By Richard R. Hammar, J.D., LL.M., CPA
© Copyright 2001 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m08 c0103
IRS publication addresses individuals’ gifts to benevolence needs. The IRS issued an updated Publication 3833 (Disaster Relief) in March of 2002. This publication provides charities with helpful information on how to handle contributions from individuals that designate a specific benevolence recipient. Here is the key excerpt:
Individuals can also help victims of disaster or hardship by making gifts directly to victims. This type of assistance does not qualify as a tax-deductible contribution since a qualified charitable organization is not the recipient. However, individual recipients of gifts are generally not subject to federal income tax on the value of the gift.
The publication then provides the following example which will be useful to many church treasurers in evaluating the tax-deductibility of contributions to the church that designate a particular needy person.
Jim, a college student and a counselor at a summer camp, accidentally rolls his old truck into a lake. The other counselors collect several hundred dollars and give the monies directly to Jim to help with the down payment for another truck. Since the counselors are making gifts to a particular individual, the use of a qualified charitable organization would not be appropriate. The counselors cannot claim tax deductions for their gifts to Jim. However, Jim is not subject to federal income tax on the gift amount.
Church assistance to victims of disasters and hardship. IRS Publication 3833 (Disaster Relief) contains information concerning the distribution of funds by a "disaster relief or emergency hardship organization." The same principles would apply to churches and other religious organizations. Here are the key excerpts that are directly relevant to many kinds of benevolence gifts made to churches:
Disaster relief or emergency hardship organizations may provide assistance 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. For example, immediately following a devastating flood, a family may be in need of food, clothing, and shelter, regardless of their financial resources. However, they may not require long-term assistance if they have adequate financial resources. Individuals who are financially needy or otherwise distressed are appropriate recipients of charity. Financial need and/or distress may arise through a variety of circumstances. Examples include individuals who are:
The group of individuals that may properly receive assistance from a charitable organization is called a charitable class. A charitable class must be large or indefinite enough that providing aid to members of the class benefits the community as a whole. Because of this requirement, a tax-exempt disaster relief or emergency hardship organization cannot target and limit its assistance to specific individuals, such as a few persons injured in a particular fire. Similarly, donors cannot earmark contributions to a charitable organization for a particular individual or family. When a disaster or emergency hardship occurs, a charitable organization may help individuals who are needy or otherwise distressed because they are part of a general class of charitable beneficiaries, provided the organization selects who gets the assistance. (emphasis added)
The publication provides the following example:
Linda’s baby, Todd, suffers a severe burn from a fire requiring costly treatment that Linda cannot afford. Linda’s friends and co-workers form the Todd Foundation to raise funds from fellow workers, family members, and the general public to meet Todd’s expenses. Since the organization is formed to assist a particular individual, it would not qualify as a charitable organization.
Consider this alternative case: Linda’s friends and co-workers form an organization to raise funds to meet the expenses of an open-ended group consisting of all children in the community injured by disasters where financial help is needed. Neither Linda nor members of Linda’s family control the charitable organization. The organization controls the selection of aid recipients and determines whether any assistance for Todd is appropriate. Potential donors are advised that, while funds may be used to assist Todd, their contributions might well be used for other children who have similar needs. The organization does not accept contributions specifically earmarked for Todd or any other individual. The organization, formed and operated to assist an indefinite number of persons, qualifies as a charitable organization.
The publication cautions charities that “an organization must maintain adequate records that demonstrate the victims’ needs for the assistance provided. These records must also show that the organization’s payments further charitable purposes.” It clarifies that documentation should include:
However, the publication concedes that “a charitable organization that is distributing short-term emergency assistance would only be expected to maintain records such as the type of assistance provided, criteria for disbursing assistance, date, place, estimated number of victims assisted (individual names and addresses are not required), charitable purpose intended to be accomplished, and the cost of the aid. Examples of such short-term emergency aid would include blankets, hot meals, electric fans, or coats, hats, and gloves. An organization that is distributing longer-term aid should keep the above more-detailed records.”