Within months of the 1995 Oklahoma City bombing, local charities were advised by the IRS that using donated funds to make lump sum payments to survivors would not be proper.
“Lump sum benefits or other similar arrangements not specifically geared toward alleviating the specific distress would not be appropriate,” the IRS said in an 18-page disaster relief guidance memorandum dated Aug. 25, 1995.
“An outright transfer of funds based solely on an individual's involvement in a disaster or without regard to meeting that individual's particular distress or financial needs would result in excessive private benefit,” the memo stated. “Persons who have been affected by a disaster are not necessarily proper objects of charity.”
Oklahoma City charities followed that IRS advice. Officials in many other disaster-struck cities have ignored it.
Whether ignoring the advice has resulted in tax consequences is unclear, since the IRS doesn't publicize its enforcement actions.
Washington, D.C., attorney Kenneth Feinberg was called in to determine how government and donated funds should be divided up among victims following the Virginia Tech campus shooting; Aurora, Colo., theater shooting; 9/11 terrorists' attack; BP oil spill; and Indiana State Fair pavilion collapse.
He said IRS language has “never prevented or been a barrier” to him in the distribution of funds.
Of course, not all funds are the same. For example, the September 11 Victim Compensation Fund was created by an act of Congress to compensate victims of that terrorists' attack in exchange for not suing the airlines.
Some other funds appear more similar to the Oklahoma City bombing fund.
Feinberg noted that at Virginia Tech he helped get $7 million distributed in 60 days to the injured and families of the dead “without condition.”
“Take the money. It's your money. Do what you want,” Feinberg said.
“I don't know anything about Oklahoma,” he said, adding that up until two or three weeks ago he “didn't even know there was a fund.”
Feinberg knows now, thanks to a controversy that has arisen over the Oklahoma City Community Foundation's handling of its bombing relief fund.
The fund has distributed about $11.1 million for the benefit of bombing survivors over the years, but still has about $10 million in it 17 years after the April 19, 1995, terrorists' attack on the Alfred P. Murrah Building. The attack left 168 dead and hundreds injured.
Some bombing survivors have complained foundation officials have been too tightfisted in withholding funds requested for medical, educational and living needs, while others have said the foundation has done an excellent job.
Feinberg said he was contacted a couple weeks ago by two or three individuals who were dissatisfied with the fund's administration. They asked him if he would be willing to decide how remaining funds should be divvied up among survivors, he said.
Feinberg said he would be willing to do it — free of charge — but would need an official request from someone who has authority over the fund.
There is widespread disagreement over how disaster relief funds should be managed and distributed to best serve the long-term interests of survivors.
In Oklahoma, officials say about $40 million in donations poured into various local charities and government officials for the benefit of bombing survivors.