The Tax Law of Charitable Giving. Bruce R. Hopkins

by which the purchaser secures immediate possession and exercises all the rights of ownership.”²²⁸ Having written that, the court noted that there can be a delay in the delivery of the deed and that payment of the purchase price may be deferred by installment payments. Ownership of property, observed the court, amounts to a “bundle of rights with respect to the property.”²²⁹

In the case, the court sided with the donors. It concluded that the “bundle of rights that the [charity] received is essentially the same bundle of rights that would have been received had the church obtained legal title to the property and granted a mortgage back” to the donors.²³⁰ The gift was determined to have been made in 1994, not 1997.

The other situation concerned contributions to a donor-advised fund maintained by a charitable organization on its website.²³¹ Donors are informed that contributions to the donor-advised fund are unconditional and irrevocable. They must affirmatively acknowledge that fact by clicking on a specific field. They are told that ultimate discretion over transfers out of the donor-advised fund lies with the organization. Recommendations from a donor may be followed only after the organization conducts the appropriate due diligence. The organization's policy is to follow the donor's advice, as long as the recommended recipient is a public charity and is prepared to accept the gift. Distributions are not to be made to individuals, private foundations, or other donor-advised funds.

This organization qualifies as a publicly supported charity.²³² The question in this instance was whether transfers to the donor-advised fund constitute the requisite support as contributions. The IRS, in answering this question, looked to the regulations concerning the termination of private foundation status. There it is stated that, to effectuate a transfer of “all its right, title, and interest in and to all of its net assets,” a transferor foundation may not impose any material restriction or condition that prevents the transferee organization from freely and effectively employing the transferred assets, or income from them, in furtherance of exempt purposes.²³³

The IRS wrote that the core issue is whether an organization exercises “dominion and control” over the asset so as to be considered its owner. Though the IRS did not say so, the issue was whether donors' ability to make these recommendations, and the organization's policy of generally following these recommendations, amounted to a material restriction or condition. Without discussion, the IRS ruled that contributions made to this organization, destined for the donor-advised fund, constitute support from the public.²³⁴

(l) Employee Hardship Programs

Formal law as to employee financial assistance and other hardship programs, involving charitable giving and charitable organizations, is close to nonexistent. A provision of the Internal Revenue Code defines a qualified disaster as a disaster that results from a terrorist or military action, a presidentially declared disaster, an accident involving a common carrier, and any other event that the IRS determines is catastrophic.²³⁵ Otherwise, there is no statute, regulation, or court decision on the point. This aspect of the law is currently relegated to an IRS booklet, containing guidance recognizing that exempt charitable organizations can serve disaster victims and those facing emergency hardship needs by providing assistance to individuals and businesses,²³⁶ and a smattering of private letter rulings.

      General Guidance. In this booklet, the IRS observes that these charitable organizations must demonstrate that they serve a public rather than a private interest and assist a charitable class. The agency acknowledges that, in the past, employer-sponsored organizations were considered by it to “enhance employee recruitment and retention, resulting in private benefit to sponsoring employers,” and there were “concerns that employers could exercise undue influence over the selection of recipients.” It recognizes, however, that after the September 11, 2001, attacks, “Congress took the position that employer-sponsored private foundations should be able to provide assistance to employees in certain situations.”

According to this publication, charitable organizations may provide assistance to individuals in this regard in the form of funds, services, or goods to ensure that victims have the basic necessities, such as food, clothing, housing (including repairs), transportation, and medical assistance (including psychological counseling). The type of aid that is appropriate is dependent on each individual's needs and resources. The assistance may be for the short term, such as food, clothing, and shelter, but not for the long term if an individual has adequate financial resources. The publication states that individuals who are “financially needy or otherwise distressed are appropriate recipients of charity.” Examples given are of individuals who are temporarily in need of food or shelter when stranded, injured, or lost because of a disaster; temporarily unable to be self-sufficient as a result of a sudden and severe personal or family crisis, such as victims of violent crimes or physical abuse; in need of long-term assistance with housing, child care, or educational expenses because of a disaster; and in need of counseling because of trauma experienced as a result of a disaster or a violent crime.²³⁷

Disaster assistance may be provided to businesses to achieve these charitable purposes: aid individual business owners who are financially needy or otherwise distressed, combat community deterioration,²³⁸ and lessen the burdens of government.²³⁹ A tax-exempt charitable organization can accomplish a charitable purpose by providing disaster assistance to a business if the assistance is a “reasonable means” of accomplishing a charitable purpose and any “benefit to a private interest” is incidental to the accomplishment of a charitable purpose.

      The IRS guidelines invoke a needy or distressed test. They state that, generally, a disaster relief or emergency hardship organization must make a “specific assessment” that a potential recipient of aid is financially or otherwise in need. Individuals do not have to be “totally destitute” to be financially needy, the IRS stated, “they may merely lack the resources to obtain basic necessities.” Yet, the IRS continued, “charitable funds cannot be distributed to individuals merely because they are victims of a disaster.” Therefore, a charitable organization's decision about how its funds will be distributed must be based on an objective evaluation of the victims' needs at the time the grant is made.

      These guidelines state that a charity may provide crisis counseling, rescue services, or emergency aid (such as blankets or hot meals) in the immediate aftermath of a disaster without a showing of financial need. That is, provision of these services to the distressed “in the immediate aftermath of a disaster serves a charitable purpose regardless of the financial condition of the recipients.” However, the IRS guidelines state that, “as time goes on and people are able to call upon their individual resources, it may become increasingly appropriate for charities to conduct individual financial needs assessments.” Said the IRS: “While those who may not have the resources to meet basic living needs may be entitled to such assistance, those who do not need continued assistance should not use charitable resources.”

      The IRS states that an individual who is eligible for assistance because the individual is a victim of a disaster or emergency hardship has “no automatic right” to a charity's funds. For example, a charitable organization that provides disaster or emergency hardship relief does not have to make an individual whole, such as by rebuilding