In the aftermath of tropical storms and hurricanes Harvey, Irma and Maria, many have mobilized to provide assistance to those affected by these natural disasters. Seeking to help such individuals and businesses is commendable, and charities should consider the following when undertaking disaster relief efforts:
- One-time disaster relief: Existing charities may participate in one-time disaster relief activities without obtaining prior permission from the IRS even if the organization was not specifically organized to provide disaster relief. However, the organization must report this new activity on its annual return and may wish to report a change in its activities to the IRS Exempt Organizations Determinations Office.
- Existing disaster relief platform: Rather than engaging in disaster relief directly, it may make sense to partner with an established charitable organization with a historic focus on disaster relief. These organizations, such as local branches of the Red Cross or United Way, are often able to administer relief programs more proficiently and ensure that funds are dispensed where needed most.
- Establish an ongoing disaster relief program: To set up a disaster relief program that will be ongoing (rather than a one-time fundraiser), you first should confirm that the charity's corporate purposes stated in its certificate of incorporation include the proposed activities. It may be desirable to adopt an updated mission statement and guidelines for distributing funds if the organization plans to distribute funds directly. It will also be necessary to apply for recognition of the organization's tax-exempt status, although expedited processing may be possible.
- Needs-based test: Charities distributing disaster relief funds directly, whether on a one-time or an ongoing basis, should be aware of the needs-based test. Generally, this requires an assessment that a recipient is financially or otherwise in need. This assessment may be easy to make in the aftermath of a disaster, but as time goes on, charities should conduct more detailed individual financial needs assessments and have procedures in place to determine when assistance should be discontinued.
Whether providing funds on a one-time basis, partnering with an existing organization or establishing a new disaster relief program, it is important to work with counsel and to consider the local state rules governing solicitation of funds in each state in which you will be fundraising.