Q&A #1 – Can my nonprofit raise money to help people affected by COVID-19?

Question: My 501(c)(3) nonprofit would like to set up a fund to provide financial assistance to people who are financially affected by COVID-19 and the shutdown of businesses, however this is not part of our mission and we’ve never done something like this before. Are we allowed to do this?

Answer: Yes, this is generally something that a 501(c)(3) public charity can do so long as proper processes are followed. This is similar to the “benevolence funds” that are often established by churches, community foundations, and other similar types of publicly supported nonprofit organizations. 

Your first step is to review the organization’s governing documents (Articles of Incorporation, Bylaws, and any relevant corporate policies) to make sure your organization’s “purpose” is broad enough to include this type of activity. Most governing documents are drafted with a broad statement of purpose, but sometimes the language is very restrictive and may need to be amended.

This particular type of program could be different than the program(s) that were disclosed to the IRS when your organization’s 501(c)(3) status was approved. If so, you wouldn’t have the full protection of your 501(c)(3) approval letter in the event the IRS were to question the appropriateness of this program. However, this risk is usually low so long as the program is properly charitable and is fully disclosed on the organization’s Form 990.

Keep in mind that this type of assistance is generally only appropriate for a 501(c)(3) organization if the recipient is financially needy or otherwise in distress. You will need to design the program accordingly and require some form of documentation (e.g. proof of income) to ensure that the recipients are truly in need. The IRS has provided a helpful guide to these requirements in IRS Publication 3833, which is available here on the IRS website.

As with any new program, you should develop a policy to guide the organization’s internal processes. In this case, the policy should have specific language about eligibility for the funds, the supporting documentation that is required from applicants, the amounts that will be provided (and how funds will be provided), how decisions are made regarding the people who receive assistance, and language addressing conflicts of interest (directors or officers of the organization, and their family members and business partners, should generally be ineligible for assistance). Process and documentation is extremely important for this type of program.

Lastly, you will need to be thoughtful about fundraising communications and how the funds are handled. A 501(c)(3) organization should never solicit contributions only for a specific individual (this would jeopardize the deductibility of the charitable contributions). It is fine to tell donors that their contributions will be used for the purpose of this fund, but keep in mind that this will mean that any funds raised will therefore be “restricted” and cannot be used for other purposes (unless the donors explicitly agree otherwise). You should, of course, make sure you are complying with the charitable solicitation registration laws in any States in which you are soliciting funds.

If you have a question you would like to submit to SE4N, send it to us using the contact form and we will consider answering it in a future post. Please do not send confidential information.