Many private and corporate foundations and giving programs are grappling with how to quickly respond to those most in need in their community as the Coronavirus pandemic spreads globally. This often means funding in new and different ways, including possibly making grants to individuals. Many corporate grantmakers are looking for ways to set up employee assistance funds to provide direct financial support to corporate employees who are most adversely affected. Private foundations may contemplate adjusting their approach to directly respond to critical needs that emerge from this crisis.
Community foundations can be a great option for deploying charitable funds to individuals in need during a crisis like the one currently unfolding. Given that they are organized as public charities rather than private foundations they have broader latitude to give this way.
Considerations for Private and Corporate Foundations & Giving Programs
Many corporations have established private foundations for corporate giving, with corporate employees among the many contemplated beneficiaries of these programs. Disaster relief and emergency hardship programs have been scrutinized by the IRS as potential acts of self-dealing. Specifically, the concern is whether aid is being provided in a benevolent and disinterested fashion or if it is to assist in recruiting and retaining a stable work force that serves a private, non-charitable goal of the related company.
As such, private foundations are restricted to making hardship and emergency assistance only to employees and their dependents affected by qualified disasters as defined in IRC § 139. A “qualified disaster” includes:
- A Federally declared disaster;
- A disaster which results from an accident involving a common carrier or any other event determined by the Secretary of the Treasury to be catastrophic; or
- A disaster which is determined by an applicable federal, state, or local authority to warrant government assistance.
Community foundations are not subject to these same requirements.
Considerations for Community Foundations and Public Charities
Many community foundations have been involved in disaster relief in the past and therefore have experience disbursing funds to individuals. For instance, the Dayton Foundation established a tragedy fund in the wake of the Dayton Oregon District shooting in 2019.
Foundations that have engaged in disaster or hardship related grantmaking to individuals in the past can likely redeploy the procedures established previously.
For those making grants to individuals for the first time, the foundation may need to implement new procedures around evaluation and recordkeeping for such grants.
In general, however, disaster and hardship relief grants to individuals must adhere to the same requirements as any other grants to individuals; namely,
- There must be a sufficiently large or indefinite class of eligible recipients, and
- Selection must be made on an objective and nondiscriminatory basis.
A hardship fund that is open to any member of the community is clearly large and indefinite enough to constitute a charitable class. When dealing with funds established for the benefit of a particular group (e.g., employees of a specific company), the fund must be open ended to include future employees – it cannot be limited to just current employees suffering hardship due to the current pandemic.
Evaluation of applicants must be based on an objective determination of neediness. A person is not necessarily financially needy simply because they have suffered a loss of employment or additional unforeseen expenses as a result of the crisis. An evaluation must consider all financial resources available to the individual, including savings and other income streams. At the same time, a person need not be completely destitute. They must merely lack the resources to buy basic necessities.
As far as record keeping, when making payments directly to individuals (as opposed to paying vendors for expenses on their behalf), foundations will want to ensure they get copies of receipts to document how the funds were spent. Alternatively, payments may be made to vendors for goods and services to aid recipients (i.e., the electric company, a hospital or pharmacy) after bills and invoices are submitted.