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Guidance for Nonprofits Collecting Money and Relief Supplies for Hurricane Disaster Victims

Question: Our nonprofit organization (public charity or private foundation) is collecting relief aid to help people in Texas, Florida or Puerto Rico who were seriously affected by the hurricanes. Disaster relief is not our normal charitable activity. If we collect money and supplies, can we tell our donors that their donations are tax deductible?

Answer: In most cases, yes. Largely because of the terrorist attacks on 9-11 and the subsequent formation of many hundreds of charities across the U.S., the IRS has issued special guidance for charities providing disaster relief.

The IRS states on its web site that a charitable organization may engage in charitable activities that were not described in its Form 1023 Application for Tax-Exempt Status as long as those activities do qualify as charitable and as long as the activities are described on the tax return it files.
In Disaster Relief Publication 3833, page 3, the IRS specifically states that charities may engage in disaster relief activities even though it was not specifically organized to provide disaster relief, as long as the activities are disclosed on the tax return. The IRS also indicates that it may be a good idea to report the activities to Determinations.

Here are some of the IRS’s primary concerns regarding the provision of disaster relief by a charity:

1. Earmarking: A donation cannot be solicited which is earmarked for a particular individual or family if it is to be treated as tax-deductible. So, you could not say that you are asking for donations for the Rodriguez family whose house was destroyed. That would not be a deductible donation. You should simply say that you are collecting relief aid for Houston (or Florida, or Puerto Rico). You could specifically mention that it is for people in a certain city or district if you wish and you could mention the types of assistance you are providing to the people.
2. Impermissible Benefits: Expenditures would be problematic if they were made to benefit family members or employees of a person who is an officer/director/ of the foundation.
3. Documentation: A charity should document who receives the money and goods (and how much–FMV) and what they do with it. I recommend reading IRS publication 3833 regarding documentation, pages 8-13 for specific guidance on the documentation requirements for long-term vs short-term disaster relief aid.

Deducting Contributions

In order for a donor to take a tax deduction for their donation, if the donation has a value of $250 or more, the foundation will need to provide a “contemporaneous acknowledgement” of the donation to the donor: A thank-you letter. Please see IRS Publication 1771, pages 2 and 3:  The thank you letter must say that “no goods or services were provided to you by the foundation in exchange for your donation” if that is the case, which it most likely should be.
Regarding a statement of deductibility: “We are a charitable private foundation (or a public charity, as appropriate) exempt under Section 501(c)(3) of the Internal Revenue Code. Donations are deductible to the extent allowed by law. Consult your tax adviser to determine the amount of any charitable deduction you may take.”
While donations would be tax deductible, they are subject to the 30% of AGI limitation for private foundations, and the 50% AGI limitation for donations to public charities. Other deductibility rules and limitations may apply to donations of non-cash items or inventory donated by businesses. A charity should generally not provide tax advice. Refer the donor to his or her tax adviser to determine if their donation will result in a benefit on their tax return. It is important to advise the donor whether the charity is a public charity or a private foundation, since that MAY impact the amount of the donation.

Registering to Solicit Charitable Donations

Another issue is the state charitable solicitation registration requirements. A charitable organization is usually required to register with the state to solicit contributions in that state. Most public charities have already registered, but some private foundations may not have been required to register previously since they often do not solicit contributions.
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