SACRAMENTO, Calif. (MCT) - After five firefighters died in a wind-whipped, Riverside County, Calif., firestorm, thousands of donors contributed $1.3 million to help the grief-stricken families - but disbursing the money would violate federal tax law.

Nearly three months after the Esperanza Fire was extinguished, controversy continues to simmer, with a Riverside County United Way chapter torn between risking its tax-exempt status or breaking promises made to donors.

"It's like the Grinch trying to steal Christmas,'' Riverside County Supervisor Marion Ashley said of the tax dispute.

The impasse has spawned legislation to make an exception to tax law, as was permitted to aid victims of the terrorist attacks of Sept. 11, 2001.

Bob Duistermars, president of Riverside's Central County United Way, said a firefighter who risks his life protecting the public should not have to worry about red tape.

"There ought to be a way that the community, if something tragic happens, can take care of your family,'' he said.

The Internal Revenue Service points out, however, that charity tax law is clear and that the agency can't make exceptions.

"Congress makes policy, we administer it,'' said Bill Steiner, IRS spokesman.

Caught in the middle are relatives of the five U.S. Forest Service firefighters who perished in walls of flame up to 90 feet high - Capt. Mark Loutzenhiser, 43; Jason McKay, 27; Jess McLean, 27, Pablo Cerda, 23; and Daniel Hoover-Najera, 20.

Pat Boss, a spokesman for the family of the slain fire captain, described Loutzenhiser as a married father of five children, a big fan of the Pittsburgh Steelers, a big-hearted public servant and a youth sports coach and umpire in Idyllwild.

"All the kids in town would hang on Mark's leg and say, 'Coach, can we do this?''' said Boss, a retired U.S. Forest Service spokesman. "He was a pillar of the community. Outstanding.''

Loutzenhiser had donated two weeks of his own annual leave time to a fellow firefighter stricken with cancer, Boss said.

"The families are still having a hard time, struggling, all the families are,'' Boss said of coping with the five fire deaths.

United Way has not distributed a dime to the five families, but it wants to, and the agency appealed to lawmakers to help break the $1.3 million impasse.

Congress and President Bush responded last month by approving a one-time-only exemption.

The final hurdle is the California Legislature, where two nearly identical bills are pending from Assemblyman John Benoit and state Sen. Jim Battin, both Palm Desert Republicans.

Without an exemption, donors to the Esperanza Fire fund would not be entitled to a tax writeoff and United Way could be exposed to penalties, such as losing its tax-exempt status or having to pay taxes on the $1.3 million.

Benoit said nobody wants to slight the victims' families.

"Their loss is huge,'' he said. "I don't think there's enough you can do to compensate a family.''

The tax law sparking the controversy apparently was meant to prevent the creation of sham fundraising schemes.

Put simply, charity tax law permits large sums of money to be solicited and awarded, without demonstrated need, to a large class of people - such as Hurricane Katrina victims - but not to one person or to a very small number of families.

Donald Stacy, a tax accountant, said the clause is meant to discourage ripoffs such as a father paying for his son's private-school tuition by donating to the campus, taking a tax writeoff, then stipulating that the money be used only for his child.

An Internal Revenue Service publication says a "charitable class must be large or indefinite enough that providing aid to members of the class benefits the community as a whole.''

"Because of this requirement, a tax-exempt disaster relief or emergency hardship organization cannot target and limit its assistance to specific individuals, such as a few persons injured in a particular fire,'' the IRS document says.

Jack Siegel, an Illinois tax attorney, said he sympathizes with the United Way chapter but that the agency should have played by the rules and should now refund the $1.3 million.

Any change in tax law should apply to all such relief efforts, not just one, he said.

"Don't make me a bad person - I don't have any problem with the firefighters' children getting the money,'' said Siegel, author of "Avoiding Trouble While Doing Good: A Desktop Guide for the Nonprofit Director and Officer.''

"It just irritates me that United Way, which has lawyers and knows the system, didn't think it through,'' he said.

Duistermars, of United Way, said the tax problem was caused by the massive sums donated, not by carelessness or ignorance of the law.

The IRS allows money to be given to the five families for documented needs - such as a mortgage payment - so there was no reason for concern when money started pouring in, Duistermars said.

When the fund hit about $500,000, however, United Way feared its size would exceed any documented need, so it called the IRS to explore options.

"That's when we found out that there was no way to disburse it,'' Duistermars said.

The Esperanza Fire, which destroyed 34 homes and caused nearly $10 million in damage, sparked a torrent of grief that prompted nearly 5,000 contributions.

Money was raised by a fun run, beanie baby sale, elementary schools, radio talk shows, motorcycle clubs, firefighter groups, Indian tribes and many others.

Riverside County supervisors solicited much of the money, then transferred it to United Way.

Separately, the Wildland Firefighter Foundation also raised funds and could qualify for the proposed exemption.

The victims' families are entitled to various public subsidies, including a $295,000 payment for death in the line of duty, so donors are not necessarily trying to pay a particular bill or cure a specific hardship, officials said.

"I think people are just saying, 'I appreciate your putting your life on the line - and here's a little something to help,''' Duistermars said.

(c) 2007, The Sacramento Bee (Sacramento, Calif.). Distributed by McClatchy-Tribune Information Services.