FAIRFIELD, Conn. – While the IRS allows corporate foundations to make grants directly to individuals in need within their target communities, it typically does not permit them to assist employees of their sponsoring companies. However, as President Trump declared coronavirus a national emergency, corporate foundations can now provide disaster relief to those employees, reports Foundation Source, the nation’s largest provider of support services to private foundations.
Although self-dealing regulations typically prohibit corporate foundations from granting directly to employees of their sponsoring companies, they are permitted to do so in the case of a “qualified” disaster, one that is federally declared by the president, resulting from certain terrorist or military actions, an accident involving a common carrier, or any other event that the secretary of the treasury has defined as catastrophic.
“Now more than ever, foundations can make a critical difference,” said Page Snow, chief philanthropic officer of Foundation Source. “As the coronavirus pandemic forces many companies to furlough workers and reduce business hours, corporate foundations can use tax-advantaged dollars to take care of their own.”
Under the qualified disaster exception, emergency grants can be made by corporate foundations to the employees of sponsoring companies without pre-approval from the IRS. However, to prevent self-dealing and other types of misuse,company foundations must adhere to certain applicable requirements, including the following:
- Grant recipients must be selected on an objective determination of need.
- The class of beneficiaries must be large or indefinite (this is referred to as the “charitable class”). As such, corporate foundations typically adopt a program intended to assist victims of a current and any future disasters to ensure that the class is indefinite.
- The foundation must establish an independent selection committee to ensure that any benefit to the sponsoring company is only incidental and tenuous.
- A majority of the individuals on the foundation’s selection committee must consist of persons who are not in a position to exercise substantial influence over the affairs of the employer.
- Disaster relief grants may not be made to members of the selection committee.
- IRS self-dealing rules prohibit the foundation from making relief grants to recipients who are insiders, “disqualified persons,” with respect to the foundation. Disqualified persons include officers, directors and trustees, substantial contributors, owners of more than 20% of an entity that is a substantial contributor, and certain family members of all such individuals. Additionally, under certain conditions, corporations, partnerships, and other types of entities can be disqualified persons.
- Employee disaster relief cannot substitute for a benefit that the employer is required to or has committed to provide to employees. Therefore, if the sponsoring company already has a disaster relief program, the corporate foundation is prohibited from stepping in and taking over this obligation.
Provided all IRS requirements are met, employee disaster relief assistance should not result in taxable compensation to employees and will be treated as a charitable distribution by the granting foundation, which counts toward its 5% payout requirement.
Foundation Source has a streamlined process and specialized applications for its corporate foundation clients that ensure IRS compliance when making these grants. For more information about establishing a corporate foundation or making the best possible use of an existing one, visit www.foundationsource.com.
About Foundation Source (www.foundationsource.com)
Foundation Source is the nation’s largest provider of comprehensive support services for private foundations. Our complete outsourced solution includes foundation creation (as needed), administrative support, active compliance monitoring, philanthropic advisory, tax and legal expertise, and online foundation management tools.
Approaching our third decade, Foundation Source provides its services to more than 1,650 family, corporate, and professionally staffed foundations, of all sizes, nationwide. We work in partnership with wealth management firms, law firms, accounting firms, and family offices as well as directly with individuals and families. Foundation Source is headquartered in Fairfield, Connecticut.