August 30, 2017
A core legal concept for disaster and hardship relief funds is likely the charitable class requirement. The Internal Revenue Service states that “[a] charitable organization or trust must be set up for the benefit on indefinite class of individuals, not for specific persons” (emphasis added). This requirement means that organization-sponsored relief funds, like all charities, cannot personally designate beneficiaries.
Defining the charitable class is therefore of vital importance, and that definition of course leads directly to the question of eligibility. Not only should the group eligible for a grant be indefinite, there must also be “an objective determination of need” – taken together, the two requirements mean the test must be one that impartially determines whether applicants qualify.
Since the charitable class must be indefinite, disaster and hardship relief funds should be careful to avoid the appearance of serving a private interest when deciding who is eligible for a grant. The IRS states “it is necessary for an organization to establish that it is not organized or operated for the benefit
of private interests.” Organization-sponsored relief funds serve a private interest if they are impermissibly serving the related organization. Also note that the charitable class must be “open-ended,” which for relief funds includes future team members.
Impermissible service to the organization means a benefit to the organization from the operation of the fund. Eligibility assessment procedures must limit benefits to the fund sponsor. Specifically, the concern is that the organization-sponsored program will improve hiring and retention. This is where waiting periods for eligibility to apply cause a problem. A waiting period, on its face, limits the charitable class to all team members who have been with the company for a certain period and are in need.