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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

§ 7.4 PROVISION OF HOUSING

       p. 149, note 97. Insert following existing text:

      The

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