In the aftermath of a disaster or in other emergency hardship situations, individuals, employers and corporations often are interested in providing assistance to victims through a charitable organization. The IRS provides a number of resources to help those involved in providing disaster relief through charities.
The attached Publication 3833 and the briefing document serve as good reference material for the Federal tax rules and restrictions for providing financial assistance and relief to individual victims of tragedy. You can also find additional guidance at Disaster Relief Resources for Charities and Contributors.
By using the information contained in IRS Publication 3833, organizations and individuals will be able to ensure that activities are conducted in a manner consistent with the federal tax rules that apply to charities. There are a few important rules to remember when an organization seeks to provide assistance to victims of disasters.
- The tax-exempt organization must serve a broad charitable class and not be limited to select individuals. This can be accomplished through a large or sufficiently indefinite class.
- The type of assistance a tax-exempt organization may provide depends on several factors, including whether they are meeting short term immediate needs in the aftermath or an event or providing long-term assistance.
- A charitable organization is responsible for taking into account the charitable purposes for which it was formed, the public benefit of its activities, and the specific needs and resources of each victim when using its discretion to distribute funds.
- Tax exempt organizations that provide assistance to victims must maintain adequate records showing that payments further the charitable purposes of the organization. An organization only providing short-term emergency assistance (such as the distribution of blankets, hot meals, clothing, etc.) in the aftermath of an event would be expected to maintain records showing the type of assistance provided; the criteria for disbursing assistance; date and place where assistance was provided; an estimated number of victims assisted; the charitable purpose intended to be accomplished; and the cost of the aid. For organizations providing long-term assistance, the documentation should include a description of the assistance provided; the costs associated with providing the assistance; the purpose for which the aid was given; the charity’s objective criteria for disbursing assistance under each program; how the recipients were selected; the name, address, and amount distributed to each recipient; any relationship between the recipient and an officer, director, key employee, or substantial contributor of the organization; and the composition of the selection committee approving the assistance
- Tax-exempt charities should have full control and authority over the funds donated to them.
- Most public charities and all private foundations are required to file an annual information return. Depending on their size, public charities file Form 990, Form 990-EZ, or Form 990-N. Private foundations file Form 990-PF. If a public charity carries on these relief activities as one of its three largest programs, it must describe the services provided in the Statement of Program Service Accomplishments on Form 990 or Form 990-EZ. A public charity may also be required to complete Schedule F if it carries out foreign operations or Schedule I for grants or other assistance to individuals. If a private foundation carries on these relief activities as one of its four largest programs, it must describe the services provided in its summary of direct charitable activities on Form 990-PF.