Providing Disaster Relief through Charitable Organizations

Providing Disaster Relief through Charitable Organizations

News story posted in Publications on 19 September 2001| comments
audience: National Publication | last updated: 18 May 2011
Print
||
Rate:

Summary

In response to the events of last week, the IRS has advanced the release of a special publication on the topic of providing disaster relief assistance through charitable organizations. The pamphlet is designed for people interested in using charitable organizations to provide help to victims of disasters.

PGDC SUMMARY:

In light of the events of last week, the IRS has advanced the release of a special publication on the topic of providing disaster relief assistance through charitable organizations. The pamphlet is designed for people interested in using charitable organizations to provide help to victims of disasters.

The pamphlet includes:

  • advice about using an existing charitable organization

  • advice about establishing a new charitable organization

  • guidance about how charitable organizations can help victims

  • information about gifts and charitable contribution rule

  • reference publications and sources of assistance

FULL TEXT:

Advanced Text of a Special IRS Publication
Disaster Relief: providing assistance through charitable organizations

Disaster Relief: providing assistance through charitable organizations is for people interested in using a charitable organization to provide help to victims of disasters. These disasters may be caused by floods, fires, riots, storms, or similar large-scale adversities, or by severe hardship caused by illness, death, accident, crime or other personal events. This brochure includes:

o advice about using an existing charitable organization

o advice about establishing a new charitable organization

o guidance about how charitable organizations can help victims

o information about gifts and charitable contribution rule

o reference publications and sources of assistance

By using this publication at an early stage to help plan your relief efforts, your program will be able to help victims in ways that are consistent with charitable rules.

Providing aid to relieve human suffering that may be caused by a natural or civil disaster or an emergency hardship is charity in its most basic form. Charitable organizations, such as churches, are frequently able to administer relief programs more efficiently than individuals acting on their own. Charitable organizations can offer assistance over long periods of time. Even if the charity dissolves, remaining assets are permanently dedicated to accomplishing its charitable purposes and cannot be divided among the organization's members, directors or employees. Of course, there are tax advantages when using a charitable organization that qualifies for tax-exempt status. Being exempt from federal income tax reduces the organization's expenses, which may allow for additional resources to accomplish its mission. Plus, contributors to charitable organizations are eligible to receive tax deductions on their donations, and the value of these donations is not subject to gift tax, regardless of the amount. Individuals who receive assistance from a charitable organization are not subject to federal income tax on the value of the assistance.

Helping Through an Existing Charitable Organization

A tragic event can often prompt an outpouring of assistance. In the rush to provide help, organizers may spend a lot of time and funds establishing and qualifying a new charitable organization. This may be appropriate where the organizers have long-term goals or where no suitable existing charity is present. Alternatively, an existing tax-exempt, charitable organization such as a community fund, church, or relief organization operating in an allied area may be interested in establishing a program to which contributions could be directed. This may be a more practical approach than the establishment of a new charitable organization. It is important to note that the existing charity must be given full control and authority over the program.

Many religious organizations provide assistance in times of disaster or emergency hardships. Religious organizations that are churches, their integrated auxiliaries, or conventions or associations of churches, while not required to obtain IRS recognition of their tax-exempt status, do so voluntarily to obtain the assurance that contributions are tax deductible. Examples of integrated auxiliaries of a church include men or women organizations, religious schools, mission societies and youth groups.

The favored treatment for contributions to tax-exempt charitable organizations extends to contributions for charitable purposes to tax-exempt domestic fraternal societies, orders or associations operating under the lodge system. The lodge system means that members carry on activities through local branches or chapters called lodges, which are chartered by a parent organization. Thus, an existing fraternal organization may be a vehicle for providing relief to victims of disasters even though it is not a charitable organization.

Establishing a New Charitable Organization

Generally, a new charitable organization, with annual gross receipts in excess of $5,000, must apply for and obtain recognition of tax-exempt status from the IRS. There are exceptions to this general rule. The most important exception, as far as disaster relief and emergency hardship organizations are concerned, applies to churches.

An organization qualifies as an exempt charitable organization if it is organized and operated exclusively for charitable purposes, serves public rather than private interests, and refrains from engaging in any political or significant amounts of lobbying activity. Use the following IRS materials when establishing a charitable organization.

Publication 557,              Provides basic requirements to
Tax Exempt                    qualify as a tax-exempt,
Status for Your               charitable organization, and
Organization                  describes the application process.
Form 1023, Application        Disaster and emergency hardship
for Recognition of            relief organizations may obtain
Exemption from Federal        expeditious handling of their
Income Tax Under Section      Forms 1023. The request for
501(c)(3) of the Internal     expeditious treatment should be
Revenue Code                  included in a cover letter
                             accompanying the application, and
                             should explain the circumstances
                             justifying the request; for example,
                             a brief description of the disaster
                             and the reason for urgency in processing
                             the application.
Employer Identification       Tax-exempt organizations
Number (EIN)                  must have an EIN that is
                             used to identify the
                             organization for filing and
                             reporting purposes. You
                             may obtain an EIN by:
                             1) Filing Form SS-4, Application for
                             Employer Identification Number, with
                             the IRS. You may obtain Form SS-4 with
                             instructions at:
                                  o www.irs.gov
                                  o (800) 829-3676 to order IRS tax
                                    forms and publications
                                  o (703) 368-9694 to dial IRS Tax
                                    Fax from a fax machine.
                             Follow voice prompts to have forms
                             faxed back to you.
                             2) Calling Tele-TIN (Taxpayer
                             Identification Number) program. The
                             Tele-TIN phone numbers are included in
                             the Form SS-4 instructions and are
                             available by calling the Exempt
                             Organizations IRS toll-free Customer
                             Account Services at (877) 829-5500.
How Charitable Organizations Help Victims

The following sections emphasize how charitable organizations can provide assistance to disaster or emergency hardship victims in ways that accomplish charitable purposes.

Disaster relief or emergency hardship organizations may provide loans or grants in the form of funds, services or goods to ensure that victims have the basic necessities, such as food, clothing, housing (including household repairs), transportation, and medical assistance (including psychological counseling assistance). The type of aid that is appropriate depends on the individual's needs and resources. Immediately following a devastating flood, a family may be in need of food, clothing and shelter, regardless of their financial resources. However, they may not require long-term assistance if they have adequate financial resources. Persons who are needy and/or distressed are appropriate recipients of charity. Examples include persons who are:

- impoverished as a result of low income and lack of resources

- temporarily in need of food or shelter when stranded, injured or lost because of fire, flood, accident or other disaster

- victims of a civil disturbance

- temporarily unable to be self-sufficient as a result of a sudden and severe personal or family crisis, such as victims of crimes of violence or physical abuse

- refugees or immigrants experiencing language, cultural or financial difficulties

Charitable Class -- The group of persons that may properly receive assistance from a charitable organization is called a charitable class. 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 disaster relief or emergency hardship organization cannot be formed and operated to assist particular, pre-selected individuals, such as a few persons injured in a particular fire. Similarly, contributions cannot be earmarked to a charitable organization for a particular individual. When a disaster or emergency hardship occurs, a charitable organization may help persons who are needy and/or distressed because they are part of a general class of charitable beneficiaries, provided the organization is in control of who gets the assistance.

Example 1: Linda's baby, Todd, suffers a severe burn from a fire, which will require considerable costs that Linda cannot afford. Linda's friends and co-workers form the Todd Foundation to raise funds from fellow workers, family members and the general public to meet Todd's expenses. Since the organization is formed to assist a particular, pre-selected person, it would not qualify as a charitable organization even though Todd is otherwise an appropriate charitable beneficiary. Alternatively, if Linda's friends and co-workers form a charitable organization to raise funds to meet the expenses of all children in the community injured by disasters where financial help is needed, then it could qualify as a charitable organization. Neither Linda nor members of Linda's family control the charitable organization. In this circumstance, the charitable organization must be in a position to determine whether any assistance for Todd is appropriate. Therefore, donors should be advised that, while funds may be used to assist Todd, their contributions might well be used for other children who have similar needs. Contributions earmarked for Todd, specifically, cannot be accepted by the organization. Because the organization is now formed and operated to assist an indefinite number of persons, it would qualify as a charitable organization.

Example 2: A hurricane causes widespread damage to property and loss of life in several counties of a coastal state. Over 100,000 homes were damaged or destroyed by high winds and floods. The group of people affected by the disaster is large enough so that providing aid to members of this group benefits the public as a whole. Therefore, a qualified charitable organization can be formed to assist a definite group of persons provided the people are part of a sufficiently large community.

Needy and Distressed Test -- Generally, a disaster relief or emergency hardship organization must have in place a needy or distressed test -- a set of criteria by which it can objectively make distributions to individuals who are financially or otherwise distressed. Adequate records are required to support the basis upon which assistance is provided.

Persons do not have to be totally destitute to be needy, merely lacking the resources to meet basic necessities. Moreover, the type of information needed to support assistance may vary depending on the circumstances. A charitable organization that is distributing short- term emergency assistance may require far less documentation, in the way of victims establishing that they need relief assistance, than an organization that is distributing longer-term aid. Providing a drug rescue and telephone crisis center or rescue service to a person lost at sea or trapped by a snowstorm, flood or other disaster would not require a showing of financial need, since the individual requiring these services is distressed irrespective of the individual's financial condition.

A charitable organization that provides disaster or emergency hardship relief is not required to make a person whole, such as by rebuilding the person's uninsured vacation home destroyed by a flood or replacing a person's income after the person's business is destroyed in a riot. Furthermore, a person who is eligible for assistance because the person is a victim of a disaster or emergency hardship has no right to funds. This is especially relevant when the volume of contributions received in response to appeals exceeds the immediate needs. A charitable organization is responsible for taking into account the charitable purposes for which it was formed and the individual needs of the victims when using its discretion to distribute the funds.

Short-Term and Long-Term Assistance -- Often charitable organizations are established as a result of a particular disaster where both short-term and long-term assistance might be required.

Example: A group of persons are killed by the actions of terrorists. A charitable organization, previously formed to assist persons who are victims of terrorism in the United States, determines that some victims' spouses and dependents have adequate resources and insurance to meet immediate financial and medical needs, but others lack resources to meet these needs. The organization also determines that there will likely be a need for long-term help, such as for financial assistance and post-secondary education expenses for the victims' dependents. In this circumstance, the organization can grant funds to assist in meeting more immediate financial and medical needs. Such a grant may take into account needs likely to arise in the immediate future as well as current needs. The organization can also set aside funds for anticipated long-term needs; however, when a grant is made out of the set-aside funds, it must be based on needs that exist at the time the grant is made. Charitable funds cannot be distributed to persons merely because they are victims of a disaster. Therefore, an organization's decision about how its funds will be distributed must be based on an objective evaluation of the victim's needs at the time of the grant.

Employer-Related Assistance -- Frequently, employers provide programs that assist employees in coping with personal tragedy. At issue is whether an employer, by providing disaster or emergency hardship assistance to its employees through a charitable organization, is chiefly serving the employer's private interests. If that happens, the organization will not qualify as charitable and the assistance will likely be taxable compensation to the employees.

Employer-related assistance programs qualify as charitable and do not result in taxable compensation to employees provided specific criteria are satisfied. The employer-related criteria do not apply to organizations where the employer does not provide any financial support, such as employee-funded disaster or emergency hardship relief organizations. These criteria demonstrate that employment is merely a factor rather than the sole basis for providing relief. See the following chart on criteria.

Criteria/Issue                Explanation
Public charity                Organization providing
                             assistance is a public charity
                             because the public normally
                             supports it. Publication 557,
                             Tax-Exempt Status for Your
                             Organization, identifies
                             distinctions between public
                             charities and private
                             foundations.
Organization control          The employer does not control
                             the organization.
Organization does not         The organization does not
provide employment            fulfill a legal obligation of
benefits                      the employer, such as a
                             program that is part of a
                             collective bargaining
                             agreement or a program that is
                             part of a written plan, that
                             provides life, sick, accident,
                             supplemental unemployment
                             compensation or similar
                             benefits. The organization's
                             program is intended to provide
                             basic necessities to persons
                             who have encountered financial
                             hardship for reasons beyond
                             their control and/or to
                             provide temporary relief to
                             meet the necessities of life
                             to persons who are needy
                             and/or distressed on account
                             of a disaster.
Charitable class              The organization's
                             beneficiaries comprise a
                             charitable class which is
                             indefinite or of sufficient
                             size.
Employment as initial         Other than as an initial
qualifier                     qualifier, employment is not a
                             relevant factor in the
                             selection process, or in the
                             amount or type of assistance
                             provided.
Committee administers         The organization establishes a
program                       committee to administer the
                             program consisting of either:
                             o persons, who aside from
                               serving on the committee,
                               have no financial interest
                               in the employer, or
                             o employees who represent a
                               broad range of employees not
                               limited to executives.
                               These employees understand
                               that they are acting in a
                               personal capacity as agents
                               of the organization rather
                               than as representatives of
                               the employer.
Criteria for application,     The organization establishes
selection, and                specific written criteria for
disbursement of funds         the application, selection,
                             and disbursement of funds,
                             including minimal information
                             from persons seeking immediate
                             relief and more detailed
                             information from persons
                             seeking more long-term
                             assistance. The selection
                             process is objective and
                             nondiscriminatory.
Program is not for            The employer or the
recruiting employment         organization does not use the
                             program to:
                             o recruit employees
                             o induce employees to continue
                               their employment or to
                               otherwise follow a course of
                               action sought by the
                               employer.
Hardship relief funds         The organization informs all
                             employees of the employer that
                             disaster and emergency
                             hardship relief funds are
                             available, including the
                             criteria for application and
                             selection.
Voluntary contributions       The organization accepts
                             voluntary contributions from
                             employees, the employer or
                             others provided they are not
                             earmarked for specific
                             individuals.
For more information on employer-related disaster and emergency hardship relief organizations, see the 1999 Continuing Professional Education (CPE) article entitled Disaster Relief & Emergency Hardship Programs at www.irs.gov.bus_info\eo.

Gifts and Charitable Contributions Rules

This part of the brochure discusses the tax rules that apply to persons who want to claim a tax-deductible contribution for their disaster relief or emergency hardship donations. It also explains whether gifts for disaster and emergency relief are taxable to contributors or to individual recipients.

Charitable Contributions -- As previously noted, charitable contributions are tax-deductible if made to a qualified organization. Qualified organizations include charitable organizations that the IRS has determined are exempt from federal income tax; churches, their integrated auxiliaries, and conventions or associations of churches; and domestic fraternal societies operating under the lodge system (if the contribution is to be used exclusively for charitable purposes).

Before making a contribution to an organization for disaster relief, a contributor may want to verify whether the contribution will be tax-deductible. A contributor may use any of the following means to determine if the organization is qualified to accept tax- deductible contributions.

o Call IRS Customer Service at (800) 829-1040.

o Access Publication 78, Cumulative List of Organizations described in Section 170(c) of the Internal Revenue Code of 1986, for a list of qualified charities at www.irs.gov/eo.

Anyone may obtain a copy of an organization's exemption application or annual information return, Form 990, Return of Organization Exempt from Income Tax, filed by most public charities with annual gross receipts in excess of $25,000, or Form 990-PF, Return of Private Foundation, filed by private foundations. A request for the organization's exemption application, Form 990 or Form 990- PF, can be made by contacting the organization directly or by submitting Form 4506-A, Request for Public Inspection or Copy of Exempt Organization IRS Form, to the IRS. Form 990 and Form 990-PF may be posted on an organization's Web site.

When a contributor makes a donation to a qualified organization, the contributor must substantiate the amount of the contribution by maintaining reliable written records, such as cancelled checks or receipts. There are two different types of gifts that require written acknowledgements from the charitable organization: a single contribution of $250 or more, and a quid pro quo single contribution in excess of $75. A quid pro quo contribution is a payment made partly as a contribution and partly as a payment for goods or services. For example, a contributor makes a payment of $200 to a charity and receives a $25 ticket to a concert sponsored by the charity. The contributor may claim a contribution deduction of $175 on the contributor's tax return. For more information about contributions, see Publication 526, Charitable Contributions.

For detailed information on what a charity is required to include in the written acknowledgement statements given to donors, see Publication 1771, Charitable Contributions (for exempt organizations) -- Substantiation and Disclosure Requirements. You can download IRS publications at www.irs.gov, or order free copies through the IRS at (800) 829-3676.

Foreign Contributions -- Contributions to domestic, tax-exempt, charitable organizations that provide assistance to persons in need and/or distress who are located in foreign locations qualify as tax- deductible contributions for federal income tax purposes provided the domestic organization has full control and discretion over the uses of such funds. If the donor is a corporation, its contributions are not deductible unless the domestic charity is itself treated as a corporation for federal tax purposes.

Contributions to foreign organizations are generally not tax- deductible, unless permitted by a tax treaty.

Example: Under the terms of the United States-Canada Income Tax Convention (Treaty), Canadian registered charities may receive tax-deductible contributions from a U.S. contributor. The deduction is limited to 30 percent of the donor's Canadian source income if the organization is a private foundation under U.S. law. The deduction is limited to 50 percent of the donor's Canadian source income if the organization is a public charity under U.S. law.

Contributions to tax-exempt, charitable organizations created under the laws of U.S. possessions are tax deductible. For federal income tax purposes, United States possessions include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and the Commonwealth of Northern Mariana Islands.

Gifts -- Persons can help victims of disaster or hardship by giving gifts directly to individual victims or through non-qualified organizations. This type of assistance does not qualify as tax- deductible contributions since a qualified organization is not the recipient. However, individual recipients of gifts are not subject to tax on the value of the gift, unless an employer provides the assistance for the benefit of an employee. Persons who provide gifts directly to individuals may be subject to gift tax if the value of the gift exceeds $10,000 to a person in a particular year. The $10,000 amount is periodically adjusted for inflation.

Sometimes providing financial assistance apart from a qualified charity is desirable.

Example: Jim, a college student and a counselor at a summer camp, accidentally rolls his old truck into a lake. The other counselors collect several hundred dollars and give the monies directly to Jim to help with the down payment for another truck. Since the counselors are making personal gifts to a particular individual, the use of a qualified charitable organization would not be appropriate. The counselors cannot take a tax-deduction on their gifts to Jim. But, neither Jim nor the other counselors are subject to federal tax on the gift.

For more information about the taxability of gifts, see Publication 950, Introduction to Estate and Gift Taxes. You can download IRS publications at www.irs.gov or order free copies through the IRS at (800) 829-3676.

Additional Help on Disaster-Related Topics

Publications -- To order free IRS publications and forms, call the IRS at (800) 829-3676. Download IRS publications and forms at www.irs.gov.

Publication 526          Charitable Contributions
Publication 547          Casualties, Disasters and Thefts
                         (Business and Non-Business)
Publication 557          Tax-Exempt Status for Your Organization
Publication 950          Introduction to Estate and Gift Taxes
Publication 1391         Deductibility of Payments Made to
                         Charities Conducting Fund-Raising Events
Publication 1600         Disaster Losses - Help From the IRS
Publication 1771         Charitable Contributions (for exempt
                         organizations)  - Substantiation and
                         Disclosure Requirements
Publication 2194         Disaster Assistance Kit
Telephone Assistance -- The following telephone numbers will connect you to IRS Customer Service.
(877) 829-5500 IRS Exempt Organizations Customer Account Services
               8:00 a.m. - 9:30 p.m., Eastern Time, Monday - Friday
               for tax information specific to exempt organizations
(202) 874-1460 IRS Foreign Assistance Customer Service 8:00 a.m. -
               4:30 p.m., Eastern Time, Monday - Friday for tax
               information specific to foreign tax issues
(800) 829-1040  IRS Customer Service for general tax information 24-7


Add comment

Login or register to post comments

Comments

Group details

Follow

RSS

This group offers an RSS feed.
 
7520 Rates: October 2.2% September 2.4% August 2.4%

Already a member?

Learn, Share, Gain Insight, Connect, Advance

Join Today For Free!

Join the PGDC community and…

  • Learn through thousands of pages of content, newsletters and forums
  • Share by commenting on and rating content, answering questions in the forums, and writing
  • Gain insight into other disciplines in the field
  • Connect – Interact – Grow
  • Opt-in to Include your profile in our searchable national directory. By default, your identity is protected

…Market yourself to a growing industry