Some electric cooperatives have sponsored charitable giving programs that are designed to provide financial donations to worthwhile programs and charities. Such programs are typically funded by rounding-up cooperative members’ monthly electric bills to the nearest whole dollar and transferring this additional money to a special fund operated by the cooperative. Members can be automatically enrolled in the program with the option to opt-out, or be given the choice to affirmatively opt-in.
Recipients of the funds collected by the program can be any charity, but typically are charities operating in and serving the same communities in which the cooperative operates. Recipients can be chosen by the cooperative board, or by vote of the co-operative employees or members. Additionally, funds collected can also be used to help members in need to pay their electric bills (“member assistance”).
While these charitable giving programs can be housed within a co-operative’s existing legal structure, best practice will be for the cooperative to a establish a new 501(c)(3) non-profit corporation to conduct the activities. Not only will this segregate potential liabilities, but it will also provide donors to the program the opportunity to receive a tax deduction. Further, if the program is intended to engage in member assistance activities, the cooperative should consider housing these member assistance activities in a separate 501(c)(3) non-profit corporation. The rules governing direct grants of money from a 501(c)(3) to individuals can be complex, and inadvertent foot-faults can occur. By housing member assistance programs in a separate entity, problem arising from these inadvertent foot-faults can be segregated from the programs' other activities.
Such charitable giving programs typically focus on providing support to community charities and a cooperative’s members. Cooperatives should also note that there are charitable programs, known as employer sponsored public charities, that a cooperative can initiate that focus on providing disaster and other emergency relief to a cooperative’s employees.
If you would like to further discuss these charitable giving programs or employer sponsored public charities, please contact the author of this alert, Doug Jones, Partner (firstname.lastname@example.org, 512-495-6013).