Key insights
- Mutual aid, existing nonprofits, and funder collaboratives all move support in different ways; each path fits a slightly different need, and each has upsides and tradeoffs.
- Whether it’s tracking donations, documenting gifts, or keeping notes on who receives help, clear reporting keeps efforts steady and avoids confusion later.
- Keeping a close eye on both financial activity and day‑to‑day operations helps nonprofits protect their tax‑exempt status and continue earning the trust of the communities they serve.
Gain clarity on ways to help during crisis moments.
When crises hit, many people feel an immediate pull to step in and help — but figuring out how to channel rapid-response community aid in a steady, thoughtful way isn’t always clear. And as support rises, the tax and reporting considerations increase, making it helpful for nonprofits and individual donors to understand what needs attention early on.
Learn more about the giving methods involved — and get practical perspectives to help choose a funding approach that truly fits the moment and the impact you want to have.
Grassroots giving: Mutual aid and crowdfunding
Mutual aid refers to a form of voluntary, community-driven support where individuals and groups come together to share resources, skills, and assistance without hierarchical structures or expectations of repayment. Unlike traditional charity models, mutual aid emphasizes solidarity and collective action, empowering communities to address immediate needs through cooperation and shared responsibility.
Individuals set up a “fund” — often through sites like GoFundMe — outlining a need and encouraging individuals to make gifts to the fund. That person or group then builds a model for identifying individuals or groups with needs (could be with a social worker, existing nonprofit, school, etc.) and determines a method for selecting recipients, amounts, and mode for distributing the resources.
Tax and reporting implications of mutual aid
Donors
While often characterized as donors, individuals giving money to these efforts do not receive tax benefit from their gift. It’s not going to a recognized tax-deductible charity and thus is ineligible for tax deductions. These types of donations are considered gifts and should be evaluated as such for gift tax purposes if more than $19,000 is gifted to one fund.
Fund administrator
Most of the crowdfunding sites available today require a tax ID to be furnished before any distributions can be made — but the creator of the crowdsourcing request doesn’t have to be listed as the recipient and therefore may not need to provide their own information.
Funding recipients
Funds may be disseminated to individuals directly (to pay for food, rent, medical bills, etc.) or sent directly to the businesses owed money by the individual (e.g., paying the hospital bill directly, paying the landlord for rent). If the recipient doesn’t provide any consideration (goods or services) in exchange for the money, it’s considered a gift and not taxable.
Pros and cons of mutual aid
| Pros | Cons |
|---|---|
| Fast | Trust-based crowdfunding model creates potential risks for misuse of intention or confusion on how funds will be used by the donors |
| Simple to set up and administer | No tax deduction for donors |
| Fewest reporting requirements | Depending on size of donation, could trigger gift tax for donor |
| Typically, donations received by the fund administrator are considered gifts and not taxed as income |
Nonprofit paths for community aid
Existing nonprofits can mobilize rapidly to support their communities by leveraging several key funding mechanisms. Note: throughout this article we use the broad term “nonprofit” to refer to 501(c)(3) public charities. Some options for nonprofits include:
- Dedicating general resources to urgent needs
- Establishing special funds for targeted relief efforts
- Acting as fiscal sponsors for grassroots initiatives to enable swift, compliant fundraising and disbursement
Setting up a special fund
Establishing a special fund within an existing nonprofit allows the organization to dedicate resources toward a clearly identified purpose, such as disaster relief, scholarship awards, or emergency community support.
To set up a special fund, the nonprofit’s leadership typically drafts a resolution or policy outlining the fund’s intended use, beneficiary eligibility criteria, and any donation restrictions. The fund should be tracked separately in the organization’s accounting system to enable transparency and easy reporting of incoming gifts and expenditures.
Contributions designated for the special fund must be used solely for their stated purpose according to donor intent and the nonprofit’s mission. Donors cannot, however, designate a particular individual to receive the funds.
Being a fiscal sponsor
An existing nonprofit can serve as a fiscal sponsor by accepting and managing funds on behalf of a community initiative or grassroots group responding to hardship.
In this arrangement, the nonprofit uses its tax-exempt status to receive charitable donations for the sponsored project. Contributions are therefore tax-deductible and handled according to established compliance standards. The nonprofit remains legally responsible for the funds, overseeing disbursement and aligning expenditures with the charitable purposes described in the sponsorship agreement.
This structure allows community groups to quickly mobilize resources and benefit from the nonprofit’s administrative experience, financial controls, and donor stewardship, all while maintaining transparency and accountability. Clear agreements should outline roles, responsibilities, and reporting obligations so both the fiscal sponsor and the sponsored project meet legal and donor expectations.
Tax and reporting implications
Donors
With existing 501(c)(3) public charities, donors typically receive a tax deduction for their donation.
Fund administrator
All donations — whether cash, securities, or non-cash property — should be recorded, including the donor’s information, the value of the gift, and any gift restrictions. Funds must be allocated in line with the organization’s stated mission and charitable objectives, with clear policies guiding how contributions are used. It is often a good practice for public charities to send donor acknowledgements for all contributions, but it’s only required for those of $250 or more.
Funding recipients
Aid received is typically not taxable to a recipient. The technical description is a payment made by a charity to an individual responding to the individual’s needs and doesn’t proceed from any moral or legal duty is considered motivated by detached and disinterested generosity and can be treated as a nontaxable gift.
Pros and cons of nonprofit models
| Pros | Cons |
|---|---|
| Safeguards are already in place to make sure the donations are used as expected | Organization may not have the resources to handle new or additional programs |
| Infrastructure already exists within the nonprofit to receive and distribute funding | Potential consideration for mission alignment (see FAQs) |
| Tax deduction for the donor | Risks of raising more dollars restricted for specific use than the organization can thoughtfully deploy |
Using funder collectives and/or donor advised funds to channel financial support
Funder collectives pool resources from multiple donors, increasing the scale and speed of response by coordinating grantmaking efforts with trusted community partners or nonprofits.
These models can streamline the process of identifying and supporting recipients, distributing funds efficiently while meeting regulatory requirements and maintaining donor confidence.
Donor-advised funds (DAFs) offer other avenues for channeling resources to efforts seeking to support those facing hardships. In rapid funding environments, distributions from existing DAFs can be a model for resource deployment.
Donors can contribute to a DAF, which is managed by a sponsoring organization that handles administration and compliance, allowing donors to recommend grants to nonprofits supporting those in need. Using a DAF in a rapid funding environment introduces an additional step in the process, though some funder collectives are also DAF sponsors and can work with donors to direct DAF funds into collective pools to then quickly deploy.
Tax and reporting implications of donor-advised funds
Donors
Donations to a DAF or funder collective are deductible to the donor at the time of the gift. If an individual has already funded the DAF, there is no additional tax reporting should the donor advise the sponsor to deploy funds in a rapid-response setting.
Fund administrator
There are no additional tax implications for the fund administrator, as they are an intermediary organized to maintain these types of accounts.
Funding recipients
- For a DAF, recipients must be a public charity — getting support to directly impacted individuals requires one additional step in this model
- Funder collectives can donate to individuals or public charities
Pros and cons of donor-advised funds
| Pros | Cons |
|---|---|
| Safeguards are already in place to make sure the donations are used as expected | DAFs can’t donate to a private foundation or an individual |
| Tax deduction for the donor | Administrative fees and investment management fees can apply |
| New DAF funds and funder collectives for an entity that already operates similar structures (e.g., community foundation) are fairly simple to set up | Funding can be slower to get to the ultimate beneficiaries; it flows from the donor, through a DAF, to a public charity, and then delivers the intended impact |
Frequently asked questions about nonprofit fundraising and compliance
Because model A (mutual aid) operates informally, it carries minimal requirements. Models B and C, however, must follow the rules for tax‑exempt organizations.
The questions below address common topics that arise when these organizations receive a sudden increase in support or must account for contributions under nonprofit standards.
In a crisis, fundraising and distribution efforts must balance speed, accuracy, and compliance. First, all donations — whether cash, securities, or non-cash property — should be recorded, including the donor’s information, the amount, and any gift restrictions.
Funds must be allocated strictly in line with the organization’s stated mission and charitable objectives, with clear policies guiding how contributions are used. Establishing objective criteria for awarding aid and maintaining detailed records of applications, selection processes, and eligibility enables transparency and fairness.
Nonprofits should regularly review their procedures to confirm alignment with IRS requirements, particularly regarding documentation and annual Form 990 reporting, and to verify they are appropriately documenting the accounting treatment of contributions according to accounting principles generally accepted in the United States.
By prioritizing accurate recordkeeping and mission-focused fund allocation, nonprofits help safeguard their tax-exempt status and demonstrate accountability to donors and regulatory authorities.
The IRS collects detailed information about contributions made to nonprofits on the annual Form 990, particularly when contributions exceed $5,000.
This information typically includes the donor’s name and address and the contribution amount. Nonprofits must also specify whether the donation was cash, securities, or other non-cash property.
Unexpectedly large donations can affect a nonprofit’s public charity status by impacting its public support percentage.
The IRS requires public charities to receive a substantial part of their support from a broad base of the general public, other public charities, and government sources.
If a single unexpected donation or a few large gifts make up a significant portion of total support, the public charity risks falling below the public-support test threshold, potentially jeopardizing its public charity classification.
The following documentation is important to maintain to support the accounting for contributions.
- Donor name, date of the gift, amount of the gift
- Original gift instrument — award letter, contracts if applicable
- Payment documentation (cash receipt, check, online giving platform payment)
- Donor acknowledgements or thank-you letters • Documentation of donor restrictions, if applicable
- Documentation of the fair value of gifts, if not apparent from cash received
In addition, recommended practices may include incorporating memos to document accounting treatment conclusions.
If contributions received are non-cash, retain the following documentation to support the accounting treatment:
- Description of the goods or items donated
- Evidence of the fair value of the items donated — receipts, comparable pricing sources
- Food is often valued at “per pound” — Feeding America sets a per-pound value often used for practical purposes
Should contributions exceed the requirements for a particular initiative or program, establishing a clearly articulated approach for managing excess funds is essential.
Nonprofits should communicate with donors regarding allocating surplus donations, whether by applying them toward related charitable objectives or redirecting them to priority areas identified within fundraising materials. This could be as simple as a statement on the fundraising page, such as “if more funds are raised than needed for this initiative, they will be used to support the general efforts of ABC organization.”
From an accounting standpoint, contributions are considered to be donor restricted if the donor has specified how the funds must be used (e.g., they provided a specific purpose, such as a program or element of a program, or a time period in which funds are to be used).
Funds are considered to be without donor restriction if they are to be used for the general operations, or general mission, of a nonprofit.
If an organization receives donor-restricted contributions in excess of what is expended, only a donor can remove that restriction. Subsequent communication with donors may be needed.
Deploying funds to support individuals
To maintain tax-exempt status, a nonprofit must align all operations and programs with its mission and core charitable objectives.
The IRS requires an organization’s activities to directly support its stated mission and primarily serve a public interest, not private individuals. Any assistance provided to individuals should be carefully designed to further the nonprofit’s mission and avoid conferring undue benefits on private parties.
When a nonprofit selects individuals to receive grants for hardship, it must establish objective, well-documented eligibility criteria to enable fairness and compliance with IRS regulations. These criteria typically include demonstrating a genuine financial need or hardship, such as loss due to disaster, illness, or other unforeseen circumstances.
The organization should define clear application processes, specify the types of hardships that qualify, and outline the documentation required from applicants (such as proof of income, residency, or evidence of the hardship event). By maintaining consistent and transparent selection standards, nonprofits help distribute aid equitably and in alignment with their charitable mission, while also protecting their tax-exempt status.
The selection process should avoid favoritism, possible conflict of interest, or private benefit by relying on impartial review panels or committees — and all decisions should be thoroughly recorded. This documentation will be essential during IRS reviews to demonstrate distributions were made solely for charitable purposes and according to established guidelines.
To support accounting records, and to provide support in a financial statement audit, documentation of all cash gifts should be retained and include recipient, grant amounts, date the grant was made, and any restrictions or conditions on the use of the funds. The organization does not need to track the name or any identifying information of an individual receiving noncash items such as food, clothing, and household items. Instead, the organization should keep track of the number of individuals assisted as much as reasonably possible and the purpose of the assistance.
Grants provided by nonprofits to individuals or other nonprofits are reported to the IRS primarily through the organization’s annual Form 990.
Grants provided to an organization with a value of more than $5,000 are reported on the nonprofit’s annual Form 990.Information provided includes the name of the recipient organization, the address, tax ID, amount, and purpose of the grant.
When a nonprofit awards money to an individual, the nonprofit only includes the amount and purpose of the grant on the annual Form 990. Names and other identifying information of individuals are not provided as part of the nonprofit’s compliance requirements.
Generally, individuals who receive aid from nonprofits don’t have to report it as taxable income if the assistance is for charitable purposes (such as disaster relief, medical expenses, or basic needs).
However, certain types of aid, such as scholarships for non-educational expenses or grants with strings attached, may be considered taxable income.
Recipients should consult with tax professional for guidance as to the tax implications and reporting of their award.
Providing emergency relief — such as food, clothing, shelter, or financial support — to individuals affected by disasters or severe hardship is generally considered an appropriate charitable activity for Section 501(c)(3) public charities. If this type of activity is new to the organization, the public charity should seek to expand its existing charitable mission in its organizing documents (articles of incorporation and by-laws) so it can properly conduct these activities moving forward.
Similarly, offering medical or housing assistance to low-income individuals is permissible, provided the aid is well-documented and justified by demonstrated need.
These forms of assistance, when properly aligned with the organization’s mission and substantiated with clear eligibility criteria, help enable compliance with IRS regulations and support the nonprofit’s tax-exempt status.
When a nonprofit provides emergency relief to individuals in the form of gift cards, cash, or non-cash items, there are important tax considerations for both the organization and the recipients.
For the nonprofit, distributing these forms of aid is generally permissible if the assistance aligns with the organization’s charitable mission and is properly documented. Gift cards are treated as cash equivalents, so they must be handled with the same care and recordkeeping as direct cash distributions.
For recipients, aid received for charitable purposes — such as disaster relief, medical expenses, or basic needs — is typically not considered taxable income. This means individuals don’t usually need to report such aid on their tax returns if it’s provided as part of a legitimate charitable program.
Nonprofits must maintain clear eligibility criteria and thorough documentation of aid distributions to remain compliant with IRS regulations and to protect their tax-exempt status. Failure to do so could raise questions about private benefit and jeopardize the organization’s standing.
Charitable funds can’t be used to support political campaigns or engage in lobbying activities; these actions can jeopardize a public charity’s tax-exempt status.
Additionally, providing aid lacking a clear charitable justification or falling outside the organization’s stated mission is not permitted.
Nonprofits must be mindful all distributions of funds are strictly for legitimate charitable purposes and align with their organizational objectives.
Other accounting considerations
When raising funds, a nonprofit must determine whether they themselves or the ultimate beneficiaries are the recipients of the gifts from donors. It’s rare, but a nonprofit may determine they do NOT need to record the gift as revenue, and subsequent expense, when:
- A nonprofit accepts assets and agrees to use them on behalf of another organization specified by the donor.
- A donor may identify the beneficiary in several ways: by naming the organization, by setting criteria defining which organizations qualify, or by taking steps in the transfer that make the intended beneficiary obvious.
- The nonprofit agrees to transfer the assets to another organization specified by the donor.
If the nonprofit receiving the assets is given variance power, which is the power to redirect the gift to a beneficiary other than that specified by the donor, it doesn’t constitute an agency transaction. In this case, the nonprofit would record a contribution.
The accounting for agency transactions is nuanced, so consulting with your accountant or auditor is recommended in making the determinations.
A nonprofit may be subject to an audit due to requirements at the state level; however, the requirements vary widely from state to state:
- A state may require an audit once a nonprofit exceeds a certain annual gross revenue or annual contributions threshold. Certain states may also have thresholds for requiring a review, which is a lower level of assurance than an audit.
- Revenue may be calculated differently by the state for determining audit requirements (e.g., some states may base revenues on a 990 or state tax filing). It’s important to understand the requirements and how to calculate revenue thresholds whether based on GAAP or tax returns.
- The National Council of Nonprofits has a helpful state-by-state summary outlining audit requirements.
- The audit may be required to be filed with the charitable solicitation registration process, if a nonprofit exceeds the revenue or contribution thresholds.
- Some states may require an audit if a nonprofit receives a certain amount of state grant funding, regardless of overall revenues.
- Some states may have audit exemptions or waivers for unusual circumstances.
How CLA can help with charitable donation oversight
Supporting communities during urgent moments takes heart — and it also takes clear financial practices. CLA supports nonprofits working through rapid‑response fundraising, new relief efforts, or rising contributions. Our teams provide practical guidance and hands‑on help in areas that matter most during high‑volume giving periods, including:
- Setting up or reviewing special‑purpose funds
- Strengthening documentation and reporting
- Supporting fiscal sponsorships
- Evaluating grantmaking to individuals
- Clarifying accounting questions
Prudent stewardship not only safeguards your nonprofit’s standing with regulatory authorities but also reinforces its commitment to ethical, mission-driven service.