In the aftermath of the recent earthquake that shook the east coast of the United States, the tornados of this summer and now the impending hurricane season, we are reminded that we are subject to the mercy of natural forces causing injury to individuals and property.
Nonprofit organizations interested in aiding victims must be aware of the tax rules that guide their humanitarian efforts. One good source is Publication 3833 “Disaster Relief: Providing Assistance Through Charitable Organizations,” published by the IRS. This publication provides comprehensive information on the rules that apply to the deductibility of contributions for these efforts. Also, see “Charitable Giving and Disaster Relief Efforts in Response to the Haitian and Chilean Earthquakes,” by Milton Cerny and Adam M. Damerow that discusses Publication 3833 and international relief efforts.
Aid to Individuals
Organizations may provide assistance to individuals in the form of funds, services or goods to ensure that victims have the basic necessities such as food, clothing, housing (including repairs), transportation and medical assistance (including psychological counseling). The type of aid that is appropriate depends on the individual’s needs and resources. Disaster relief organizations are generally in the best position to determine appropriate assistance.
A charity may provide crisis counseling, rescue services or emergency aid such as blankets or hot meals immediately following a disaster without a showing of financial need. Providing such services to the distressed in the immediate aftermath of a disaster serves a charitable purpose regardless of the recipients’ financial condition.
Donations to Disaster Relief Organizations
In these emergency situations, donations should be made to an existing, recognized section 501(c)(3) charity to provide immediate relief. For instance, a religious organization like Catholic Charities or a relief organization like the Red Cross are existing organizations that have provided targeted disaster relief and emergency hardship assistance in response to natural disasters and other unforeseen emergencies. Community-based organizations and charities with a local presence often know best what assistance is needed, and they understand the social and cultural context of a disaster. Working with and supporting these types of existing organizations may prove to be a more efficient use of disaster relief resources.
Qualified disasters include Presidentially Declared Disasters as well as other catastrophic events. Once the IRS declares an event a qualified disaster for federal income tax purposes, pursuant to section 139(c)(3) of the Code, recipients of the relief payments can exclude those payments from their federal income tax return. These payments generally include necessary personal, family, living and funeral expenses that are not covered by insurance. They also include expenses to repair or rehabilitate personal residences or repair or replace the contents to the extent not covered by insurance. These payments are not included in the individuals’ gross income.
Such qualified disaster payments can also be made by a recognized company-sponsored private foundation to their employees and their family members affected by the disaster. See IR2011-37.
McGuireWoods LLP Nonprofit & Tax-Exempt Organizations Group
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