ecent events and legislation have sparked tremendous interest in employer benevolent funds, which help employees who are victims of natural disasters, national emergencies, financial hardships or family crises. Because the funds must adhere to strict rules to maintain tax-exempt status, their major concern is determining whether workers requesting aid qualify. CPAs should become familiar with such rules.
Under IRC section 139(c), a “qualifying disaster” (1) is presidentially declared; (2) results from terrorism, military action or an accident with a common carrier or from any other event the IRS determines to be catastrophic; or (3) is determined by an applicable federal, state or local government.
QUALIFYING FOR PAYMENTS
A fund’s board or disbursing trustees use several criteria in determining whether an applicant qualifies for financial relief. Most importantly, the board must keep records to substantiate need and require individuals receiving assistance to have an adequate supporting case.
State aid is not an IRC section 102 gift, but is excludible from income under section 139’s general welfare exclusion rule.
Charitable organization aid is excluded from income under section 102. Because these payments are received by a nongovernmental entity, the general welfare exclusion does not apply.
Employer aid is excludible under section 139; it is not a section 102 gift.
For more information see the Tax Clinic, edited by Anthony Bakale, in the August 2003 issue of The Tax Adviser.
—Lesli Laffie, editor