For a private foundation, disaster relief grants to Section 501(c)(3) public charities based at home or abroad can be relatively straightforward, provided the grantee is not legally classified as a supporting organization.
If the grantee is a supporting organization, its IRS determination letter will indicate that it is classified under 509(a)(3) of the Internal Revenue Code.
If the charity is not a supporting organization, its IRS determination letter will indicate that it is classified under section 509(a)(1) or 509(a)(2).
Grants to 509(a)(1) or 509(a)(2) charities do not present any special challenges and will count as qualifying distributions for the foundation.
If the grantee is not a supporting organization, the foundation can simply issue the grant. If the private foundation wishes to assist with a disaster outside of the United States, grants may be given to a domestic public charity with the understanding that the funds will be used for the charity’s international activities in a particular non-U.S. country.
Grants to certain supporting organizations require grantmakers to take additional compliance steps and cannot be counted as qualifying distributions.
A private foundation may make grants to non-U.S. organizations without a Section 501(c)(3) designation so long as the foundation follows either the equivalency determination process or the expenditure responsibility rules required for international grantmaking. Foundations involved in international grantmaking often seek to collaborate with non-U.S. organizations by issuing grants that will be regranted to other grantees in the non-U.S. country. Grants overseas may involve re-grants, a situation in which the overseas grantee is expected to disburse the grant to other grantees. Re-granting can raise some concerns.
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, private foundations must follow the expenditure responsibility rules to ensure that the grants are used for charitable purposes. 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. Many payments for disaster relief presumably will be charitable, but private foundations must ensure that they follow the rules of expenditure responsibility to avoid incurring an excise tax.
Private foundations may make grants to individuals for disaster relief. Unlike the case with grants for travel, study or similar purposes, private foundations are not required to seek prior IRS approval for the process they will use to make disaster relief grants. However, 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 class. To stay in compliance, private foundations must set up controls to ensure they do not violate IRS rules that prohibit payments to foundation insiders, referred to as “disqualified persons” in the Internal Revenue Code
A company with a private foundation can make grants to non-employees of the company, but assistance for company employees or their family members is permissible only if special legal requirements are met: Grants must be qualified disaster payments issued only after an objective determination of financial need; the assistance must be to members of a sufficiently large class of beneficiaries, not just a few individuals; additional rules govern who can serve on the grant selection committee.
Disaster Relief: Providing Assistance Through Charitable Organizations (IRS Publication 3833) , can help your foundation ensure its disaster relief program is consistent with federal tax rules.
Private foundations have the option of granting through a new or existing fund at a community foundation. Aside from special rules applicable to donor advised funds, this option can be a fairly effortless way to provide disaster relief. Located throughout the country, it is very likely that a community foundation already exists near the area in which the disaster occurred. Even when the disaster is abroad, private foundations can contact their local community foundation  to find out how to partner with any relief being provided overseas*. This option can be ideal for foundations interested in allowing the community foundation to manage what can be a cumbersome and time-consuming grantmaking process.
Grants to non-U.S. governments can be made from private foundations, provided the foundation takes steps to ensure the funds are not diverted to support terrorism, and are distributed for specific charitable activities the government is carrying out to address the disaster. In addition, the private foundation prohibitions against grants to high-level public officials (i.e. self-dealing) and restrictions on lobbying, will apply abroad just as they do in the U.S.
This content is for Council members only.