IRS 'Fast-Tracks' tax-exempt applications 

I am interested in setting up a charity for my brother who was involved in the World Trade Center disaster.   I understand that it takes a few months to set up this type of organization, however I want be able to receive donations now.   How can I go about this legally and still be able to offer people the tax benefit? J.D. via e-mail

The Internal Revenue Service recognizes the desire of many people to organize and collect funds for various relief efforts. Normally there is a lengthy waiting period while you wait for an application for tax-exempt status to be approved.  

But, in light of recent terrorist attacks and the quantity of new organizations wishing to provide relief to victims, the IRS has announced plans to streamline the process by which organizations can achieve tax-exempt status.   

Newly-formed charity organizations wishing to apply for tax-exempt status must fill out Form 1023, Application for Recognition of Exemption from Federal Income Tax Under Section 501(c)(3) of the Internal Revenue Code.  You can download a copy of this form on the Internet at http://ftp.fedworld.gov/pub/irs-pdf/k1023.pdf.   

To expedite the application process, you should write "Disaster Relief, Sept. 11, 2001" across the top of your application, and include a cover letter explaining the circumstances justifying the request. The explanation should include mention of the recent disaster as well as the reason for urgency in processing the application.   

A new IRS publication, "Disaster Relief, Providing assistance through charitable organizations," is available on the IRS Web site at http://www.irs.gov/relief/aid-charity-pub.pdf.   

In the interim, if you wish to begin receiving donations before formalizing your charitable status, the IRS recommends that you work with a church, community organization, or other charitable group that already has charitable status and let that organization make the collections for you, keeping in mind that that organization must be given full control over the amounts collected.   

Is the receipt of a cash award for damages sustained in a car crash taxable?  

D.B. via e-mail   

In the case of awards for damages, the test of taxability is based on how the money would be treated if you received it outside the umbrella of an accident.   

For example, if you receive money that represents a replacement of lost wages, then the money is taxable, just as actual wages would be taxable. If the money you receive represents interest income, it is taxable.   

If the money you received represents reimbursements for physical injury or sickness, then the amount is not taxable. The definition of physical injury or sickness includes emotional distress and any physical symptoms that result from that distress, such as headaches, insomnia, and stomach disorder.

Social Security Ceiling is Raised Again  

The Social Security Administration has announced its annual increase to the wage base above which Social Security taxes are not inflicted. For 2002, wages above $84,900 are not subject to Social Security tax. This represents a $4,500 increase over the 2001 Social Security wage base, or an increase of $279 in Social Security taxes for those taxpayers whose income exceeds the maximum amount. Taxpayers earning more than the wage base will pay $5,263.80 in Social Security taxes.  

Self-employed individuals get to pay double the amount of their employed counterparts, thus Social Security taxes for these workers will increase by up to $558 in 2002 and the total payment for those whose earnings exceed the wage base will be $10,527.60.  

Meanwhile, Social Security benefits will increase by 2.6%, and the average Social Security recipient will receive $874 per month in 2002.