Emergency Hardship Scholarships/Grants to Individuals

With the current state of the economy, foundations may consider granting emergency hardship scholarships/grants to individuals.

Providing relief to persons who are impoverished as a result of low income or lack of financial resources is recognized by the IRS as satisfying a “charitable purpose.” Listed below are items the IRS might use to determine whether the grants serve the public interest or benefit a few preselected individuals.

Foundations also must keep in mind that the Pension Protection Act of 2006 prohibits grants to individuals from donor advised funds.

Private foundations that become involved in this area should follow the IRS rules for running scholarship programs making sure to keep the following key items in mind.

Does the fund/program serve a charitable class?

• Indefiniteness – The group served must be indefinite. The grantee must not be known or designated when the fund/program is established. A fund/program for victims of a single house fire would not serve an indefinite class.
• Size – The more people potentially eligible to receive assistance, the more likely the class will be deemed to be of sufficient size by the IRS.
• Earmarked Funds – If the community foundation accepts funds earmarked for a specific individual, the IRS may take a position that the fund serves a private rather than public interest and therefore the purpose is not charitable.

Does the fund serve needy persons?

In order to provide assistance to relieve financial distress, the charity must ensure the recipients are financially needy. Objective criteria should be in place to determine an individual’s needs.

How much assistance is appropriate and what sorts of expenses may be covered?

Grants should be structured to provide the necessities of life rather than to replace lost income. Limiting the items that can be purchased with grant funds is one way of ensuring the funds are used only to meet basic needs.

Record Keeping

The foundation should keep detailed records to show they have met the issues outlined above.

*Based in part on the Council on Foundation’s “Grants to Individuals by Community Foundations"