IRS Designates China Earthquake as Qualified Disaster, Maximizing Flexibility for Grantmakers’ Response

The IRS has designated the China earthquake that occurred in May 2008 as a “qualified disaster.” The Council on Foundations asked the IRS for this designation immediately following the disaster, since it allows grantmakers maximum flexibility in crafting their responses to the earthquake.
The qualified disaster designation allows a corporation to make qualified disaster relief payments to affected employees, either directly or through the foundation. In either case, the payments would not be considered taxable income to employees for U.S. tax purposes. Qualified disaster relief payments include personal, family, living, or funeral expenses incurred as a result of the earthquake as well as expenses for repair or rehabilitation of homes.

• Private foundation: Relief payments by company-sponsored private foundations to affected employees and their families in China are permissible if certain procedures are followed. Read the Council’s Legal FAQs on Disaster Grantmaking and IRS Publication 3833 [pdf] for information about the procedures.

• Direct Corporate Giving: If qualified disaster relief payments are made directly through the corporation, the special procedures applicable to the company-sponsored private foundation are not required.

• Public Charities: Any foundation set up as a public charity—community, corporate, or independent—may also make disaster relief payments. They should follow the same guidelines as private foundations to ensure that the grants are made for charitable purposes.

For more information, please contact the Council’s Legal Services and Standards Department at legal@cof.org or 703-879-0600.