Question: May a private company foundation support the volunteer activities of the sponsoring corporation's employees?
Answer: Company foundations sometimes play a role in coordinating volunteer activities of the sponsoring corporation's employees. The IRS has approved company foundations' involvement in these activities. However, a foundation must ensure that it does not make any payments in connection with the volunteer programs that will provide more than incidental or tenuous benefit to the corporation.
Many companies provide volunteer opportunities for their employees to build morale, employee loyalty and to strengthen relationships with communities. Although the company will have to bear the expenses associated with promoting employee volunteerism, there are ways that a company foundation can be involved in supporting these programs.
Basic rules. The self-dealing rules prohibit a company foundation from using its income or assets in ways that provide economic benefit to its sponsoring company or executives of the company (designated as disqualified persons by the Tax Code). There is no de minimus exception to this rule, but there is an exception if the foundation provides goods and services to the company and employees on the same terms as it makes them available to the general public. The foundation's use of its income or assets may provide incidental or tenuous benefits to the company that will not be considered self-dealing. Incidental or tenuous benefits are intangible benefits such as public recognition and goodwill or increased satisfaction and morale derived by company employees.
Some corporations create public foundations (recognized by the IRS as public charities) rather than private company foundations. Although the strict self-dealing rules do not apply to public charities, a public company foundation should generally observe the spirit, if not the strict letter, of the self-dealing rules. Whether a company foundation is organized as a private foundation or a public charity, the foundation should always be mindful that it is serving charitable, rather than private, interests.
The IRS has not provided any general guidance on what a company foundation can do to support a corporation's volunteer programs. The IRS has issued only a few private letter rulings that respond to specific requests for approval from individual foundations engaging in these types of activities. Although these rulings can help illuminate how the IRS interprets the law, they are limited to the specific facts submitted to the Service. By law, other taxpayers cannot rely on these private letter rulings to defend their actions.
Permissible activities. The basic legal rules and interpretations from the IRS suggest that a company foundation may support a number of activities:
- Coordinate volunteer activities for company employees or organize programs in which employees can also participate. For example, the foundation can organize or sponsor a mentoring program, cause-based walks or marathons and blood-drives (the foundation could arrange to have the Red Cross come to the corporation's offices).
- Under some circumstances, pay the salary and benefits of an individual who coordinates company employee volunteer activities.
- Provide administrative support for fundraising appeals for charities that are supported through the volunteer program.
- Make grants to charities that are supported by a corporation's volunteer programs. The grants can be used to purchase equipment or material or to sponsor specific programs related to the volunteer activities.
- Support a company's employee award program by making a grant to a charity chosen by an employee who has been recognized for his or her volunteer activities.
Activities that may result in self-dealing. The basic legal rules and interpretations from the IRS suggest that a company foundation may not:
- Reimburse the company for wages of company employees who miss work to perform volunteer activities.
- Provide special benefits to employees who participate in volunteer programs. A company foundation should not pay out-of-pocket expenses incurred by company employees when they undertake volunteer activities (e.g., travel expenses to a volunteer site) or pay any fees or expenses incurred by company employees when they participate in walks or marathons. However, if these benefits are available to everyone participating in the activity (i.e., non-company employees), then employees may also receive these benefits on the same terms. Additionally, in general, there is nothing that would prevent a charity where employees volunteer from providing token items to the participants (e.g., t-shirts, tote bags, mugs).
- Provide cash awards to an employee who has been recognized for his or her volunteer activities or cover the expenses of a luncheon with the company CEO.
Making grants to a charity to coordinate a company's volunteer activities. Some charities have been created to assist organizations find and coordinate volunteer opportunities for their employees. For example, they help match employees with volunteer opportunities. A foundation can make grants to support these types of activities as long as they do not provide any economic benefit to its sponsoring company.
Bottom-line: A company foundation has broad opportunities to support a corporation's employee volunteerism programs. However, the foundation should tread carefully because the IRS has provided only limited guidance on what is permissible. If a foundation has doubts about what support it can provide, even after consulting legal counsel, it is important to remember that a corporation can always incur all the expenses associated with promoting employee volunteerism, even when a company foundation may not legally do so.