Charities Established in Wake of September 11 Cautioned to Apply 'Financial Need' Test

Charities Established in Wake of September 11 Cautioned to Apply 'Financial Need' Test

Charities distributing a portion of the more than $1.3 billion raised for the families of victims of the September 11 terrorist attacks risk violating federal tax law if the recipients of the assistance are not in dire financial need, the New York Times reports.

Internal Revenue Service rules typically require that tax-exempt charities created to serve people in financial need must focus their efforts on people struggling to meet basic expenses. Although the IRS usually allows emergency funds to be distributed to all who may be affected in the "immediate aftermath" of a disaster, as it did after the Oklahoma City bombing, charities are subsequently required to direct financial assistance "to the persons most in need of it."

"An affected individual generally is not entitled to charitable funds without a showing of need," said Steven Miller, the director of the IRS division that oversees charitable organizations, at a Congressional hearing last week.

The guidance from the IRS poses a special problem for funds that have raised money for specific victims of the attack on the World Trade Center, including the families of police, fire, and emergency services personnel, because in many cases those families have already received tens of thousands of dollars in charitable assistance, pension payments, and death benefits. For example, the Twin Towers Fund established by New York Mayor Rudy Giuliani to help the families of uniformed personnel killed in the collapse of the World Trade Center towers did not obtain formal approval from the IRS before announcing last week that it would disburse $40 million to some 400 families by Thanksgiving.

"We think that what we're doing is within the law and appropriate," said Larry Levy, a deputy counsel to the mayor and the person responsible for overseeing the Fund. "These are not wealthy families." But Levy went on to say that after the first $40 million was handed out, future payments would be based on financial need in compliance with the law.

Several other charities that have raised money for the families of uniformed personnel, including the New York City Police and Fire Widows' and Children's Benefit Fund and the New York City Police Foundation, are waiting for clearer guidance from the IRS before they begin to distribute payments to the affected families.

But the IRS may not have the final say on the matter: Legislation has been introduced in Congress that would make September 11 charities exempt from the agency's regulations as long as funds raised for that purpose were distributed consistently and objectively.

Diana Henriques. "Victims' Funds May Violate U.S. Tax Law" New York Times 11/12/2001.