The following article is provided courtesy of CCH, Inc.
The IRS has provided guidance to charities regarding payments made by reason of the death, injury or wounding of an individual as a result of the September 11, 2001, terrorist attacks against the United States. The Service will treat such payments made by a charity to individuals and their families as related to the charity's exempt purpose, provided that the payments are made in good faith using objective standards. This administrative treatment will continue to apply to any payments made to such individuals before the earlier of final legislative action addressing these issues or December 31, 2002.
In conjunction with the release of this guidance, IRS Commissioner Charles O. Rossotti stated, "As we have said since September 11, we don't want people who were affected by the terrorist attack distracted by tax issues. With today's notice, the IRS is sending a clear signal to charities. Groups who act in a reasonable, good-faith manner to get help to victims will not endanger their tax-exempt status."
This information is published in IRS Notice 2001-78.