Our 501(c)(3) organization is formed for “community betterment” purposes. We want to start making Community Grants to "do good" types, be they individuals, the scouts, or the XYZ Senior Center. One candidate is the retired carpenter who builds "public benches" for the town commercial area. He donates his time and skills but would like the material costs to be covered. May we make grants to individuals, or must we make our grants only to other 501(c)(3) charities?
An individual may claim a charitable contribution deduction only for a gift to a 501(c)(3) organization and not directly to a “worthy individual” who has needs of a type that are often covered by charitable organizations. But 501(c)(3) organizations can — and regularly do — make grants and provide services to qualified individuals, to feed the hungry, house the homeless, pay for medical costs, provide scholarships, etc. They fulfill their charitable purposes by helping individuals, often making direct grants to individuals. (One caveat: You can’t make grants to individuals from donor advised funds. (See Ready Reference Page: Congress Passes Charitable Reforms”))
If you do make grants to individuals, you must be sure that they help you fulfill your exempt purpose. You also ought to set up a set of criteria and a process that provides a more objective result and precludes any claims of favoritism for those related to the organization.