On March 9, 2006, I attended a Northern California Planned Giving Council luncheon meeting featuring Jane Peebles and a discussion of International Giving. Ms. Peebles, a partner in Bingam McCutchen’s estate planning group, is a leading legal expert in the area of international philanthropy. Here are some of the highlights of her discussion:
- As a general rule, contributions by any individual directly to a foreign entity or organization do not qualify as charitable contributions under IRC Sec. 170(c) and may not be deducted for U.S. income tax purposes.
- Subject to limited exceptions, gifts and bequests to foreign charitable organizations are deductible for U.S. gift and estate tax purposes, respectively.
- The simplest way to channel a deductible contribution abroad is to make it to a U.S. charity which operates abroad through a foreign branch office or subsidiary.
- A U.S. public charity (“friends of” organization) may be formed exclusively to support a foreign charity; however contributions to an approved U.S. intermediary must be made exclusively for charitable purposes and must not be “earmarked” for distribution to a nonqualified foreign grantee organization. The IRS has enumerated several procedures to be followed by U.S. public charities which make grants to foreign charities.
- Under IRC Sec. 170(c), corporate contributions intended for use outside of the U.S. are not deductible unless the donee is a U.S. corporation.
- U.S. public charities and private foundations that make grants to foreign organizations are well-advised to include in their bylaws, as applicable to all grants to foreign charities, the various procedures and restrictions applicable to donations to “friends of” organizations.
- The Council of Foundations recommends that U.S. public charities adopt a three-step procedure for foreign grants: (i) obtaining documentation from the grantee; (ii) entering into a written agreement with the grantee that documents the grantee’s commitments; and (iii) obtaining annual accountings from the grantee each year until the grant funds have been fully expended.
- Private foundations are subject to stringents requirements regarding the manner in which they may make grants abroad. IRC Sec. 4942 requires a U.S. private foundation to make “qualifying distributions” of a certain minimum amount each year. “Qualifying distributions” generally consist of amounts paid to accomplish religious, charitable , scientific, literary or other purposes described in IRC Sec. 170(c)(2)(B). A grant by a U.S. private foundation to a foreign organization which has applied for and received an IRS determination letter that it is a public charity, supporting organization or private operating foundation, is always a “qualifying distribution” for purposes of the 5% minimum distribution rule. A grant by a U.S. private foundation to a foreign charity which has not received such an IRS determination letter is not considered a “qualifying distribution” unless the distributing foundation has made a “good faith determination” that the foreign donee meets the qualifications of such an organization, or exercises expenditure responsibility over the grant. Private foundations need not attempt a good faith equivalency determination before turning to expenditure responsibility.
I have referred to Ms. Peebles’ work in an earlier post on international giving. The following are links to some references you may find helpful:
Tax Planning for Cross-Border Philanthropy by U.S. Donors – Jane Peebles