To qualify for tax exemption, an organization must have a charitable purpose wtihin the meaning of section 501(c)(3). The organization must serve a public, and not a private, benefit. When you and your family members contribute to your cousin's support, there is a private benefit to the cousin and the family. You cannot use a charitable organization to convert nondeductible personal expenses into deductible charitable contributions. So, your analysis above is correct.

There really is no way to get around it. For example, if you gave money to a local church in your cousin's town, with the understanding that the money be used for your cousin, the IRS would not allow a charitable contributions deduction because the money is earmarked for a private benefit.

You could establish a charitable organization to support a group, such as all the people in your cousin's town with MS whose income is below a certain level. You would have to convince the IRS that the group is broad enough so that benefiting the group actually benefits the public. Your cousin could not be favored, however, over other beneficiaries, and a majority of the trustees would have to be independent (not family members).

It is admirable of you and your family to help your cousin. Good luck to him in getting the support he needs.
Source(s):
Sections 170 and 501(c)(3), Internal Revenue Code.
Private Inurement and Excess Benefit Transactions, http://www.federaltaxissues.com/0300_private/0320_private_doctrine.php
Exemption Requirements, http://www.irs.gov/charities/charitable/article/0,,id=96099,00.html

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