Assisting Corporate Employees with Charitable Dollars: A Legal Framework
Corporate grantmakers regularly serve the broader community through grantmaking, promoting employee volunteerism, and other activities. When may a corporate grantmaking entity focus its charitable efforts on assisting its own employees and their dependents?
The answer to this question depends on two variables: the type of corporate grantmaker offering assistance and the type of assistance offered. This article reviews the framework for determining what type of assistance is permitted and provides links to other more detailed resources on this topic.
Background
Assisting individuals with educational expenses and helping individuals obtain basic necessities such as food, clothing, shelter, and medical care are two common charitable objectives. However, the rules governing tax treatment of such assistance become stricter when the grantor is an employer and the grantees are employees or dependents of employees. Recognizing that employers have many noncharitable reasons for assisting employees, including employee recruitment and retention, Congress and the IRS have crafted laws and regulations that aim to distinguish noncharitable assistance from assistance that serves a charitable purpose while providing no more than an incidental benefit to the corporation.
Types of Corporate Grantmakers
The first factor to consider in distinguishing charitable from noncharitable assistance is the type of entity providing the assistance.
Direct corporate assistance entails grantmaking directly from the company to the employee. Such assistance is generally permissible, but not as a charitable expense, and it is also often considered income to the employee.
Private foundation assistance is involved when the company foundation is organized as a private foundation. Most company foundations are established as private foundations, since the vast majority of the contributions to the organization are from the corporation. Stricter rules apply when assistance is provided by a private foundation than when such assistance is provided by a public charity due to the heightened concern that a private foundation largely funded and controlled by a company would operate to provide an impermissible benefit to the corporation.
Public charity assistance arises when the company has established a public charity, which may be partially funded by the corporation but also receives contributions from employees, franchisees, or others. Some companies establish public charities, others establish funds at community foundations or other public charities to carry out some or all aspects of their corporate grantmaking. Because of the diversity in donors and the existence of more independence from the corporation than a company foundation, the tax code and regulations afford public charities more flexibility to assist employees than private foundations.
Types of Assistance to Employees and/or Their Dependents
The second factor to consider in determining whether assistance to employees is permissible and/or charitable is the type of assistance the grantmaker seeks to provide to employees or dependents of employees.
Scholarships, fellowships and educational loans are grants to assist individuals with expenses related to pursuing an education.
Disaster relief assistance is generally provided to individuals affected by an event that impacts more than just one individual or family (e.g., earthquake, wildfire). Such assistance may include grants or loans for securing basic necessities such as food, shelter, housing, transportation, and psychological or medical assistance. Tax code treatment of assistance to employees distinguishes between two types of disasters:
1. A qualified disaster is legislatively defined as a disaster which meets any one of the following four criteria:
- results from a terroristic or military action
- is a presidentially declared disaster
- results from an accident involving a common carrier
- results from any other event which is determined by the secretary of the Treasury to be of a catastrophic nature
Assistance in such cases could include reasonable and necessary personal, family, living, or funeral expenses and reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence and its contents.
2. Nonqualified disasters are all other disasters that do not meet any of the four criteria for qualified disasters.
Emergency hardship assistance is assistance provided in situations that generally affect one individual or family, such as a personal loss (e.g., fire, sudden death in the family) or extraordinary healthcare expenses that the individual is unable to pay without further financial hardship. As with disaster relief, when permitted, charitable assistance may help affected individuals obtain the basic necessities. The exact nature of the assistance will vary depending on the circumstances and the individual’s particular needs.
The Rules and Resources: Employee Assistance Framework
The Employee Assistance Rules and Resources chart outlines when assisting employees is permissible and a charitable activity. The chart does not provide details on the rules that must be followed for each type of assistance but it does provide direction to relevant resources on the topic.
