Read the letter ruling: PLR 201301014 [PDF 857 KB]
The organization, a public charity, was formed to provide grants to individuals who are employees or retirees of a particular company who experience emergency and crisis situations and were in need of assistance involving food, shelter, and other basic necessities of life.
The organization’s governing board—no member of which is an employee of the company—proposed to conduct a new program whereby the organization would provide financial management and literacy courses and a counseling program for the employees and retirees. The new program would have four phases:
- A basic financial literacy course, in which participants will learn about household budgeting, monthly income analysis, understanding credit, managing debt, identifying financial priorities, and the critical role of savings
- An advanced financial literacy course to expand and reinforce the principles learned in the basic course
- Individual counseling, to run concurrently with the second phase
- Enrollment in savings programs such as section 401(k) retirement plans or section 529 college savings plans
The organization would award matching funds to section 529 accounts up to a specified dollar amount based on completing coursework and demonstrating good savings practices.
The ruling does not state the selection criteria for participation in the new program, except that, in order to participate in the college matching program, participants must have worked for the company for at least six months, have at least one dependent child less than 21 years old, and have an annual family income below the applicable geographic area’s median income.
The IRS ruled that the new program will further charitable purposes under section 501(c)(3) because it is educational and because it is designed to encourage low-skilled and low-income workers to change their savings behaviors and to steer them toward a more secure future, thus preventing financial distress before it occurs.
In addition, because the program is within the definition of “credit counseling services” in section 501(q), the IRS analyzed whether the program will meet the requirements of section 501(q) for credit counseling organizations. The IRS ruled that:
- The organization will meet those requirements because the financial courses and individual counseling services are tailored to meet the specific needs and circumstances of the participants.
- The organization will not provide loans or direct services related to improving credit records, credit history, or credit ratings.
- No fees will be charged, nor will the participants be solicited for contributions.
- No debt management services will be provided.
- All of the organization’s board members are volunteers who are not employees of the organization or the company, or related to any credit counseling or debt management service provider, and none has a financial interest in the organization’s activities.
- The organization does not have control of or a profits interest in any organization in the business of lending money, repairing credit, or providing debt management plan services, payment processing or similar services.
For more information, contact:
Rick Speizman, National Partner-In-Charge, KPMG’s Exempt Organizations Tax Practice (ExoTax)
+1 (202) 533-3084