Disaster Relief Organizations: Assistance Through Charitable Giving
When disaster strikes, be it natural or financial, many companies and individuals want to step in and provide help. Existing charities usually take the lead in collecting funds and goods that are used for relief. However, in some cases an employer group will want to lend a helping hand and provide relief to employees as well as the communities in which they operate. As a result, many new organizations have formed in recent years in an effort to provide disaster relief and assistance. Given this rise in disaster relief organizations, it’s important to understand the rules that govern their formation and continuation.
IRC 501(c) (3) status for disaster relief organizations
Relief support can take the form of many things during and after a disaster including food, clothing, shelter, counseling, healthcare, education or long-term housing. When stepping up to help, be sure the assistance is geared towards a class of persons broad enough to constitute a charitable class. In other words, assistance cannot simply be for a single family or an individual. Even if the group is smaller and limited to a particular group of employees or franchisees, the group could still qualify as a charitable class if the group is indefinite and open ended, such as group that includes victims of a current or future disaster. As an example, if the group of individuals that would benefit from charitable contributions includes everyone from a particular town hit by a tornado, the class of people should be sufficiently broad enough to qualify.
Public charity or private foundation?
Assuming, that the organization qualifies as a 501(c) (3) organization, a determination must be made as to whether the organization is a public charity or private foundation. Employer-sponsored private foundations can make payments to employees for certain “qualified disasters” that the Secretary of the Treasury has declared to be qualified disasters. On the other hand, public charities can make payments under broader circumstances, e.g., other disasters or employee emergency hardships. Classification as a public charity will depend on whether there is broad-based public support as opposed to a few individuals or a company making the major contributions. In some cases, a public charity can be classified as one if it supports another public charity like a community foundation. For a new organization that is formed by a company to help employees who encounter disasters, it may be possible for that charity to show broad public support if other employees make donations. Even though these employees are associated with the company, they still may be considered the general public when it comes to individual donations.
Employers cannot excessively control a public charity
In addition to the charitable class requirement, an employer cannot excessively control a public charity or nor can the organization impermissibly serve the related employer’s private interests. Recipients should be chosen based on an objective determination of need or distress and should be selected by a group independent of the employer so that any benefit to the employer is merely incidental.
If these requirements are met, the public charity’s payments—even if those payments are to employees and their family members—are considered payments for charitable purposes, and thus would not qualify as taxable income.
This is just a short summary of what companies and organizations need to keep in mind the next time disaster strikes and they wish to extend a helping hand.
Does your organization provide relief to employees who have fallen victim to disaster?