Charitable giving and nonprofits during disasters

NONPROFIT NEWS

During the last week of August, we saw Hurricane Harvey pummel parts of Louisiana and Texas, including the city of Houston, causing massive destruction and leaving tens of thousands of victims in its wake. While the country was still processing the significant damage and huge task ahead in Texas, Hurricane Irma swept through the Caribbean and Florida, similarly causing massive damage and leaving millions without power. Between the two devastating hurricanes, a magnitude 8.2 earthquake struck off the coast of Mexico, killing more than 90 people and damaging the homes of 2.3 million others. Floods in Sierra Leone earlier in August caused mudslides that killed hundreds and trapped many more in their houses or cars.

This month, we discuss some considerations for charitable giving in response to major disasters, newly announced IRS relief to encourage giving in response to the damage caused by Hurricane Harvey, and the emergency powers provisions that apply to California nonprofits.

Charitable Giving In Response to Major Disasters

The quick succession of major natural disasters in the U.S. and around the world that we’ve seen in recent weeks has been traumatic and difficult for many to process, but has also brought out tremendous human kindness and generosity as people have looked for ways to help those directly affected by these events. For example, a Houston Flood Relief Fund campaign established by JJ Watt, a defensive end for the Houston Texans, through The Justin J. Watt Foundation, has raised more than $32 million so far from more than 200,000 donors. And I’ve read countless inspiring stories of other acts of kindness, both big and small, that have played out during and in the days since these disasters.

While this giving in the face of a disaster is to be encouraged and supported, disasters also create opportunities for charity scam artists to take advantage of the goodwill of others. The IRS issued a news release at the end of the month cautioning donors of the risks and providing some tips that individuals looking to do something to help disaster victims can follow. Several state attorneys general have issued similar statements in recent weeks.

The news release issued by the IRS warned of potential fake charity scams emerging after Hurricane Harvey and that they could involve contact by phone, social media, email, or in-person solicitations. To avoid such scams, the IRS recommends a number of tips, including donating to recognized and established nonprofits; being wary of entities that have names or websites that are similar to well-known organizations; checking the federal tax-exempt status of nonprofits through the IRS online Exempt Organizations Select Check tool prior to giving; refusing to provide personal financial information in connection with any contribution; and sending contributions by check or credit card, and never by cash.

California Attorney General Xavier Becerra issued a consumer alert after Hurricane Harvey suggesting many of the same tips. In addition to checking whether a soliciting entity is exempt from federal income taxes, a donor may also confirm whether such entity is registered and current with the California attorney general’s Registry of Charitable Trusts by viewing the online database. The alert also alluded to crowdfunding and social network fundraising efforts and stated, “[i]f you are planning to donate through a social network solicitation, find out what percentage is going to the charity, whether you will be charged a fee, or if a percentage of your donation will be paid to the platform website.” The alert emphasized the California Department of Justice’s responsibility for supervising nonprofits operating in California and the professional fundraisers soliciting on their behalf. It noted that, under the California Government Code, the attorney general has the authority to investigate and bring legal actions against subject entities that “misuse charitable assets or engage in fraudulent fundraising practices” and encouraged anyone who has been a victim of a charitable scam to report it to the attorney general’s office via its website.

IRS Special Relief for Hurricane Harvey

During the first week of September, the IRS announced that it would be providing special relief to encourage leave-based donation programs to support victims of Hurricane Harvey. Under the subject programs, employees at participating employers may give up vacation, sick or personal leave in exchange for cash payments to be made from their employers to charitable organizations providing relief for victims of Hurricane Harvey. The IRS had established similar leave-based programs after Hurricane Katrina in 2005, Hurricane Sandy in 2012, the Ebola outbreak in West Africa in 2014, and Hurricane Matthew in 2016.

If an employer adopts a leave-based donation program, participating employees will not have any donated leave included in their gross income or wages for tax purposes, so long as the donations from the employer go to organizations described in Internal Revenue Code Section 170(c), are made for the purpose of providing relief to victims of Hurricane Harvey, and are paid to such organizations before Jan. 1, 2019. The participating employees are not entitled to claim a charitable contribution deduction with respect to the value of the foregone leave. However, employers may elect to deduct such cash payments as business expenses rather than charitable contributions if desired. The IRS hopes that such relief will encourage employers and employees to provide assistance in response to the “extreme need for charitable relief for victims of Hurricane Harvey.”

Emergency Powers for California Nonprofits

While not necessarily a new update, this seems like an appropriate time for a reminder of the emergency powers provisions of the California Corporations Code that apply to nonprofit public benefit, mutual benefit and religious corporations. The emergency powers provisions were enacted in 2013 and clarify that a nonprofit may operate under certain loosened rules in the face of an emergency. The code defines an “emergency” for these purposes as a natural catastrophe; an actual or imminent terrorist attack; a manmade disaster that results in extraordinary levels of casualties, damage or disruption; or a proclamation of a state of emergency by a governor or the president, in each case only if such events result in a corporation not being able to readily convene a quorum of the board of directors.

The rules that apply to nonprofit public benefit corporations explicitly permit such corporations to preemptively adopt bylaws provisions regarding the management and conduct of the business affairs of the corporation in the case of an emergency, including procedures for calling board meetings, quorum requirements and the designation of additional or substitute directors. Even if such emergency bylaws provisions are not adopted, the rules permit a nonprofit to “modify lines of succession to accommodate the incapacity of any director, officer, employee, or agent resulting from the emergency” and/or to “relocate the principal office, designate alternative principal offices or regional offices, or authorize officers to do so” in order to conduct the corporation’s ordinary business operations in anticipation of or during an emergency.

During an emergency, the rules further permit nonprofits to give notice to directors in any practicable manner under the circumstances when notice of a meeting cannot be given as prescribed by the bylaws of the organization and/or to deem that one or more officers present at a board meeting are directors in order to achieve a quorum for the meeting. However, the rules clarify that the board of a membership organization may not take any action that requires the approval of the members, unless that approval was obtained prior to the emergency.

Finally, the rules provide some protection for nonprofit leaders for actions taken during an emergency by clarifying that any action taken in good faith in anticipation of or during an emergency pursuant to these rules will bind the relevant corporations and will not be a basis for liability of any director, officer, employee, or other agent of the corporation. It may be wise for California nonprofits to consider these emergency rules now and to think through the appropriate policies and procedures to allow them to continue operating during the time of an emergency.