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How Much Is Too Much? The Limits of Benevolence

The idea for this article came from my good friend, Belinda from Madison, Alabama.  A few weeks ago, she wrote us an email asking the following:

“Due to the economic downturn and, with the increasing requests for benevolence assistance, are there guidelines for churches and non-profits on what they can assist with and how much?”

Great question, Belinda.  I know others are asking the same thing.  Benevolence is synonymous with charity.  It’s the very definition of it.  But, there is a definite line between charity and what the IRS calls inurement (or private benefit).  This economic recession has caused many churches and charities to be overwhelmed with requests for help.  So, what follows are some things to consider when asking, “How much is too much?

1.  What is the purpose of your organization? What is your nonprofit approved by the IRS to do?  Chances are, benevolence is not it, at least not technically.  Even if benevolence was listed as one of your organization’s programs on your Form 1023, it likely wasn’t your primary program.  That fact alone does not preclude your nonprofit from helping those in need.  True benevolence is always OK.  It cannot become the primary program if that is not what you are approved to do, but it certainly can be done.  It is important, however, to do it right.  Before your organization engages in a program of benevolence…even helping one family…your board and/or membership needs to approve the initiative and record such in the minutes of the organization.

2.  Have a vetting process. This is key.  You need a way to verify need.  Sometimes it is quite obvious:  If a homeless person comes to a food ministry, the need is pretty visible.  Sometimes, it is not so obvious.  Suppose someone shows up in your church office telling you they are stranded and need money for gas, food, motel, etc..  That dog and pony show is one of the oldest scams in the book, so how do you know who to help?  For starters, ask probing questions.  Some people feel funny about pressing those asking for help, but think about it this way:  You cannot help everyone.  Shouldn’t your assistance go to those who really, truly need it?  As President Reagan put it, “Trust…but verify!”

An associate pastor I once knew was great at this.  He had a real heart to help those in need, along with a keen eye for funny business.  Instead of money, he’d offer to take them to the gas station or go with them to buy a bus ticket or check them into a hotel.  The scam artists showed their true selves almost immediately.  Those with real needs were incredibly grateful.  Be smart.

3.  Set a budget. It can be either a gross, overall budget or a case-by-case budget.  May I suggest you do both…that is, set an annual budget line item for benevolence, then also determine the maximum amount you are willing to provide for each recipient.  This will be hard, especially if your charity is seeing more than its fair share of need.  Remember, there will always be more need than you can meet.  Establishing a limit up front makes individual decisions a little bit easier.

4.  Avoid big ticket expenses. It’s OK to help someone with a month’s rent, a mortgage payment, a week’s worth of groceries…just be careful.  The more you help with any one person, the less you will be able to help another.  You also establish a precedent.  As you spend large amounts on one person or family, others may expect the same.  Use your common sense, too.  Some people get in over their heads and need good, solid advice more than money.  If Joe bought a $40,000 SUV and can’t make the payments, tell him to sell it.  Don’t pay his car note for him.  That’s not benevolence; that’s private benefit.

5.  Limit repeat assistance. This is particularly hard to do when there is so much need.  Some people will come back over and over looking for help.  You MUST set limits.  It is not callous; it is necessary.  Plus, when any individual is receiving very large amounts of assistance, there is the potential for benevolence to turn into private benefit.  Your nonprofit’s mission is to help, not underwrite someone’s personal expenses.  Regardless of your opinion of governmental, social programs, there are so-called safety net programs such as food stamps and welfare for the chronically needy.

These are challenging times.  Your nonprofit will be able to provide the most impact by being strategic in its benevolence.

Thanks for the question, Belinda!

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

This Post Has 10 Comments

  1. Hi,
    We set our non-profit up solely to help those in need. Are there IRS guidelines as to how much help we can give?

    Carla

    1. Actually, no. It’s really rather subjective. As the article indicates, you simply must exercise prudence and good judgment, helping those you can. It’s always best to not distribute cash, but instead directly provide for needs.

  2. How can one sees the books of the non profit in question? I am very skeptical.
    Thank you

    1. Not sure I understand your skepticism. One way to see the “books” of a nonprofit is to take a look at their Form 990. That information is public record and can be accessed at Guidestar.org . Otherwise, donors and stakeholders can request a copy of an organization’s most recent financial statements. Otherwise, a donor can always request a copy of the nonprofit’s most recent financial statement.

  3. How do you record the benevolence? And do you have to report it to the IRS at tax time? Thanks.

    1. Hi, Veronica. Record benevolence in your books as just that…benevolence. When your organization files its Form 990, all spending must be categorized. This will be shown as a charitable giving or benevolence expense. Hope that helps…

  4. Thank you for this very good article. Our organization has been challenged in this area. This article has caused me to reevaluate how we deal with those in need. Your organization is helping me tremendously with the periodic newsletters on a diversity of topics. I save them all in a specific folder for review. You are a God send organization. Thank you so much.

  5. Would this also apply to a fraternal 501(c)(3) that is asked to assist the related fraternal 501(c)(7) with its programs?

    1. I would say your question is a bit outside the topic, but you bring up a good point. It is not OK for a 501(c)(3) to be funding the operations or programs of a 501(c)(7)…unless the program you’re supporting would be considered a 501(c)(3) purpose. For example, if a Lion’s Club (a 501c7) is operating a children’s eye exam program, donations from a 501(c)(3) designated toward that program is considered a 501(c)(3) purpose. Outside of that, it is an improper expenditure by a 501(c)(3).

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