Charitable Giving Rules Outlined in IRS Publication 3833
[By Children’s Home Society of Florida Foundation]
Hurricane Katrina and other major storms strike the Gulf Coast leaving great devastation in their way. Tornados roar through Oklahoma, Missouri, Arkansas and the Deep South. An EF5 tornado has winds of 200 miles an hour and can destroy even steel buildings. A Level 5 hurricane wallops the coast with winds over 155 mph.
Earthquakes can strike throughout the West Coast and the heartland of the nation. Even with better building codes in the past decades, thousands of buildings may be destroyed and many left homeless.
Floods can often occur as part of the storm surge with a hurricane. There also have been major floods on the Mississippi and Missouri watershed areas.
All of these natural disasters happen with unfortunate frequency. While Mother Nature usually provides sunshine and rain in good measure, there are also devastating storms that leave thousands homeless, injured and even cause loss of life.
Charities Respond
One of the characteristics of a great nation is that there are millions of people with good hearts and a desire to help following a disaster. This help can be immediate, mid-term or even long-term.
Immediate assistance in the hours and days after a major natural disaster will frequently include basic needs. Meals and soup kitchens, shelters in public buildings, area housing facilities and emergency medical care are all needed. A wide range of charitable relief organizations are prepared to provide this level of immediate assistance.
Mid-term assistance is important because the rebuilding process can take months and even years. Organizations provide mid-term assistance with mobile housing, childcare so that parents can return to work and educational training. Following a major disaster, many individuals find that they must acquire new job skills and frequently will even change careers.
Long-term care may include counseling due to the trauma. In a major natural disaster, many victims have lost friends or family members in addition to the devastation wreaked on their property. It is essential that they have professional care that may last for an extended period.
Business Needs
Businesses may suffer from a complete devastation of an entire business district. They may need a concerted community-wide effort to rebuild the entire district. If there is not a cooperative program by government, charitable organizations and the private enterprises, the entire community could suffer serious deterioration.
Charitable organizations may help to restore communities, particularly where that assistance lessens the burdens of government in the rebuilding process.
Aid to businesses must meet two standards. First, it must accomplish a general public good charitable purpose. Second, the benefits to private individuals must be incidental to that goal of improving the business district for all citizens.
Charitable Class
In any disaster, a relief organization must determine who should receive help and the nature of that help. The definition of the potential group to receive help is called the “charitable class.”
This class must be sufficiently large that their assistance does benefit the public. It could be everyone in a particular city, county or state that has suffered a natural disaster.
If the group is employees of a specific entity, the program must be sufficiently open-ended and cover employees of future disasters. A program may not be designed to benefit a specific family or individual. However, so long as the program has a reasonably large charitable class and objective means of determining qualification for care, it may benefit specific persons or individuals.
Needy or Distressed Test
The determination of the need standard will reflect the nature of the assistance. For immediate assistance in the aftermath of a tornado, hurricane, earthquake, fire or flood, a relief organization may provide food or shelter to any individuals who appear to require assistance. The immediate nature of the disaster and the pressing need for immediate assistance justify greater latitude.
However, if the assistance is to be extended for two, three or six months, then there is time to make a specific determination of need. In that case, the charitable organization must create objective standards for deciding who are appropriate beneficiaries for relief assistance.
Types of Assistance
The types of assistance may be reasonably broad-based, provided there is an objective standard for determining qualified recipients.
For example, a surviving spouse whose husband or wife was lost in the natural disaster can receive “stay at home” assistance to care for minor children. The children may receive tuition and education assistance to attend an appropriate school. For those in need, they also could receive assistance with rent payments or vehicle operating costs so that they can have a home and provide for their family. In addition, travel costs to funerals for family members may be covered.
Documentation
All relief organizations must maintain sufficient records. The records must describe the general charitable purpose and methods and the manner in which the disaster victims are deemed qualified for assistance.
The records and documents will typically include the following.
1. Description of the assistance provided
2. Costs for providing that care
3. Charitable purpose for the aid given
4. Objective criteria for determining need
5. Manner for selecting the recipients
6. Name, address and amount distributed to recipients (except immediate relief)
7. Is the recipient related to an officer or director?
8. How is the selection committee determined?
An exception to the documentation requirement is for short-term emergency assistance. An organization may distribute blankets, meals and clothing on an immediate basis without requiring names of individuals. This is permitted so that organizations can minimize further illness or loss of life during the immediate recovery from a disaster.
Reporting to the IRS
Public charities are required to file IRS Form 990 or Form 990-EZ. For Form 990 or 990-EZ, the public charity will need to include a statement of disaster relief services. This should describe the general purpose, nature and structure of the disaster relief programs.
Public charities with gross receipts under $50,000 per year file Form 990-N (postcard). Private foundations file Form 990-PF. The private foundation also must include appropriate information about disaster relief activities. Private foundations must also exercise caution that they are not transferring benefits to disqualified parties in an impermissible fashion. Private foundations are subject to the Sec. 4941 Self-Dealing rules that limit benefits transferred to family members.
Employer Programs
Employers may develop programs to assist their employees who suffer personal hardship during a disaster. The employer programs are generally operated through a public charity, a donor advised fund or an employer private foundation.
The employer public charity qualifies because it receives broad support from the general public. Accordingly, its activities are subject to review by the public supporters. Nevertheless, these charities must also be cautious to be certain that there is a large or indefinite charitable class. Recipients should be based on an objective determination of need and selected by an independent committee.
Corporations may create donor advised funds with a community foundation or other public charity. A donor advised fund is normally prohibited from making individual grants and usually makes grants to Sec. 501(c)(3) organizations.
However, a donor advised fund of a corporation is permitted in limited circumstances to make individual grants. The requirements include the following:
1. Qualified Disaster – The federal government has indicated the particular natural disaster is qualified under federal guidelines.
2. Charitable Class – It is sufficiently large and potentially includes future disasters.
3. Objective Need – The recipients are selected in a neutral manner.
4. Independent Committee – An independent or objective committee is selected to be certain that the recipients are not based on any connection with the employer, but are generally in need.
5. No Director or Director Officer – No key person may benefit.
6. Adequate Records – The fund can show that beneficiaries were qualified.
The third category is an employer private foundation. The private foundation may make grants but must be cautious in making certain that the grants are appropriate.
The private foundation may make grants if a qualified disaster as defined in Sec. 139 of the code has been determined by the government. The class of beneficiaries must be large or indefinite and include potential future natural disaster victims. There must be an objective determination of need by an independent committee. No director or officer can benefit and there must be adequate records.

Natural Disaster
The federal government recognizes the enormous importance of the thousands of relief organizations throughout the nation. Following a hurricane, tornado, earthquake, flood or fire, these charities are frequently close behind police and fire responders. It is logical and appropriate that these charities should be able to provide immediate relief without burdensome guidelines.
However, as the relief project time lengthens, it becomes more and more important to have policies in place. Because there is always a limited amount of disaster assistance, it is the goal of all of these guidelines to be sure that the assistance benefits those who have the greatest need.
Generally, the rules are designed to be certain that there is a large class of beneficiaries. The determination of need must be on a neutral and objective basis. There should be specific criteria for matching those in need with the assistance provided. Finally, all disaster relief organizations are responsible for maintaining good records.
Assessment
The net result of these rules is to facilitate organizations that have both good hearts and good management capabilities. Almost everyone in the nation could at some time be in the midst of a great natural disaster. It is important that all relief organizations are prepared to provide assistance within the rules outlined in IRS Publication 3833. It this way, those in serious need receive the best possible benefit.
Conclusion
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Filed under: Alerts Sign-Up, Estate Planning, Ethics | Tagged: Charitable Class, charitable giving, Children's Home Society of Florida Foundation, Hurricane Katrina and, When Disaster Strikes | 2 Comments »