More Federal Disaster Declarations (Including for Illinois): What it Means for Charitable Relief Funds
Tax-Exempt Organizations Alert 03/30/20 Norah L. Jones, Jodi P. Patt, Amanda K. Blaising, Corbin J. Morris, Patricia S. Marx
In response to the rapid and ongoing impact of the novel Coronavirus Disease 2019 (“COVID-19”), we recently shared information regarding employer-sponsored disaster relief programs operated by tax-exempt organizations. In that publication, available here, we identified the basic requirements that any employer-sponsored disaster relief program must satisfy. We also explained that employer-sponsored public charities may provide relief to employees for any disaster or emergency hardship so long as the basic disaster relief program requirements are met, while employer-sponsored private foundations and employer-sponsored donor advised funds are permitted to provide relief to employees of the related employer only in connection with a “qualified disaster” under Section 139 of the Internal Revenue Code.
“Qualified disasters” under Code Section 139 include, among others, (a) disasters determined by the President to warrant federal government assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the “Stafford Act”) and (b) disasters resulting from any events determined by the Secretary of the Treasury to be catastrophic (each, a “Qualified Disaster”).
At the time of our prior update, President Trump had approved COVID-19 major disaster declarations under the Stafford Act for the states of New York, California, and Washington (each a “Qualified Disaster Area”).
In the days that have followed, the President has approved major disaster declarations for Illinois as well as a number of other jurisdictions, including, as of the date of publication of this update, Iowa, Louisiana, Texas, Florida, North Carolina, New Jersey, Maryland, Missouri, South Carolina, Puerto Rico, Guam, Massachusetts, Michigan, Kentucky, Colorado, Oregon, Connecticut, Georgia, the District of Columbia, Alabama, and Kansas. Additional major disaster declarations likely will follow.
Approval of the COVID-19 major disaster declaration for Illinois means federal emergency aid has been made available for the state to supplement the state, tribal, and local recovery efforts, including for crisis counseling for affected individuals across Illinois. Federal funding also is made available to state, tribal, and eligible local governments and certain nonprofit organizations on a cost-sharing basis for certain emergency protective measures, including direct federal assistance under Public Assistance, for all areas affected by COVID-19 at federal cost share of 75 percent.
Approval of a major disaster declaration for Illinois also means that Illinois, along with the other jurisdictions identified above, now is considered a Qualified Disaster Area for purposes of Code Section 139. This means employer-sponsored private foundations now may provide assistance to Illinois employees or their family members affected by COVID-19, so long as the basic disaster relief program requirements are satisfied (so as to ensure that the assistance is serving charitable purposes rather than the business purposes of the employer) and so long as the payments do not otherwise constitute self-dealing (e.g., no payments to individuals who are directors or officers of the private foundation or members of the private foundation’s selection committee). Moreover, employer-sponsored donor advised funds now may be established to make grants to Illinois employees and their family members affected by COVID-19 provided that the sponsoring organization complies with the requirements and restrictions set forth in IRS Publication 3833.
Finally, because Illinois now is considered a Qualified Disaster Area for purposes of Code Section 139, “qualified disaster relief payments”, as defined therein, from any source, including employers, reimbursing or paying individuals’ specified expenses in connection with the Qualified Disaster in Illinois are not taxable as income and are not subject to employment taxes or withholding. “Qualified disaster relief payments” within the meaning of Code Section 139 include payments for the following expenses, regardless of the source:
- reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster;
- reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence (whether rented or owned) due to a qualified disaster; and
- reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a qualified disaster.
“Qualified disaster relief payments” do not include payments for expenses paid for by insurance or other reimbursements, or income replacement payments, such as payments of lost wages, lost business income, or unemployment compensation.
At this time, it still is not clear whether COVID-19 is a “Qualified Disaster” for purposes of Code Section 139 other than in the Qualified Disaster Areas.
Officials at all levels of government are reacting to the COVID-19 situation as it unfolds. We remain hopeful that further guidance will be issued that address these (and other) issues for the nonprofit sector, and we will continue to provide updates as appropriate. Additionally, please check here or with your Quarles & Brady attorney for any future developments or guidance from the IRS or anticipated federal COVID-19 stimulus package and its effect on your business.
This update is intended as a general summary of legal matters and not as specific advice to any particular client. If you have any questions concerning the subject matter of this update, please contact your Quarles & Brady attorney or: