So far, 2021 has been a busy and challenging year for not-for-profits that provide aid to victims of natural disasters. If this is part of your organization's charitable mission — or your group wants to be involved in disaster relief — know that you'll need to observe IRS rules. Following are several frequently asked questions about helping disaster victims without jeopardizing your charity's tax-exempt status:
Disaster relief organizations are allowed to provide short-term emergency assistance and long-term aid to ensure that victims have necessities such as food, clothing, housing, transportation and medical care (including psychological counseling). Relief may also come in the form of cash grants or vouchers for goods or services, depending on an individual's needs and available resources.
Providing disaster relief to individuals qualifies as a charitable activity because it aims to relieve human suffering. However, nonprofits must assist a charitable class — they can't single out individuals for help. Organizations must apply needs-based tests and document their activities.
Under longstanding rules, charitable funds can't be distributed to individuals just because they're disaster victims. An organization's decisions about how funds will be distributed must be based on an objective evaluation of needs at the time grants are made. For example, a charity might provide rescue services and distribute blankets or hot meals to victims in the immediate aftermath of a disaster without asking for proof of financial need. However, as time goes on and victims begin to recover from a disaster, it may be appropriate to conduct individual financial needs assessments.
One qualified Section 501(c)(3) organization can provide money to another qualified charity to carry out disaster relief.
Yes, if two conditions are met. First, the assistance must be reasonably related to the accomplishment of a tax-exempt purpose. Businesses aren't members of a charitable class and can't, therefore, be appropriate charitable objects. However, providing aid to them can achieve charitable purposes, such as preventing community deterioration or reducing the burden on local government.
Second, any private benefit to businesses must be incidental. An eligible business, for example, might not have adequate resources, conventional financing or insurance coverage that would enable it to recover from a disaster. Disaster aid organizations also need to determine that without their intervention, businesses they assist wouldn't remain in the community.
In general, you should maintain records regarding amounts paid, the purpose of the payments and evidence that payments were made to meet charitable purposes and victim needs. Records should contain a full description of the assistance provided, the reason it was provided and the amounts. In addition, document:
Note that organizations distributing short-term emergency assistance aren't expected to record the names, addresses and amounts distributed to recipients. Instead, you should document the date, place and estimated number of victims assisted.
If an existing organization is assisting 501(c)(3) charities, it doesn't need to secure separate approval of its tax-exempt status. However, new charitable organizations with actual or anticipated annual gross receipts higher than $5,000 generally are required to apply for an exemption to be recognized as tax-exempt. There are a few exceptions.
If a charity has a 501(c)(3) status, contributions are deductible by taxpayers who itemize, subject to the usual tax law limits. Currently, non-itemizing individuals can deduct charitable contributions of up to $300 ($600 for married couples) above the line on their federal tax returns.
Keep in mind that this is only a general overview of IRS rules for disaster relief charities. Contact your tax advisor about your organization's specific situation.
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