The novel coronavirus (COVID-19) outbreak has forced many businesses to significantly curtail operations or temporarily close doors. As a result, many individuals may find themselves out of work, and families across the country are struggling with the effects of a sudden, sharp downturn in the economy. On Friday, March 13, President Trump declared COVID-19 a national emergency, which provides a possible path for company-sponsored foundations to assist employees incurring economic hardship in connection with the coronavirus.
Many company foundations are classified as "private foundations" (i.e., foundations with a single major source of funding, usually the company itself). Typically, the "self-dealing" rules prohibit such company foundations from providing assistance to employees of the company sponsor, because such assistance confers a significant benefit on the company sponsor. However, as a result of the national emergency declaration, an exception to the self-dealing rules will now permit employer-sponsored private foundations to provide assistance to employees or family members that are affected by the coronavirus, subject to certain standards and requirements.
If a company foundation wishes to administer a program of employee hardship grants, the foundation must adopt safeguards to ensure that assistance serves charitable purposes, rather than the company's business purposes. For example, the foundation's disaster assistance program should not be used to relieve the company of a legal obligation, such as an obligation under a collective bargaining agreement or written plan that provides insurance benefits. Furthermore, the company should not use the disaster assistance program to recruit employees to continue their employment, or to otherwise follow a course of action sought by the company. Rather, the program should operate pursuant to objective, non-discriminatory criteria that focus on providing assistance to those in need.
In addition, the foundation should keep adequate records to show that the disaster relief payments further the foundation's charitable purposes. For short-term assistance, such as assistance with a rent or mortgage payment, the foundation should maintain records showing the type of assistance provided, criteria for disbursing assistance, date, place, estimated number of persons assisted (individual names and addresses are not required), charitable purpose intended to be accomplished, and the cost of the aid. If the foundation provides longer-term assistance, it should make a needs assessment based on recipients' financial resources and their physical, mental, and emotional well-being.
If a company foundation has not previously administered an employee assistance or hardship program, this new line of activity should be submitted for approval by the foundation's board of directors. If it is not feasible to convene a meeting of the foundation's board, such approval can be obtained via unanimous written consent of the board members. Alternatively, if necessary, an executive committee of the board could provide initial approval, subject to later ratification of the entire board. The employee assistance or hardship program should be disclosed to the IRS when the foundation makes its annual 990 or 990-PF filing.
Even if a company does not sponsor a foundation, the company itself can make "qualified disaster relief payments" to employees affected by the coronavirus. With respect to the coronavirus outbreak, qualified disaster relief payments could include payments for reasonable and necessary personal, family, or living expenses incurred as a result of lost employment. Pursuant to Section 139 of the Internal Revenue Code, these forms of disaster assistance are not taxable as income to the recipients, and they are not subject to employment taxes or other forms of withholding. Furthermore, the company can claim a business deduction for such assistance provided to its employees.
Alternatively, the company may establish a donor advised fund (DAF) at a community foundation or other public charity to provide assistance to employees affected by the coronavirus. Ordinarily, DAFs are prohibited from making grants to individuals, but IRS guidance carves out an exception for employer-sponsored disaster relief funds. The charity sponsoring the DAF may receive contributions to the fund from both the company and the company's employees.