Understanding Disaster Relief Charity Regulations
Posted by Elizabeth Krause on April 24, 2024
As the United States enters a period prone to natural disasters, such as tornadoes in May and the Atlantic hurricane season starting on June 1, nonprofits offering aid to disaster victims are gearing up for potential emergencies. However, organizations operating in this space must navigate specific IRS regulations when dispensing aid.
Defining Charitable Activities
Disaster relief organizations are permitted to provide short-term emergency assistance and long-term aid to ensure victims have necessities, including medical care, food, clothing, shelter, cash, or rebuilding assistance. Such relief qualifies as charitable activity as it aims to alleviate human suffering.
However, nonprofits must assist a "charitable class," meaning beneficiaries should either be too numerous to be individually identified or sufficiently indefinite that the community benefits. Additionally, needs-based tests must be applied, ensuring aid is distributed objectively based on evaluated needs.
Assisting Businesses
Charities can extend disaster aid to businesses if two conditions are met: the assistance must be reasonably related to accomplishing a tax-exempt purpose, and any private benefit to businesses must be incidental. Aid to businesses can serve charitable purposes, such as preventing community deterioration or reducing the burden on local government.
Record Maintenance
Maintaining thorough records is vital to demonstrate compliance with IRS regulations. Documenting amounts paid, the purpose of payments, and evidence that payments align with charitable purposes and victims' needs is essential. Additionally, record objective criteria for disbursing assistance, selection processes for recipients, and any relationships between recipients and key stakeholders.
Exceptions apply for organizations distributing short-term emergency assistance, where documenting victims' names and addresses is not required. Instead, record the date, place, and estimated number of victims assisted.
Additional Considerations
Various other IRS rules may apply to nonprofit organizations providing disaster relief. For guidance on complying with regulations for tax-exempt organizations, reach out to us for assistance.
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As a member of the audit department, Liz is responsible for conducting and supervising audit fieldwork. She has expertise working with nonprofit organizations, human service agencies, health care institutions, and governmental entities in the areas of audits, Single Audit, reimbursement, tax and information returns, and financial reporting. Prior to joining Lumsden McCormick in 2013, Liz worked at such places as for the City of Buffalo in the Department of Audit and Control.