The Law of Tax-Exempt Organizations, 2021 Cumulative Supplement. Bruce R. Hopkins

CHAPTER SEVEN Charitable Organizations

§ 7.2 RELIEF OF DISTRESSED

      (b) Disaster Relief Programs

       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

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