NCPA - National Center for Policy Analysis

Victims' Funds Could Run into Tax Snares

November 12, 2001

New York City's Twin Towers Fund has begun writing checks to the families of rescuers who died in that tragedy. But the payments may violate federal tax laws governing charities.

  • The Internal Revenue Service typically requires such tax-exempt charities to serve people who are in dire financial need.
  • Yet many of the families of the lost police officers and firefighters have already received tens of thousands of dollars in charity and all have considerable pension and death benefits.
  • If the charities do not give aid to families in whose names they raised the money, they break faith with their donors.
  • But if they simply make across-the-board payments to every family, regardless of financial need, they could lose their tax-exempt status and owe tens of millions of dollars in taxes, tax experts and charity officials say.

Although New York City officials hope the IRS will be flexible, there are as yet no signs to that effect. In Congressional testimony last week, a senior IRS official specifically warned charities against distributing money without first examining family circumstances to make certain survivors are in fact poor or distressed.

Source: Diana B. Henriques and David Barstow, "Victims' Funds May Violate U.S. Tax Law," New York Times, November 12, 2001.

 

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