund serves a charitable class; (3) recipients of grants are selected on the basis of an objective determination of need; (4) the selection of recipients of grants is made using either an independent selection committee or adequate substitute procedures to ensure that any benefit to the employer is incidental and tenuous;^50.2 (5) no payment is made from the fund to or for the benefit of any trustee, director, or officer of the sponsoring organization, public charity, or members of the fund's selection committee; and (6) the fund maintains adequate records to demonstrate the recipients' need for the disaster assistance provided.

(iv) Private Foundations. Under current IRS policy, employer‐sponsored private foundations may provide financial assistance to employees or family members affected by a qualified disaster^50.3 as long as certain safeguards are in place to ensure that the assistance is serving charitable purposes, rather than the employer's business purposes.^50.4 Thus, the IRS will presume that payments in response to a qualified disaster made by a private foundation to employees or their family members of an employer that is a disqualified person with respect to the foundation are consistent with the foundation's charitable purposes if (1) the class of beneficiaries is “large or indefinite” (that is, is a charitable class), (2) the recipients are selected on the basis of an “objective determination of need,” and (3) the selection is made using either an independent selection committee or “adequate substitute procedures” so as to ensure that any benefit to the employer is incidental and tenuous.^50.5 A foundation's selection committee is independent if a majority of the members of the committee consists of persons who are not in a position to exercise substantial influence over the affairs of the employer.

If these requirements are met, the private foundation's payments in response to a qualified disaster are treated as made for charitable purposes. The payments do not result in acts of self‐dealing merely because the recipient is an employee, or family member of an employee, of the employer.^50.6 This presumption does not apply to payments that would otherwise constitute self‐dealing, such as payments made to or for the benefit of individuals who are trustees, directors, or officers of the private foundation.

In this publication, the IRS states that, even if a private foundation fails to meet all of the requirements of this presumption, “other procedures and standards may be considered to constitute adequate substitutes to ensure that any benefit to the employer is incidental and tenuous, where all the facts and circumstances are taken into account.” By contrast, even if a foundation satisfies the presumption, the IRS reserves the right to review the facts and circumstances to ensure that any benefit to the employer is merely incidental and tenuous. For example, a program “may not be used to induce employees to follow a course of action sought by the employer or designed to relieve the employer of a legal obligation for employee benefits.”

(v) Private Letter Rulings. The IRS has issued private letter rulings on this topic. In one of the first, the IRS ruled that a private foundation providing financial assistance to victims or families of victims of a natural disaster, violence, or terrorist acts of war; victims of discrimination, social injustice, or persecution; and artists was making qualifying distributions as long as the assistance was confined to “impoverished individuals with desperate financial needs.”^50.7

In another instance, an emergency assistance program was maintained by a system of health care institutions to provide grants and/or loans to current and former employees of the system and their families and those of system affiliates. Beneficiaries of the program were confined to individuals who were needy and suffered economic hardship due to accident, loss, or disaster; the pool of eligible grantees numbered approximately 5,000 individuals. A committee administered the program, which entailed an emergency assistance fund; there were a formal application process, objective criteria, committee review procedures, limits on allowable assistance, and elaborate recordkeeping practices. The IRS ruled that operation of this fund would not adversely affect the tax‐exempt status of the institutions in the system, holding that the class of eligible beneficiaries was “sufficiently large and open‐ended to constitute a charitable class,” observing that support for the fund would be derived only from employee contributions and gifts from the public.^50.8

The IRS ruled that a financial assistance program was not a charitable undertaking because a substantial portion of the charitable class to be aided consisted of employees of a related for‐profit corporation, thus causing unwarranted private benefit and self‐dealing involving the private foundation that would be conducting the program.^50.9