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Frequently Asked Questions Regarding Schools’ Options to Assist Families and Employees Impacted by Wildfires
With wildfires devastating the Los Angeles area, schools are exploring immediate ways to support their affected employees and families. This has led to pressing questions about using the school’s resources, including questions about providing grants of direct financial aid, and about helping the broader school community fundraise for families. These questions pose nuanced and significant issues for schools. They must consider their tax-exempt status under Internal Revenue Code section 501(c)(3), the regulation of charitable solicitations, whether providing direct aid is consistent with their Articles of Incorporation, and more.
The following frequently asked questions provide general guidance about issues related to schools engaging in charitable activity related to disaster relief. However, these issues are very fact specific and determining whether a school’s proposed actions comply with legal requirements will depend on the circumstances.
Can a School Make a Charitable Contribution to Another Nonprofit Organization Supporting Wildfire Relief Efforts?
Yes. A school can use its unrestricted funds to donate to an existing disaster relief organization. The Internal Revenue Service (“IRS”) has advised here that organizations with 501(c)(3) status that do not themselves engage in disaster relief efforts may still give money to other 501(c)(3) entities as a way to contribute to disaster relief efforts.
Can a School Solicit Money from Families to Contribute to Disaster Relief Organizations?
Yes, but schools are cautioned that doing so is not without risk. For example, it will create a restricted fund. A restricted fund is money given to a nonprofit that must be used only for a specific purpose chosen by the donor. California law imposes strict duties on nonprofits to use restricted funds solely for their restricted purposes. Accordingly, if a school takes in donations from families and other community members, promising to donate all of those funds to a disaster relief organization, the school must follow through on pooling those funds and making that larger donation.
Can a School Solicit Money from Families to Contribute Directly to Those Impacted by the Fires?
Yes, but if a school represents to families that they can donate to the school so the school can then administer its own program of making individual grants or providing other assistance directly to those impacted by the fires, that would also create a restricted fund. Schools contemplating establishing a restricted fund should consider that, if the community’s generosity exceeds the community’s needs, the school cannot use excess restricted funds donated by families for wildfire relief for the school’s general purposes. Accordingly, schools may want to consider placing limitations on the amount of donations they will take in, how long they would want to administer such a program, and if they are in a position to adequately document the distribution of the small grants. Indeed, there are many considerations schools should consider when engaging in that kind of direct giving, a few of which are addressed in the next question.
Can a School Make Small Grants to Families or Provide Them with In-Kind Donations?
It depends on a number of factors. For example, schools may provide financial or in-kind donations if such actions align with their educational and/or charitable purposes as stated in their Articles of Incorporation and if doing so would not violate the “private benefit” doctrine. The “private benefit doctrine” governs 501(c)(3) entities. It requires the activities of a 501(c)(3) entity to serve the broader community, rather than designated private individuals. When the IRS evaluates whether private benefit concerns exist, it often looks at whether the organization’s activities serve a “charitable class.”
With respect to disaster relief activities in particular, the IRS explains in its publication on providing disaster relief through charitable organizations that charitable donations must benefit a “charitable class.” A charitable class must be either large enough that the potential beneficiaries cannot be individually identified and/or sufficiently indefinite that the community as a whole, rather than a pre-selected group of people, will benefit from a nonprofit’s proposed activity.
With a disaster like a wildfire, a school closer to the directly impacted area and with many impacted families and employees will be in a stronger position to argue that its small grants program benefits a charitable class. Similarly, it would also be easier for a school in that position to establish that in-kind donations needed to help families and employees come to school advance the school’s educational purposes. On the other hand, schools with only a few impacted families and relatively minimally impacted operations may have a harder time establishing that providing direct financial assistance or in-kind aid benefits a charitable class. Additionally, if those one or two of families include individuals with substantial influence and control over the school (such as trustees or high-level administrators) the school should evaluate whether the potential assistance would create issues related to conflicts of interest, self-dealing transactions, private inurement, and excess benefit transactions.
What Process, Documents, and Considerations do Schools Need to Consider Implementing When Providing Direct Disaster Relief?
If a school provides direct disaster assistance, especially over the long term, it should put in place formal processes for implementing a disaster relief program. To that end, drawing from the IRS’s publication on providing disaster relief, steps schools should consider putting in place include:
- A system for determining or confirming need. Generally, the IRS suggests that for an activity to be considered charitable, disbursements to victims of a disaster should be based on need. In the immediate aftermath of a disaster, the IRS explains that this is less of a consideration when aid is related to addressing urgent needs. For example, if someone has lost their home to a fire, they will need shelter, food, clothing, etc. According to the IRS, those kinds of things can be provided without considering financial means. However, more rigorous and documented financial need assessments should be implemented as more time passes from the disaster’s occurrence.
- Documentation detailing donations made. Schools need to maintain sufficient documentation detailing the direct aid provided, the purpose of that aid, the criteria for distribution, and amounts.
- Objective criteria and independent selection processes. Schools should establish objective criteria and independent selection processes for providing assistance. Establishing such processes helps protect against issues related to conflicts of interest and can also help reduce risks around discrimination claims.
If a School Provides Assistance to Employees as Part of a Charitable Class in Need Because of a Disaster, is That Assistance Taxable Income to Employees?
Likely no, if the assistance is provided following the requirements of Internal Revenue Code section 139, which allows employers to provide qualified disaster relief payments to employees on a tax-free basis. Qualified disaster relief payments include: (1) any amount paid to or for the benefit of an individual to reimburse or pay for reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster; and (2) reimbursements or payments for reasonable and necessary expenses incurred for the repayment or rehabilitation of a personal residence or its contents that need to be replaced due to a qualified disaster. Qualified disaster relief payments do not include payments for expenses otherwise paid for by insurance or other reimbursements or income replacement payments. A “qualified disaster” includes a federally declared disaster. President Biden approved a Major Disaster declaration for the California fires on January 8, 2025, which means the wildfires affecting the Los Angeles area meet the criteria to be a “qualified disaster.” If a school wishes to provide disaster relief payments to employees, it should seek the advice of counsel to ensure that the payments are for reasonable and necessary expenses and otherwise comply with the requirements of Section 139.
If your school has questions about these issues, please contact Liebert Cassidy Whitmore’s Los Angeles, San Francisco, Fresno, San Diego, or Sacramento office.