Employer benevolent fund administration.

• Author: Sweeney, James P.

Since the Sept. 11, 2001 terrorist attacks and the passage of Sec. 139, the interest in employer benevolent funds, used to assist employees who are victims of natural disasters, national emergencies, financial hardship or family crisis, has proliferated. Because the funds are responsible for adhering to their organizational and operational intentions (which is the basis for their tax-exempt status), a major concern with administering them is determining whether employees requesting assistance qualify.

Sec. 139 Overview

The Victims of Terrorism Tax Relief Act of 2001, Section 111, enacted Sec. 139, disaster relief payments, which provides for reimbursements of reasonable and necessary personal, family, living or funeral expenses resulting from a qualifying disaster. It also provides for expenses to repair or rehabilitate a personal residence, or to repair or replace its contents, to the extent that the need for such is attributed to the qualifying disaster, or just to promote general welfare.

Under Sec. 139(c), a qualifying disaster is (1) a disaster that results from terrorism or military action, (2) a Presidentially declared disaster, (3) a disaster resulting from an accident involving a common carrier or from any other event determined by the IRS to be catastrophic or (4) a disaster determined by an applicable Federal, state or local government (or agency or instrumentality thereof).

Sec. 139's legislative history indicates that Congress did not intend for taxpayers to have to account for their losses to qualify for relief under Sec. 139.

What Do Payments Cover?

For qualifying victims of natural disasters or national emergencies, a benevolent fund can replace basic needs, such as food, clothing, housing (including household repairs), transportation and medical assistance (including psychological help). The fund's intent is not to make a person whole, as that would result in a prohibited private benefit.

Just because an individual applies for financial relief does not necessarily mean that he or she will or should receive it. A fund's board or disbursing trustees use several criteria in determining whether an applicant qualifies, such as whether the applicant could reasonably obtain and repay a commercial loan for relief (including any other loan assistance programs available through the employer). They also look at whether an applicant's financial resources are inadequate or unavailable to meet his or her current needs. Most importantly...