The spread of the novel coronavirus (COVID-19) has caused dramatic upheaval to public health, social relations, and the economy. The full impact of the virus remains uncertain, and the coming weeks and months will present tremendous challenges domestically and abroad. Charitable organizations are well positioned and have a unique opportunity to help those affected by the virus. Over the years, the Internal Revenue Service has provided useful guidance on how 501(c)(3) organizations can provide aid during times of disaster. That guidance tends to evolve as society faces different types of disasters, and the needs of individuals differ depending on whether a disaster takes the form of a terrorist attack or a hurricane or—as we are quickly learning—a pandemic. The summary below is based on guidance developed to date, but may evolve as charitable organizations and the federal government develop innovative and vital approaches responding to the current crisis and its unique impacts.
Who can receive aid?
501(c)(3) organizations may provide disaster relief to individuals who are needy or otherwise distressed because they are members of a “charitable class.” A charitable class is a group that is sufficiently (i) large or (ii) indefinite, such that providing aid to members of the class will benefit the community as a whole. A charity cannot limit its assistance to a specific or particular individual or family. For example, a charitable organization cannot create a disaster relief program for a single family who has suffered from COVID-19. However, it can create a program that will provide aid to individuals, families, and businesses affected by the COVID-19 crisis now and in the future.
How does an organization decide who is needy or distressed?
Disaster assistance must be provided on the basis of an objective determination of need. No potential aid recipient has an automatic right to charitable support. Instead, a charity must establish an objective standard that can be applied to potential aid recipients. In developing a process for determining need, the organization must consider its charitable purposes and the specific needs and resources of victims, as well as the effects of the disaster. To be eligible for aid, an individual need not be destitute, but must lack resources to obtain necessities or otherwise be in distress or need.
The objective standard may depend on the nature of the disaster, and may evolve over the course of the disaster. Organizations may develop different standards for short-term needs (such as immediate provision of COVID-19 tests or medicine) as opposed to longer-term needs (such as resources to help victims of the virus rebuild their lives following long-term illness or loss of employment). As charities develop standards in the context of the current crisis, they can focus on those that are reasonable, responsive to contemporary needs, and can be clearly explained, and they can also look to peer institutions and current practice in the community for guidance.
What sort of documentation does a charitable organization need to maintain?
An organization needs to document the amount of aid it provides, including amounts paid, the purpose of the payments, and information demonstrating that distributions were made to meet charitable purposes and the needs of victims. In addition, the documentation should indicate the objective criteria used for disbursing aid, how the recipients were selected, and any relationship between the aid recipient and officers, directors, or key employees of, or substantial contributors, to the charitable organization.
The IRS allows a charitable organization that is distributing short-term emergency assistance to determine not to maintain records of the name, address, and amount distributed to each recipient. However, the organization should still maintain records that describe the date, place, and estimated number of victims assisted. In any case, recordkeeping should be both reasonable and practical under the circumstances.
Can charitable organizations support businesses as well as individuals?
Generally, charitable organizations may support businesses if, in doing so, they accomplish a charitable purpose such as combatting community deterioration, alleviating distress or lessening the burdens of government. The COVID-19 pandemic is already having a dramatic impact on small businesses and thus on the communities they serve and people they employ. Charities have an opportunity to help strengthen their communities and prevent unemployment and further economic upheaval (particularly for those that are most vulnerable) by supporting businesses in need at this moment.
The IRS has made available useful information regarding disaster relief programs including on its website and Publication 3833: Disaster Relief: Providing Assistance Through Charitable Organizations. In addition, in the past the IRS has issued special guidance regarding particular disasters (such as the September 11 terrorist attacks or Hurricane Katrina). We will continue to update this site as guidance is made available.