2011 seems to be the year for natural disasters. There was the earthquake in New Zealand, then the earthquake in Japan. Recently, CBS News reported hurricane Irene drenched the mid-Atlantic states, including North Carolina and Virginia. Irene was to blame for the death of an 11-year-old boy when a tree crashed through his roof. Another child died in a crash at an intersection where traffic lights were out, and falling trees or tree limbs killed four people.
Nonprofit organizations interested in helping victims of natural disasters such as those recently devastated by Hurricane Irene, must make note of tax rules that guide humanitarian efforts. One source for tax rules is Publication 3833 “Disaster Relief: Providing Assistance Through Charitable Organizations,” published by the IRS, and found at www.irs.gov.
This IRS publication gives almost complete information on the rules that apply to the deductibility of contributions for these natural disaster relief efforts. Another resource is “Charitable Giving and Disaster Relief Efforts in Response to the Haitian and Chilean Earthquakes,” by Milton Cerny and Adam M. Damerow. This resource details Publication 3833 and international relief efforts.
Organizations may give to individuals in the form of money, services, or goods. Victims in natural disasters desire basic necessities such as food, clothing, housing, home repairs, transportation and medical assistance such as attention to serious physical injuries and psychological counseling.
A charity may give crisis counseling, rescue services, or emergency assistance like blankets or hot meals immediately following a disaster without a natural disaster victim establishing financial need. This may be when people can no longer stay at their homes and are moved to centers. Giving such services or rescue relief to the distressed after a disaster serves a charitable purpose no matter the recipients’ financial condition.
In the emergency situations, donations should be made to an existing, recognized Internal Revenue Code section 501(c)(3) charity to give immediate relief. A religious organization like Catholic Charities or a relief organization like the Red Cross are examples of existing organizations that have provided targeted disaster relief and emergency hardship help in response to natural disasters and emergencies.
Qualified disasters include Presidentially Declared Disasters. Once the IRS declares a catastrophic event a qualified disaster for federal income tax purposes, according to section 139(c)(3) of the Internal Revenue Code, recipients of the relief payments can exclude payments from their federal income tax return. The payments usually include necessary personal, family, living and funeral expenses not covered by insurance. They include expenses to repair or rehabilitate personal homes or repair or replace the contents inside the residences to the extent the valuables exceed the insurance limits. The payments are not included in the individuals’ gross income.
Qualified disaster payments can be made by a recognized company-sponsored private foundation to employees and family members affected by the disaster.
For more information read IR2011-37, or contact an experienced New York tax attorney.