Providing Relief in Times of Disaster - Gifts from a Public Charity
Unless from a donor-advised fund, disaster relief grants to domestic section 501(c) (3) public charities do not present special issues.
Disaster relief aid can be provided through a donor advised fund generally by making grants to domestic public charities that are assisting those harmed by the disaster. However, grants from such funds are subject to limitations that do not otherwise apply to grants by public charities. A key limit is that advised fund grants may not be made directly to individuals. Grants from donor advised funds to certain supporting organizations and to domestic non-charities can only be made in accordance with the private foundation expenditure responsibility rules. Grants to non-governmental organizations outside the United States require either expenditure responsibility or a determination that the grantee is the equivalent of a domestic public charity. Grants to foreign governments and their instrumentalities do not need to follow a prescribed process, but the grantmaker must be able to demonstrate that the grant supported a charitable purpose or activity.
Grants to supporting organizations from public charities require no additional compliance steps and can be made under the same procedures the foundation uses to make grants to any public charity, provided the grants are not being made from a donor advised fund.
A public charity may make grants to non-U.S. organizations without a Section 501(c)(3) designation so long as the foundation takes steps to ensure the funds will go toward charitable purposes, and not be diverted to support terrorism or any illegal activity. As a due diligence measure, foundations can opt to follow the expenditure responsibility rules to help ensure funds are used charitably.
While most relief work is done by public charities and government instrumentalities, non-charities may also be involved in relief work, such as a chamber of commerce facilitating the support of evacuees. When making grants to non-charities, public and community foundations must ensure that any grant is used for charitable purposes. Public charities have considerable flexibility in this regard, but one way to do this is to follow the expenditure responsibility rules*. Included in the requirements of expenditure responsibility are the use of a written grant agreement and receipt of follow-up reports from the grantee on the use of the money.
Public charities may make grants to individuals for disaster relief, but not from donor advised funds. As with any grant program for individuals, awardees must be selected on an objective and nondiscriminatory basis that includes a determination of need, and the program must serve a charitable purpose. The foundation should set up controls to ensure it does not make payments that benefit foundation insiders, the award selection committee, or the family members of either group. Public charities must also be sure not to accept contributions for the benefit of a pre-selected or specific individual or group of individuals.
Disaster relief grants may be made from a public charity to the governments of countries outside the U.S., but only for specific, exclusively charitable purposes. General purpose grants are not permissible. For this reason, foundation managers should use a grant agreement or similar tool to ensure the grant purposes are tailored to a particular project or need. Managers should secure and retain documents demonstrating that the grantee is a unit of government.