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What All Employers Should Know About Disaster Relief Funds to help with COVID-19

April 1, 2020 – Dorsey Health Law

by Claire H. Topp and Mackenzie McNaughton

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The COIVD-19 pandemic is placing new and unprecedented demands on both taxable and tax-exempt employers and their employees. One option many employers may not have previously considered is the use of a tax-exempt employee assistance fund. Depending on the structure of the fund, declaration of qualified disaster is an important requirement for the fund to issue financial assistance to individuals.

Although the Internal Revenue Service (“IRS”) has yet to issue official guidance confirming the COVID-19 pandemic as a “qualified disaster” under Section 139 of the Internal Revenue Code (the “Code”), the President declared a national emergency under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (“Stafford Act”) due to extraordinary circumstances resulting from COVID-19. A qualified disaster relief payment is defined under Section 139(c)(2) of the Code to include a federally declared disaster as defined by Section 165(i)(5)(A) of the Code, which defines the term as any disaster subsequently determined by the President of the United States to warrant assistance by the Federal Government under the Stafford Act.

If employers do not already have an established employee assistance fund, deciding and implementing the most beneficial structure during a crisis can seem daunting. We have experience forming and implementing employee assistance funds, and quickly and efficiently navigating the application for tax-exempt status with the IRS. Below is an overview of issues employers should consider when contemplating a new employee assistance fund program.

What is an employee assistance fund?

The term employee assistance fund (“EAF”) is generally used to describe several types of employer-sponsored Section 501(c)(3) (all subsequent references to “Section” shall mean Sections of the Code) charitable tax-exempt organizations designed to provide emergency, need-based financial assistance to an employer’s work force in the event of disaster or personal hardship impacting individual employees or their families. EAFs are typically structured as a public charity, a donor advised fund, or a private foundation. A Section 501(c)(3) EAF must serve a charitable class, which must be large enough or sufficiently indefinite that the community as a whole, rather than a pre-selected group of people, benefits from the EAF grants. EAFs may restrict benefits to a certain company’s employees and still serve a charitable class so long as the EAF’s assistance policy is open-ended and include employees affected by any current or future disasters or emergencies.

What are the distinguishing characteristics of an EAF structured as a public charity?

An EAF established as a public charity described in Sections 509(a)(1) and 170(b)(1)(A)(vi) receives its funding primarily through donations from the general public, usually through donations from the company’s individual employees. A public charity EAF can provide financial assistance in response to any type of disaster or employee emergency hardship, so long as the related employer does not control the organization. Generally, these requirements are met when non-executive (i.e., rank and file) employees comprise a significant portion of both the board of directors and the committee that selects eligible individuals for need-based distributions from the EAF. Unlike a donor advised fund or a private foundation, a public charity EAF can provide assistance to eligible individuals in response to any type of disaster or employee emergency hardship situation.

What are the distinguishing characteristics of an EAF structured as a donor advised fund?

A donor advised fund is a community foundation-type of organization that maintains separate funds or accounts on behalf of individual or corporate donors. The donors then receive advisory privileges over the distribution of the donated funds, but such distributions must still be made for charitable purposes. While a donor advised fund is usually classified as a public charity, important distinctions for donor advised EAFs are subject to additional restrictions. Typically, a donor advised fund (whether or not an EAF) cannot make grants to individual persons. However, a donor advised EAF can make grants to individual employees and their family members if:

  • the EAF makes need-based distributions adequately documented by the EAF;
  • the EAF’s sole purpose is to provide relief after a qualified disaster as defined in Section 139; and
  • eligible recipients are selected by a committee independent from the sponsoring employer.

What are the distinguishing characteristics of an EAF structured as a private foundation?

EAFs structured as private foundations are typically funded solely through donations by an employer, and not by contributions from individual employees or the general public. Like the donor advised EAFs, an EAF structured as a private foundation may only provide need-based assistance to employees or family members impacted by a qualified disaster as defined in Section 139. Also, the private foundation EAF’s selection committee must be independent from the employer, and payments to or for the benefit of individuals who are directors, officers, or trustees of the private foundation may subject the foundation to the self-dealing rules under Section 4941.

Are payments from an EAF taxable to the individual recipients?

No. Payments from a Section 501(c)(3) EAF as a result of a disaster or emergency hardship are considered to be gifts and are excluded from the recipient’s gross income under Section 102.

Are disaster relief payments taxable if received directly from an employer and not made through an EAF?

It depends. If the payment meets the definition of a qualified disaster relief payment under Section 139 for qualified disaster expenses that are not otherwise covered by insurance or other reimbursements, such payments are not subject to income tax, self-employment tax, or other employment taxes even if made directly from an employer.

Are donations to an EAF tax-deductible?

If recognized by the IRS as a Section 501(c)(3) organization, donations by individuals or corporations to an EAF may eligible as a deduction as a charitable contribution under Section 170. Changes included in the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) includes expanded Section 170 deductions for both individuals (itemizers and non-itemizers) and corporations.

Are there restrictions on EAF payments to individuals?

Yes, particularly when made by an EAF structured as a donor advised fund or a private foundation that are limited to Section 139 qualified disaster relief payments. As relevant to payments from an EAF, qualified disaster relief payments are defined in Section 139(b) to include any amount paid (regardless of the source) for the benefit of an individual:

  • to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster;
  • to reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence or repair or replacement of its contents to the extent that the need for such repair, rehabilitation, or replacement is attributable to a qualified disaster; and
  • by a person engaged in the furnishing or sale of transportation as a common carrier by reason of the death or personal physical injuries incurred as a result of a qualified disaster.

Qualified disaster relief payments do not include payments for expenses paid for by insurance or other reimbursements, or income replacement payments, such as payments of lost wages, lost business income, or unemployment compensation.

Can an EAF provide assistance to other businesses?

It depends, but an EAF structured as a public charity likely has the most latitude to provide financial assistance to other businesses as it is not limited to qualified disaster relief-type payments. For example, a charitable organization may provide assistance to a for-profit business if the assistance is a reasonable means of accomplishing a charitable purpose (e.g., relief of the poor and distressed or lessening the burdens of government), and any benefit to private interests is incidental to the accomplishment of such charitable purpose.

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Minnesota Consumer-Fraud Enforcement: Disclaimers Won’t Cure Deception, and Penalties Can Add Up

Misleading advertising claims can lead to costly consequences. In State of Minnesota ex rel. Ellison v. Wall & Associates, Inc., No. A25-2064, 2026 WL 3118291 (Minn. App. Oct. 19, 2026), the Minnesota Court of Appeals recently affirmed a bench trial verdict against a tax-relief company and two executives for violations of the Minnesota Consumer Fraud Act (“MCFA”) and the Minnesota Deceptive Trade Practices Act (“MDTPA”). The decision, which affirmed a substantial restitution and civil penalty judgment, underscores the broad power of the Minnesota Attorney General to act against deceptive sales practices. The decision also offers practical lessons for businesses seeking to reduce liability risks in consumer-facing communications. Background Wall & Associates (“W&A”), a Virginia-based tax-relief company, marketed assistance to taxpayers seeking relief from outstanding federal and state tax liabilities, often with offers in compromise—agreements to settle tax liabilities for less than the amount owed. In its extensive advertising campaigns, W&A represented that its average client received a 90% reduction in their tax debt, that it was a local company with Minnesota offices, that it provided legal services, and that it would “Solve ALL Tax Problems.” In reality, W&A’s promises bore little resemblance to what many clients received. Most of W&A’s clients saw just a 9.5% reduction in federal tax debt and 1.2% in state tax debt. W&A had no permanent Minnesota offices. And W&A provided neither legal representation nor assistance with filing tax returns—those services required referrals to separate firms for an additional fee. All the while, W&A clients paid upfront and recurring fees, including during periods when W&A did no work on their cases. Minnesota Attorney General Keith Ellison sued W&A, its founder and owner Ernest Kenneth Wall, and its president and CEO Patrick Mark Yates, alleging violations of, among other laws, the MCFA and the MDTPA. Following a 12-day bench trial, the district court determined that W&A violated the MCFA and MDTPA through its false and embellished advertising. The district court also held Wall and Yates individually liable for those violations because they directed, participated in, and acquiesced in the violations. The district court ordered injunctive relief, $2.7 million in restitution (with Wall and Yates jointly and severally liable for $1.3 million), and civil penalties of $786,517 against W&A, $415,500 against Wall, and $207,750 against Yates. The district court also awarded over $2.5 million in attorneys’ fees and costs to the state. W&A, Wall, and Yates appealed to the Minnesota Court of Appeals, which affirmed the district court’s decision on October 19, 2026. Although W&A, Wall, and Yates challenged the judgment on numerous grounds, several highlights of the decision provide important takeaways for consumer-facing businesses. 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Contractual Disclaimers Are Not an Automatic Defense to a Misleading Pitch W&A next argued that disclaimers in its client contracts prevented consumers from claiming they had been misled by its advertising. Reiterating that individual reliance is not required under the MCFA and MDTPA, the Court of Appeals held that a contractual disclaimer does not necessarily defeat a claim based on a conflicting oral representation. And on the facts of this case, the Court of Appeals agreed with the district court that W&A’s contractual disclaimers were insufficient given the extensive misrepresentations by W&A and the unequal bargaining power between it and its customers. This holding confirms that contractual disclaimers are not a cure-all for misleading advertising or sales practices. Businesses should review the entire customer journey, including pre-contract representations, as those representations may survive a contractual disclaimer to the contrary. And if faced with litigation, businesses should build a strong record, both at trial and on appeal, showing why any disclaimer is effective in context. The State Has Broad Authority to Seek Restitution W&A also challenged Attorney General Ellison’s authority to seek restitution under the state’s parens patriae authority to protect residents’ collective interests, arguing that injury to only 228 Minnesotans did not affect a sufficiently substantial segment of the population. The Court of Appeals rejected a simple headcount approach, instead explaining that the state had a legitimate interest in protecting residents’ economic well-being as a whole. In any event, the Court of Appeals held that if restitution was not appropriate under the state’s parens patriae authority, then it would still be appropriate under the Attorney General’s enforcement powers under Minn. Stat. § 8.31. The decision reinforces that the broader and more sustained the deceptive advertising, the stronger the case for restitution to protect Minnesotans’ economic interests. Civil Penalties Accrue Per Violation, Not Per Defendant The Court of Appeals finally rejected W&A’s claim that the Attorney General’s enforcement powers under Minn. Stat. § 8.31 permit only civil penalties of up to $25,000 for each defendant. Rather, the Court of Appeals explained that penalties are limited to $25,000 per violation. Multiple violations can therefore produce substantially greater penalties. The Court of Appeals also rejected the argument that restitution made penalties unnecessary: repaying consumers does not eliminate the need to address gains from deceptive conduct and deter future violations. Final Takeaways Align every consumer-facing communication. Broad and extensive marketing campaigns can expose businesses to stronger enforcement standards under the MCFA and MDTPA, making it critical that consumer communications remain accurate and consistent from the first advertisement through the final sale. Plan for layered enforcement exposure. Penalties under the MCFA and MDTPA can add up quickly: W&A, Wall, and Yates ultimately faced more than $6 million in civil penalties, restitution, and attorneys’ fees. The decision continues a line of Minnesota cases recognizing the Attorney General’s broad consumer-protection authority. Details matter. Although the Attorney General’s enforcement power is broad, it is not boundless. As the Court of Appeals explained, issues of causation, the effectiveness of contractual disclaimers, and the availability of restitution and civil penalties all turn on the specific facts of the case. Effective advocacy at trial and on appeal is critical to developing the facts relevant to liability and damages.

Event/Resource

Corporate Counsel Symposium 2026 Materials Hub

Materials Symposium Agenda Sessions 8:30 am - 9:30 am CT Session A: The Corporate Compass: Finding True North When Ethical Duties Conflict Philip Kaplan, Senior Legal Counsel, Howden Re Lucia Suljic, Vice President, Corporate Legal, Canon USA Nicole Stanton, Partner & Deputy General Counsel, Dorsey & Whitney LLP This panel addresses ethical obligations of in-house counsel, including balancing obligations and duties that may conflict with each other. How should a responsible in-house lawyer deal with those challenging situations? Rather than stick to an academic discussion, this panel will revolve around a series of practical scenarios that are designed to be realistic and timely, including situations where counsel is asked to represent both the company and an individual, how and when to disclose uncomfortable facts and inconvenient documents, issues involving changing firms and companies, and multijurisdictional practice. The panel will feature discussion from two experienced in-house lawyers and Dorsey’s Deputy General Counsel. Session B: Managing Rapid Regulatory Change in International Trade and Cross-Border Investment Nathan Brower, Executive Vice President, General Counsel, Nature’s Sunshine Greg Ogunsanya, Senior Vice President, General Counsel and Corporate Secretary, H.B. Fuller Kathryn Wood, Senior Vice President & General Counsel, DecoPac, Inc. Dave Townsend and Lawrence Ward, Dorsey & Whitney LLP This program is designed for attorneys advising on cross-border transactions, international trade, regulatory compliance, and corporate governance matters. Panelists will examine recent developments in U.S. trade and investment law and policy, as well as their impact on international collaborations, corporate compliance, and mergers and acquisitions. The discussion will explore how general counsel and in-house legal teams assess and manage evolving trade-related risks within their organizations. Particular focus will be given to developments during the first two years of the second Trump Administration, including changes in tariff policy, tariff refunds, export controls, economic sanctions, and national security reviews of foreign investment. Through a discussion of regulatory trends and practical case studies, attendees will gain a deeper understanding of the legal risks and compliance obligations associated with cross-border business activities, and hear about practical strategies for advising clients and managing compliance obligations in a rapidly changing trade and investment environment. 9:45 am - 10:45 am CT Session A: The Elon Musk Cases: What Tesla and Twitter Can Teach Your Board of Directors Loren Unterseher, Managing Partner, Oxbow Industries, LLC Shulamite White, Chief Legal Officer and Head of People, Motive Technologies Kirsten Schubert, Tom Swigert, and Jonathan Van Horn, Dorsey & Whitney LLP Recent cases involving Elon Musk and his businesses have had significant impact on principles governing board of directors’ fiduciary duties and corporate processes. 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Session B: A Day in the Life of a Trademark, Copyright & Advertising Attorney: A Hypothetical Case Study Alexander Kim, Vice President and General Counsel, Binks Nate Whitaker, Chief Legal Officer and General Counsel, Crumbl Cathy Dahl and Tiffany Shimada, Dorsey & Whitney LLP What issues are companies facing daily while developing rights in intellectual property, protecting those rights, and staying in compliance with myriad potential issues related to advertising, social media, relationships with influencers, and environmental or governmental claims? 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Summary of Other 2027 Examination Priorities Beyond the developments discussed above, many of the Division’s core examination priorities remain consistent with fiscal year 2026. These include investment adviser fiduciary obligations and compliance programs, examinations of never-examined and recently registered advisers, and cybersecurity and operational resiliency. The Exam Priorities are not exhaustive, and examinations will vary based on each registrant’s business, activities and risks. Advisers should consider the 2027 Exam Priorities in reviewing their compliance programs and preparing for potential examinations, including by: Reviewing risk disclosures and controls. The Division states that, when examining advisers to private funds, it will assess whether investment-related risk disclosures are consistent with fiduciary standards and whether compliance policies, procedures, and controls are designed to address both fund-level and investment-level risks. 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Confirming that the compliance program is implemented and reviewed. The Division states that it will review compliance program components such as marketing, valuation, and custody, as appropriate, and will typically analyze the annual compliance review. It will also focus on compliance practices when advisers have started advising new asset classes or clients or grown through mergers or acquisitions. 1 SEC Division of Examinations 2027 Examination Priorities. 2 See Dorsey’s Client Alert on the SEC’s fiscal year 2026 exam priorities.

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