Relief Funds Needs-Based Test Requirements
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Disaster and Hardship Relief Funds are required to comply with legal and tax regulations, including an IRS Needs-Based Test to determine whether an individual meets the requirements to receive a grant. The Internal Revenue Service states, “Under the law, disbursements of aid to victims of a disaster are to be based on 'an objective evaluation of the victim’s needs at the time the grant is made.’”
Before a grant can be awarded and distributed, the fund is required to make an objective evaluation of the individual's needs. This means that a fund must have its own set of criteria to determine if an individual is eligible to receive a grant. According to the IRS, “To qualify, the grant recipient must experience ‘sudden and severe or overwhelming financial burdens arising from events beyond their control.’”
The two most important criteria for a needs test are:
1. Is the individual in distress?
The IRS Exempt Organizations division published a document stating that “[p]ersons who are financially unable to care for themselves as a result of sudden and severe or overwhelming financial burdens arising from events beyond their control are proper objects of charity because they are considered to be ‘distressed.’”
2. What needs does the individual have?
The IRS states “The type of aid that is appropriate to relieve distress in a particular case depends on the individual’s needs and resources. Individuals might be in need of short-term assistance but not long-term assistance. For example, Disaster Relief and Emergency Hardship Programs following a devastating flood, a family may be in need of funds to meet immediate necessities because its readily available cash flow (income, insurance proceeds, etc.) or other resources are inadequate or unavailable. Or they may need basic necessities that are not available for purchase because of the nature of the disaster. The same family, however, may not have the need for a low interest loan for home repair because its home is covered by insurance, or it can reasonably obtain and repay a commercial loan.”
Once those two questions are answered, if the individual is not in immediate need of food, shelter, transportation, clothing, or medical assistance – the needs test should evaluate the financial burden from the event the individual is suffering through.
The type of aid that an individual needs during a time of distress depends on their own needs and resources. Individuals with considerable financial means will often have a harder time satisfying the requirements to receive a grant. Although, a grant can be awarded to any individual in need when there is a qualifying declared disaster, such as a hurricane, without regard to financial means and an individual needs assessment does not need to be conducted.
If your organization is interested in starting a relief fund or ensuring a current fund’s compliance, consider scheduling a meeting with Emergency Assistance Foundation.
Author: Doug Stockham, President
Emergency Assistance Foundation
