Ideas for Victim Compensation Funds

Theoutpouring of donations intended to help victims of recent tragedies caused byacts of human violence (for example, in Aurora, Colorado; in Newtown,Connecticut; and at the Boston Marathon), and the issues raised by the managementand distribution of those donations, are the focus of recent articles in theNew York Times and the Los Angeles Times. One idea on the table is the creation of an organization, national inscope, formed specifically to receive donations and disburse them to victims ofsuch human-induced tragedies whenever they occur.  The following excerpt from the N.Y. Times piececaptures the essence of the proposal:

The National CompassionFund, still in the planning stages, would be endorsed by a state or localofficial immediately after a tragedy occurs that is fatal or causeslife-changing injuries to at least five people in a public place. … It wouldhave tax-exempt status and money would be distributed within six months … with“every dime to go to the victims,” as a nontaxable gift.

Foradditional coverage, see Past Problems Prompt New Look at Managing DisasterFunds in The Chronicle of Philanthropy.

Readersshould note that the proposal raises a number of legal issues, particularly ifdonations are intended to be deductible as charitable contributions.  Ensuring that “every dime” go to victims ofparticular disasters is not always consistent with (1) maintaining the doneeorganization’s federal income tax exemption under section 501(c)(3) of theInternal Revenue Code, and (2) qualifying donations as charitable contributionsthat are deductible under Code section 170(c). Resolution of these issues is fact-intensive and requires an analysis ofthe law of charitable gifts and federal income tax law. 

Others and I havewritten about these issues in various contexts.   For example,see Johnny Rex Buckles, When Charitable Gifts Soar Above Twin Towers: A FederalIncome Tax Solution to the Problem of Publicly Solicited Surplus DonationsRaised for a Designated Charitable Purpose, 71 Fordham L. Rev. 1827 (2003); RobertA. Katz, A Pig in a Python: How the CharitableResponse to September 11 Overwhelmed the Law of Disaster Relief, 36 Ind. L. Rev.251 (2003). On the related topic of post-disaster relieflegislation, see Ellen P. Aprill & Richard Schmalbeck, Post-Disaster TaxLegislation: A Series of Unfortunate Events, 56 Duke Law Journal 51 (2006).

JRB