Many employers and for profit companies are willing and able to provide financial assistance and services to those who have been harmed or dislocated by hurricane Ian.
The Federal Tax Code and IRS Regulations and IRS Guidance provide ways to make these payments tax deductible without the recipients having to pay income tax on what is received.
This was covered in my blog post of Saturday, October 1st with reference to direct or indirect payments by an employer to or for the benefit of one or more individuals.
One question on the deductibility of such payments is whether they are considered to be reasonable and necessary in the ordinary course of the employer’s business.
It is possible that an IRS auditor would conclude that these payments are really more in the order of gifts that would not be tax deductible, unless they can qualify as a charitable contribution.
In order to receive a deduction for a charitable contribution, a person or business must make the contribution to an Internal Revenue Code Section 501(c)(3) charity, which may be a public charity, or a private charity.
Many individuals and businesses would like to benefit one or more particular people who have been harmed financially or otherwise in a national disaster, and a recent IRS pronouncement confirms that this can be done, as long as the contribution is to a qualified 501(c)(3) organization, and general rules are followed to make it clear that the organization has no legal obligation to spend the funds on any one or more designated people, and is managed for the benefit of an indefinite number of individuals or a large number of individuals, with independent directors, trustees or managers having all decision-making rights, which are to be exercised in a reasonable and responsible manner.
From a practical standpoint, this means that it should be safe for an employer to establish a 501(c)(3) organization, or to donate to a 501(c)(3) organization that uses a significant amount of the donations it receives for individuals who the donor/employer requests be benefitted if the rules are followed.
A 501(c)(3) organization can be established very quickly and inexpensively, and does not need to receive approval from the IRS before accepting tax deductible donations and expending them for charitable purposes.
The above is an over-simplification of pages of rules that I will be discussing in a live Webinar that will also be recorded and made available to readers on Wednesday after the presentation. You can register for the live Webinar and replay access by emailing info@gassmanpa.com.
Charity law specialist Karl Mill had this to say about companies helping key employees in a tax efficient manner:
Even for companies that may not be motivated by the charitable contribution deduction themselves, establishing these funds can be very helpful for pooling contributions from key employees who want to support their impacted coworkers and their family members. Using a company affiliated foundation, or a company affiliated fund at an existing charity, can allow companies to offer their employees a vehicle for them to give those funds effectively and receive a charitable contribution deduction.
A link to an IRS publication that does a pretty good job of explaining these rules and others is HERE.
I also welcome your questions, as well, at agassman@gassmanpa.com.
I hope this can help you to help others in a tax efficient manner.