The bushfires are having disastrous consequences across Australia. It is with great sadness that each day we witness, from afar, the destruction of land, homes, wildlife, and people’s livelihoods. Yet it is heartening to see the true blue Aussie spirit of generosity and mateship extended by the Australian community here in the United States, through the sheer volume of donations being raised by, and on behalf of, various bushfire relief organizations. Give, and give generously, to aid in rebuilding Australia!
If you wish to ensure that your donation is deductible in the US, or if you have established, or are collecting donations on behalf of, a bushfire relief fund, here are some guidelines to assist:
1. First, confirm that the organization has “501(c)(3)” status. Donations to private charitable foundations are deductible if the organization is tax-exempt under section 501(c)(3) of the Internal Revenue Code. These organizations are highly regulated and must meet requirements similar to those imposed by the ATO and ACNC for deductible gift recipient and registered charity status in Australia.
• In order to have qualified as a 501(c)(3) organization, the organization must have first filed Form 1023 with the IRS, describing its structure, governance and past, present, and planned activities, by reference to its governing documents.
• The organization’s purposes and activities must be clearly articulated in its mission statement included in its governing documents, and be limited to one or more exempt purposes (generally, charitable, religious, educational, and/or scientific purposes), in which it engages exclusively. Upon its dissolution, the organization’s remaining assets must be used / distributed exclusively for the exempt purposes;
• If the organization is newly established, ensure that Form 1023 is filed within 27 months of formation.
2. Second, confirm that the organization has maintained tax-exempt status. In order to maintain its tax-exempt status, it must adhere to annual Federal and (with the exception of a few States) State compliance requirements, and file an annual report, IRS Form 990, and State charitable solicitations registration and renewal documentation.
3. Third, confirm that the organization can actually distribute funds to foreign (and specifically, Australian) organizations and for the purposes of natural disaster relief. If a charitable foundation / relief fund established in the US intends to make a distribution to a bushfire or other relief organization in Australia, then the foreign organization’s details should have been clearly specified in item 14 of Part VIII of Form 1023 at the time of registration, in order to make such contributions within the scope of its activities. This is an important requirement as Item 44e of Form 1023 specifically asks whether the organization has, or will make, pre-grant inquiries about the recipient organization, including as to the recipient’s financial status, its tax-exempt status under the Internal Revenue Code, its ability to accomplish the purpose for which the resources are provided, and other relevant information. Item 44f also asks whether any additional procedures will be used to ensure that distributions to foreign organizations are used in furtherance of the organization’s exempt purposes, and if so, requires a description of these procedures, including site visits and compliance checks by impartial experts, to verify that grant funds are being used appropriately.
Therefore, even if an organization claims to have 501(c)(3) status, it is important to clarify that:
1. The organization is empowered under its governing documents and Form 1023 narrative to provide funds to foreign (Australian) organizations; and
2. the funds may be provided for the purpose of natural disaster relief; and
3. this purpose aligns with, and is in furtherance of, the organization’s own exempt purposes.
If not, this could affect the deductibility of donations made to Australian bushfire relief organizations in the US.
For more information, contact:
Senior Tax Advisor
U.S. Australia Tax Desk
Photo credit: This photo was published in The Guardian: https://www.theguardian.com/australia-news/2019/dec/09/nsw-fires-so-destructive-thousands-of-koala-bodies-may-never-be-found-ecologist-says