International giving has been one of the fastest growing sectors in U.S. philanthropy in the past few years. We expect planners will continue to see wealthy clients interested in giving abroad despite the current global financial crisis — and perhaps even because of it.1

Yet, even as giving for international purposes has increased, the rules governing such contributions have become more complex over the past decade. There are new federal regulations designed to thwart terrorist financing. The Internal Revenue Service has intensified oversight of donor-advised funds (DAFs). Court decisions and changing laws in other countries impact U.S. taxpayers' ability to give to foreign charities in a tax-efficient manner.

Advisors must counsel clients well so that individuals can deduct contributions to foreign charities, private foundations can avoid excise tax, and donors don't unwittingly violate anti-terrorist laws and wind up paying stiff penalties or even going to jail.2

Direct contributions to foreign charities cannot be deducted from federal income tax. But a variety of intermediary organizations can help individual donors receive charitable income tax deductions while achieving their philanthropic goals. Private foundations allow donors to implement a long-term plan of giving, yet require a significant commitment of time, effort and funds. Donors who don't have enough wealth or interest to establish a private foundation, but still would like to exercise some discretion over the distribution of their contributions, can use DAFs. Donors who know exactly which foreign charity they'd like to assist can give to “friends of” organizations that support that foreign charity. And, if no other options are available, the donor may consider making a gift through a supporting organization (SO), although the tax consequences of this option are unclear. Also, charitable deductions for gifts to foreign charities are available through tax treaties and the estate and gift tax.

No matter how donors choose to engage in international giving, though, great care must be taken so that all rules, regulations and laws are honored.

Scope of Giving

Donations from U.S. foundations for international purposes grew by more than 50 percent after inflation between 2002 and 2007, even as total giving rose by only 22.3 percent, according to International Grantmaking IV: An Update on U.S. Foundation Trends, a report prepared by the New York-based Foundation Center (an association of close to 600 foundations) in cooperation with the Council on Foundations (an Arlington, Va.-based non-profit membership association of more than 2,100 grant-making foundations and corporations.)

Indeed, in 2007 alone, donations from all U.S. sources for international affairs rose by 12.9 percent — more than three times the overall rate of growth in charitable giving, according to Giving USA 2008, the yearbook on philanthropy released in June 2008 by the Glenview, Ill.-based Giving USA Foundation.

Several factors contributed to this increase.3 Improved technology is quickly bringing more images of faraway humanitarian disasters to television and computer screens in the United States. Just think of all the footage shown in the United States of the tsunami in Asia in 2004 and last year's earthquake in China.

High-profile people and groups also are calling attention to international needs. Celebrities like Bono and Angelina Jolie have highlighted efforts to fight disease and poverty in Africa. The Bill and Melinda Gates Foundation increased awareness of issues relating to global health and development. In January 2009, for example, Bill Gates made headlines by announcing a combined pledge of more than $600 million from the Gates Foundation, Rotary International, and the British and German governments for the worldwide effort to eradicate polio.4 Even former Presidents Bill Clinton and George H. W. Bush have joined forces to promote international giving, appearing together in television ads asking for donations for victims of the 2004 tsunami in Asia.5

Income Tax

Ironically, while the worldwide income of a U.S. taxpayer is subject to taxation in the United States, the U.S. taxpayer's cross-border charitable contributions are not eligible for the federal income tax charitable deduction.6 U.S. taxpayers consequently accomplish much of their international giving by means other than direct donations to foreign charities.

For a U.S. taxpayer's gift to qualify as a deductible “charitable contribution” under Internal Revenue Code Section 170(c), the gift must be made to, or for the use of a “corporation, trust, or community chest, fund or foundation … created or organized in the United States or in any possession thereof, or under the law of the United States or in any possession thereof, or under the law of the United States, any State, the District of Columbia, or any possession of the United States.”7

Despite this restriction, an individual can make a gift that both benefits foreign and international programs or charities and qualifies for a federal income tax charitable deduction.

Here's how:

  • U.S. organizations operating abroad — Individuals may take a deduction for a gift to a domestic organization that, through branches or subsidiaries, conducts programs abroad.8 A donor may even earmark his donation for the support of a specific program operated by a domestic organization in another country.9 But beware: the donor should make sure that the domestic organization operates the foreign program directly or has complete control over the branches or subsidiaries operating the foreign program.10 Otherwise, the IRS may regard the domestic organization as simply having redistributed the donor's funds to a foreign organization pursuant to an agreement and disallow the donor's income tax deduction.11

  • U.S. organizations that donate funds to foreign organizations — What if a donor wants to support a foreign cause or community that is not served by a U.S. organization? The donor may be able to support a foreign organization and still claim an income tax deduction by making a gift to a domestic organization (referred to in this article as an “intermediary organization”) that may re-donate the gift to a foreign organization.12 As we'll see, there are several types of intermediary organizations. But two general considerations apply no matter which type of intermediary organization an individual chooses:

    1. An individual should not earmark a gift made to an intermediary organization for the use of a particular foreign organization in order to avoid a finding by the IRS that the gift was a de facto contribution to the foreign organization.13
    2. The intermediary organization must have sufficient discretion and control over the use of the gift so that the organization is not deemed a mere conduit of funds for a foreign organization.14

Private Foundations

A U.S. taxpayer may create his own intermediary organization by establishing a private foundation (or by giving to an existing private foundation that accepts gifts from outside donors). By creating a private foundation, a donor can have maximum discretion over the use of his contributions, but in turn the donor must make a significant commitment of funds and time. Because of the effort and expense required to create and oversee a private foundation, this option works best for those donors who have long-term philanthropic goals.

Again, beware: the private foundation must take care when making a grant to a foreign charity to ensure that the grant is a qualifying distribution and not a taxable expenditure. The IRC requires a private foundation to disburse each year a certain “distributable amount” (as defined in the IRC), which often equals 5 percent of the foundation's assets.15 Only a “qualifying distribution” can contribute to meeting a foundation's distributable amount.16 Furthermore, the IRC imposes an excise tax on any distribution by a private foundation that qualifies as a taxable expenditure.17

There are three ways in which a private foundation may make a grant to a foreign charity that will allow the grant to be classified as a qualifying distribution and not as a taxable expenditure:18

  • Public charity determination — If a foreign charity has applied for and received a determination from the IRS that the foreign charity is a public charity or a private operating foundation, a grant to the foreign charity will be deemed to be a qualifying distribution and not a taxable expenditure.19 Because of the time and expense required to obtain such a determination, many foreign charities forgo this process. Therefore, a private foundation will probably need to rely on one of the following two options.

  • Equivalency determination — A private foundation may make an equivalency determination with regard to a particular foreign charity. This determination includes two steps:

    1. The foundation must make a “reasonable judgment” that the foreign charity is described in IRC Section 501(c)(3);20 and
    2. The foundation must make a “good faith determination,” based on an affidavit completed by the foreign charity or an opinion of the foundation's counsel or the foreign charity's counsel, that the foreign charity is described in IRC Section 509(a)(1), (2), or (3).21 Revenue Procedure 92-94 details requirements for the affidavit.

In seeking an equivalency determination, a private foundation is well-advised to obtain the following documents (and have them translated into English, if necessary):

  1. the foreign charity's founding documents;
  2. a thorough description of the foreign charity's activities, current and proposed;
  3. law or organizing documents that prevent the foreign charity from participating in political campaigns, lobbying, or using its assets or income for a non-charitable purpose or an individual's private benefit; and
  4. detailed financial records (except for medical institutions, educational organizations, and religious institutions).22
  • Expenditure responsibility — A private foundation may not be able to obtain the affidavit or opinion of counsel necessary for an equivalency determination regarding a particular foreign charity.23 In that case, the foundation may exercise expenditure responsibility over the grants it makes to the foreign charity (that is to say, the foundation can take steps to ensure the funds are used for charitable purposes).24 In exercising expenditure responsibility, the foundation should take the following steps:

    1. Conduct a pre-grant inquiry that satisfies Treasury Regulations Section 53.4945-5(b)(2)(i) as being “complete enough to give a reasonable man assurance” that the foreign charity will use the grant for charitable purposes.
    2. Obtain a written commitment from the foreign charity with specific terms outlined under Treas. Regs. Section 53.4945-5(b)(3) and (5).25
    3. Require the foreign charity to report annually “on the use of the funds, compliance with the terms of the grant, and the progress made by the grantee toward achieving the purposes for which the grant was made,” in compliance with Treas. Regs. Section 53.4945-5(c)(1).
    4. Report on Form 990-PF each grant subject to expenditure responsibility made during the taxable year.26

If the foundation makes a grant to a foreign charity not described in IRC Section 501(c)(3), the foreign charity must hold the grant in a separate fund dedicated to at least one of the purposes described in IRC Section 170(c)(2)(B).27

In a 2001 letter to the Council on Foundations, the acting director of rulings and agreements at the IRS stated that if a private foundation makes a good faith determination that a foreign charity is described in IRC Section 501(c)(3) but not IRC Section 509(a), the private foundation may ensure “qualifying distribution” treatment for a grant to the foreign organization if the private foundation (1) exercises expenditure responsibility with respect to the grant and (2) secures records demonstrating that the foreign charity distributes the amount of the grant by the end of the year following the year in which the grant is made, in compliance with IRC Section 4942(g)(3).28

Donor-Advised Funds

Another form of intermediary organization has become increasingly popular in recent years: the DAF.29 The National Philanthropic Trust, an independent public charity based in Jenkintown, Pa., reports that the total number of DAFs in the United States grew from 109,238 in 2006 to 122,539 in 2007, an increase of 12.2 percent, while the total assets being held by DAFs rose from $22.85 billion in 2006 to $27.68 billion in 2007, a change of 21 percent.30 By establishing a DAF, a donor can enjoy a degree of discretion over the use of his contributions while dispensing with much of the cost and administrative hassle attendant to creating and maintaining a private foundation.

A DAF is an account that is owned and controlled by a sponsoring organization and is separately identified by reference to contributions of a donor who has advisory privileges regarding the account.31 DAFs managed by community foundations and commercial enterprises are generally prohibited from making donations to foreign charities. But some domestic public charities such as the King Baudouin Foundation United States (KBFUS) and Charities Aid Foundation America (CAFAmerica) have established internationally targeted DAF programs. The New York-based KBFUS helps U.S. donors achieve their philanthropic goals in Europe and sub-Saharan Africa, while CAFAmerica, based in Alexandria, Va., assists U.S. donors in supporting and managing global philanthropic initiatives.

The federal government has in recent years increased its scrutiny of DAFs. The Pension Protection Act of 2006 (PPA) established new rules, similar to those observed by private foundations, for grants from DAFs to foreign charities.32 DAFs must now pay an excise tax on “taxable distributions.”33 A grant to a foreign charity will not be deemed a taxable distribution if the DAF exercises expenditure responsibility with respect to the grant.34 In addition, Congress' Joint Committee on Taxation indicated in its technical explanation of the PPA that if a DAF makes a good faith determination that a grantee is described in IRC Section 170(b)(1)(A), then a grant to such organization will not be considered a taxable distribution.35

“Friends of” Organization

A “friends of” organization is an intermediary organization that accepts gifts from U.S. taxpayers and then, under the discretion of a board of directors, donates funds to one or more foreign charities. A “friends of” organization is an excellent option for a donor who already knows that he would like to support a specific foreign organization. Examples of “friends of” organizations in the United States include the New York-based Halcyon Foundation, which supports the American Museum in Britain, and Cambridge in America, also based in New York, which supports the University of Cambridge and its 31 member colleges.

Individuals who wish to make an income tax deductible gift to a “friends of” organization should first satisfy themselves that the “friends of” organization's governance and operations give it sufficient discretion and control over contributions such that the IRS will not deem it to be a mere conduit. This means that the “friends of” organization should review and approve each grant it makes to a foreign charity as furthering the purposes of the “friends of” organization.36 Also, the “friends of” organization should thoroughly document its review and approval process so that the organization's discretion is clearly evidenced.

A “friends of” organization may solicit funds specifically for projects that it already has approved.37 However, the organization cannot be bound by its charter to turn over all its funds to a particular foreign organization.38 In addition, the IRS has emphasized the importance of the directors being “United States citizens not acting on behalf of [a] foreign organization.”39

Supporting Organizations

A donor who is an individual or a private foundation may want to consider using an SO as an intermediary in supporting a foreign charity. However, the donor should be advised that the tax consequences of this method are uncertain.

According to the Internal Revenue Manual, “A Type I or Type II supporting organization is not specifically precluded from supporting a foreign charity.”40 The IRS suggests two ways in which Type I and Type II SOs may support foreign charities:

  1. The SOs may support a foreign charity that “has received exemption from the I.R.S. under Section 501(c)(3) as a 509(a)(1) or (2) public charity.”41
  2. Alternatively, an SO may support a foreign charity described in IRC Section 501(c)(3) that otherwise meets the requirements of IRC Section 509(a)(1) and (a)(2), though the IRS may ask for “information sufficient to demonstrate that the foreign charity would qualify” under IRC Sections 501(c)(3) and 509(a)(1) or (2).42

An SO that may support a foreign charity should take steps to ensure that the SO meets the standards of discretion and control imposed on “friends of” organizations, described above. This requires a delicate balance, as the SO must at the same time have a sufficiently close relationship to the supported foreign charity to qualify as an SO and enough independence that it's not regarded as a mere conduit of funds to the foreign charity.43

The IRS has not commented on the deductibility under IRC Section 170 of a donation to a domestic Type I or Type II SO created to support a foreign charity. Therefore, a practitioner should obtain a private letter ruling confirming deductibility if a client wishes to make such a donation.


The United States has tax treaties with Canada, Mexico and Israel permitting a U.S. citizen or resident to claim a federal income tax deduction for a contribution to a charity organized in one of those countries, subject to country-specific guidelines:44

  • Canada — A U.S. citizen or resident may claim a deduction for a contribution to a Canadian organization recognized as a registered charity by Revenue Canada.45 A U.S. donor's contributions to Canadian charities are not deductible to the extent that they exceed an amount determined by applying “the percentage limitations of the laws of the United States in respect of the deductibility of charitable contributions” to the donor's Canadian source income for a taxable year.46 The IRS will regard a Canadian registered charity as a private foundation unless it provides financial information to the contrary.47

  • Mexico — A contribution by a U.S. citizen or resident to an organization deemed by Mexican tax authorities to qualify under Article 70-B of the Mexican income tax law will be treated as a contribution to a public charity under U.S. law.48 Therefore, a grant by a U.S. private foundation to an Article 70-B organization will not be deemed a taxable expenditure subject to excise tax under IRC Section 4945.49 A donor's contributions to Article 70-B organizations are not deductible to the extent that they exceed an amount determined by applying “the limitations of the laws of the United States in respect to the deductibility of charitable contributions to public charities” to the donor's Mexican source income for a taxable year.50

    In 2002, Mexico revised its income tax laws by moving the provisions of Article 70-B to Article 97. The IRS has not ruled whether organizations recognized under Article 97 will be treated the same, for U.S. tax purposes, as organizations recognized under Article 70-B.51

  • Israel — A U.S. citizen or resident may claim a federal income tax deduction for a contribution to an Israeli organization constituting a charitable organization under Israeli income tax laws “if and to the extent such contributions would have been treated as charitable contributions had such organization been created or organized under the laws of the United States.”52

A U.S. donor's charitable deduction for a gift to a qualifying Israeli organization may not exceed 25 percent of the donor's Israeli source income for a taxable year.53

The IRS does not yet accept certification by Israel that an organization is eligible to receive deductible contributions. Therefore, before a donor can claim a charitable deduction for a gift to an Israeli charity, the charity must request and receive a determination from the IRS that the Israeli charity would qualify for exemption were it organized under U.S. law.54

The European Union

U.S. taxpayers who are also subject to taxation in the European Union may get a break on their EU taxes for cross-border donations made within the European Union.

In a recent ruling, Hein Persche v. Finanzamt Lüdenscheid,55 the European Court of Justice held that if an EU member state grants tax deductions for donations to charitable organizations, it may not deny a taxpayer such a deduction for the taxpayer's gift to a charity organized under the law of another EU member state without giving the taxpayer an opportunity to demonstrate that the gift would qualify for a charitable deduction if the charity were organized under the law of the member state granting such deductions.

An EU taxpayer who wishes to claim a deduction for a gift to a charity organized in another EU member state should consult the relevant taxing authority to confirm how the taxpayer may prove that the charity would qualify to receive tax-deductible donations under the law of the taxing state.

Estate and Gift Tax

The estate tax rules do not include the geographic limitation that restricts income tax deductions for contributions to foreign charities. An estate of a U.S. citizen or resident may claim an estate tax deduction for a contribution to a charity not organized under U.S. law — so long as the charity is otherwise eligible to receive estate tax deductible contributions under IRC Section 2055.56 The IRS also allows a charitable deduction for a resident's bequest to a foreign government provided the use of the gift is limited to exclusively charitable purposes within the meaning of IRC Section 2055(a)(2) and 2055(a)(3).57

Usually, if a deduction is not permitted under federal income tax rules, it is also prohibited under federal gift tax rules; however, this norm does not apply to contributions by U.S. citizens or residents to foreign charities. A U.S. citizen or resident may receive a gift tax deduction for a gift to a foreign charity as long as the charity otherwise qualifies under IRC Section 2522.58

The estate and gift tax rules impose some geographic restrictions on charitable deductions by non-residents and their estates. Non-resident estates may claim a charitable deduction only “for transfers to corporations and associations created or organized in the United States, and to trustees for use within the United States.”59 A non-resident estate's charitable deduction may not exceed “the value of the transferred property required to be included in the gross estate.”60 A non-resident donor may receive a charitable gift tax deduction only for gifts to domestic donees and, in the case of non-corporate donors, if the donee uses the gift solely within the United States.61

Counter-Terrorism Laws

In addition to the tax laws, charities and donors should be aware of counter-terrorism laws so that their philanthropic efforts do not inadvertently lead to civil or criminal prosecution. Executive Order 13224 and the USA Patriot Act and its 2005 reauthorization are central to the federal government's efforts to prevent terrorist financing.

Executive Order 13224 authorizes the U.S. government to block the assets of certain designated persons and entities that “have committed, or pose a significant risk of committing” acts of terrorism against the U.S.62 Furthermore, the executive order blocks the property of persons and entities “that provide support, services, or assistance to … or otherwise associate with” such designated persons and entities.63

President George W. Bush issued the executive order using the authority given to him under the International Emergency Economic Powers Act (the IEEPA).64 In 2007, Congress amended the IEEPA so that now an individual or entity who willfully violates an order issued under the authority of the act, including Executive Order 12334, may face a criminal fine of up to $1 million or (in the case of an individual) up to 20 years in prison — or both.65

Furthermore, an individual or entity may face civil penalties of up to $250,000 or “an amount that is twice the amount of the transaction that is the basis of the violation with respect to which the penalty is imposed” even if the person or entity did not knowingly or intentionally violate the executive order.66

The USA Patriot Act broadened the scope of criminal liability and penalties for knowingly or intentionally providing material or financial support to terrorists or terrorist organizations, imposing on violators a fine determined under Title 18 of the U.S. Code, 15 years imprisonment (or up to life if the violation results in the death of any person) — or both.67

In 2002, Congress added another law prohibiting the collection or provision of funds with the knowledge or intention that these funds be used to support acts of terrorism. This law penalizes violators with criminal fines, up to 20 years in prison, or both.68

The USA Patriot Improvement and Reauthorization Act of 2005 (the Reauthorization Act) targeted informal money transfer networks known as “hawalas,” used by terrorists to transfer funds to terrorist organizations abroad,69 by criminalizing financial transactions that the Reauthorization Act described as “part of a set of parallel or dependent transactions, any one of which involves the proceeds of a specified unlawful activity” as defined in the statute.70

Charities and donors should exercise extreme caution to ensure that they do not unsuspectingly participate in a chain of financial transactions related to an “unlawful activity” and thereby run afoul of this statute.

On Sept. 29, 2006, the Treasury Department issued its third version of voluntary “best practices” to guide charities in complying with Executive Order 13224 and the USA Patriot Act.71 These guidelines recommend procedures for maintaining accountability and transparency with regard to an organization's governance and finances, for programmatic verification, and for vetting grantees and key employees.72 But the guidelines recognize that because “a one-size-fits-all approach is untenable and inappropriate … certain aspects of the Guidelines will not be applicable to every charity, charitable activity, or circumstance.”73

Go Forth and Give

A donor need not be a superstar philanthropist like Bill Gates or Warren Buffett to participate in international giving. But the donor does need sound advice to navigate the increasingly complicated regulations affecting gifts supporting foreign and international causes. With careful planning, individuals and private foundations can make gifts that are at once internationally targeted and tax-efficient.


  1. “A Giving Recession?,” The Economist (Jan. 6, 2009) (“[G]iving has proven remarkably recession proof, at least in America. During the Great Depression, giving rose.”)
  2. In this article, the terms “foreign organization” and “foreign charity” mean an organization that is chartered in a foreign country and meets all the requirements of Internal Revenue Code Section 170(c)(2), other than the domestic requirement of IRC Section 170(c)(2)(A). “Domestic organization” and “domestic charity” refer to an organization that meets all the requirements of IRC Section 170(c)(2).
  3. For further discussion of the recent rise in cross-border donations, see Sarah Murray, “U.S. Donors Eye Global Causes,” Financial Times (Sept. 18, 2007).
  4. Celia W. Dugger, “$630 Million Donated Toward Polio Eradication Effort,” The New York Times (Jan. 22, 2009); Robert A. Guth and Jacob Goldstein, “$635 Million Pledged in Effort to Wipe Out Polio,” The Wall Street Journal (Jan. 22, 2009).
  5. Stuart Elliott, “Campaign for Tsunami Aid Assembled in What May Be Record Time,” The New York Times (Jan. 7, 2005).
  6. In 1938, Congress limited the federal income tax charitable deduction to contributions to domestic organizations. Revenue Act of 1938, Public Law 75-554, 52 Statute 447, at Section 23(o).
  7. IRC Section 170(c)(2)(A).
  8. Treasury regulations permit an individual to claim a deduction for a “charitable contribution … to or for the use of an organization described in Section 170(c) … even though all, or some portion, of the funds of the organization may be used in foreign countries for charitable or educational purposes.” Treasury Regulations Section 1.170A-8(a)(1).
  9. Winn v. Commissioner, 595 F.2d 1060, 1065 (5th Cir. 1979) (allowing a deduction for gift to support specified foreign missionary).
  10. See Example 5 in Revenue Ruling 63-252, 1963-2 C.B. 101 (approving deduction for contribution to a domestic organization that (1) performs charitable work in a foreign country through a subsidiary formed for administrative purposes; (2) solicits funds specifically for its work in the foreign country; and (3) transmit funds it receives for its foreign charitable activities directly to the foreign subsidiary); Bilingual Montessori School of Paris v. Comm'r, 75 T.C. 480, 483-84 (1980) (permitting a deduction for a donation to a domestic organization that itself operated a school in France).
  11. Rev. Rul. 63-252, 1963-2 C.B. 101.
  12. U.S. persons, whether individuals or entities, should note that a withholding tax applies to a donation to a foreign organization if the foreign organization uses the donation to support activities in the United States, unless the donation qualifies for an exemption. See IRC Sections 1441, 1442 and 1443 and accompanying regulations. Therefore, if a U.S. person makes a gift to a foreign organization with the intention that the gift be used exclusively outside of the United States. the U.S. person may want to include the exclusion in a written agreement outlining the terms of the gift.
  13. Rev. Rul. 63-252, 1963-2 C.B. 101 (“Assuming that an organization otherwise meets the requirements set forth in IRC Section 170(c)(2), a further problem arises when that organization is required to turn all or part of its funds over to a foreign charitable organization”); see also Rev. Rul. 66-79, 1966-1 C.B. 48 (“Contributions to the domestic organization are not earmarked in any manner for a foreign organization [therefore] the domestic organization is considered to be the recipient of such contributions”); Rev. Rul. 62-113, 1962-2 C.B. 10 (discussing earmarking of funds donated to church for use of missionaries abroad.)
  14. Rev. Rul. 63-252, 1963-2 C.B. 101 (“[T]he requirements of section 170(c)(2)(A) of the Code would be nullified if contributions inevitably committed to go to a foreign organization were held to be deductible solely because, in the course of transmittal to the foreign organization, they came to rest momentarily in a qualifying domestic organization. In such cases the domestic organization is only nominally the donee; the real donee is the ultimate foreign recipient.”)
  15. IRC Section 4942(d)?(f). A private foundation must pay excise tax to the extent that its qualifying distributions in a taxable year fall below its distributable amount. IRC Section 4942(a)-(c).
  16. IRC Section 4942(c).
  17. IRC Section 4945(a).
  18. All of the options discussed assume that the grant to a foreign organization is made for at least one of the purposes described in IRC Section 170(c)(2)(B).
  19. Rev. Proc. 92-94, 1992-46 IRB 34.
  20. Treas. Regs. Section 53.4945-6(c)(2)(ii). “The term ‘reasonable judgment’ shall be given its generally accepted legal sense within the outlines developed by judicial decisions in the law of trusts.” Ibid.
  21. Treas. Regs. Section 53.4942(a)-3(a)(6).
  22. Derek J. Aitken, “Determining Whether to Make an Equivalency Determination or to Exercise Expenditure Responsibility,” The International Journal of Non-for-Profit Law (June 2000).
  23. The Internal Revenue Service has confirmed that a private foundation is not required to evaluate whether it can make an equivalency determination before the foundation chooses to exercise expenditure responsibility. Letter from Thomas J. Miller, acting director, Rulings and Agreements, IRS, to John A. Edie, senior vice president and general counsel, Council on Foundations, dated April 18, 2001; available at (Miller Letter).
  24. IRC Section 4945(h).
  25. If the grant is a “program-related investment” as defined under IRC Section 4944, the commitment should contain the terms described under Treas. Regs. Section 53.4945-5(b)(4).
  26. Treas. Regs. Section. 53.4945-5(d).
  27. Treas. Regs. Section. 53.4945-6(c)(2)(i).
  28. Miller Letter at p. 4, bullet point (2).
  29. Noelle Barton and Elizabeth Schwinn, “Growing Concerns and Assets: Donor-Advised Funds Gain in Popularity as Economy Softens,” Chronicle of Philanthropy (May 29, 2008).
  30. Andrew W. Hastings, “Donor Advised Fund Market,” National Philanthropic Trust (November 2008), available at
  31. IRC Section 4966(d)(2).
  32. PL 109-280, 120 Stat. 780 (Aug. 17, 2006).
  33. IRC Section 4966(a).
  34. IRC Section 4966(c)(1)(B)(ii); see also IRC Section 4945(h) and accompanying regulations for the expenditure responsibility rules.
  35. Joint Committee on Taxation, “Technical Explanation of the Pension Protection Act of 2006 (JCX-38-06),” Aug. 3, 2006, at p. 349 n. 526. See Notice 2006-109, 2006-51 IRB 1121, for guidance on what kind of information a grantor can rely on in making a good faith determination.
  36. Rev. Rul. 66-79, 1966-1 C.B. 48. Generally, the “friends of” organization “should know in advance of its distributions the identities of ultimate beneficiaries of its funds.” GCM 35319 (April 27, 1973). However, the IRS has suggested four procedures by which a “friends of” organization can preserve its qualification under IRC Section 170(c)(2) even if the organization does not know “in advance of ultimate distribution [by the foreign charity/grantee] the precise identity of ultimate distributees.” Ibid.
  37. Rev. Rul. 66-79, 1966-1 C.B. 48.
  38. See Example 2 in Rev. Rul. 63-252, 1963-2 C.B. 101 (disapproving deduction for contribution to a domestic organization with a charter providing that “it will receive contributions and send them, at convenient intervals, to [a] foreign organization.”)
  39. Rev. Rul. 66-79, 1966-1 C.B. 48.
  40. Internal Revenue Manual (Supporting Organizations Guide Sheets). A Type III supporting organization (SO) is prohibited from supporting foreign charities. IRC Section 509(f)(1)(B).
  41. I.R.M.
  42. Ibid; see also Rev. Rul. 74-229, 1974-2 C.B. 142.
  43. For further discussion on structuring an SO that may support a foreign charity, see Timothy R. Lyman, “Supporting Organizations in International Grantmaking: A Recent Ruling Shows This is an Ideal Tool for Major Support to a Foreign Charity,” Legal Dimensions of International Grantmaking: International Dateline (January 2002), available at
  44. See also Treas. Regs. Section 1.861-8(e)(12)(ii) (regarding apportionment of charitable deductions allowed by U.S. tax treaty).
  45. Convention with Respect to Taxes on Income and on Capital, Aug. 16, 1984, United States-Canada, article XXI, paragraph 5 (Canada Treaty); Notice 99-47, 1999-2 C.B. 391. A Canadian registered charity will receive recognition of exemption without application to the United States; but if the Canadian organization has not applied for recognition, the U.S. taxpayer claiming a deduction must show that the organization is a Canadian registered charity. Notice 99-47, 1999-2 C.B. 391.
  46. For example, IRC Section 170(b) limitations would apply. Canada Treaty, art. XXI, para. 5. But the treaty includes an exception for contributions to a college or university in which the donor or a member of the donor's family is, or was enrolled, which may be deducted against U.S.-source income. Ibid; see also Notice 99-47, 1999-2 C.B. 391.
  47. Notice 99-47, 1999-2 C.B. 391.
  48. Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, Sept. 18, 1992, United States-Mexico, art. 22, para. 2 (1992) (Mexico Treaty); Mexico Treaty, First Protocol, point 17, para. b. See IRS Information Letter 2003-0158 (March 17, 2003) for a recent summary regarding the treatment of grants to Article 70-B organizations.
  49. Joint Committee on Taxation, Explanation of Proposed Income Tax Treaty (and Proposed Protocol) Between the United States and Mexico (JCS-16-93), Oct. 26, 1993, at p. 88. The private foundation (or another donor) can confirm a Mexican organization's Article 70-B status by obtaining a copy of a letter granting the recognition from the Mexican Ministry of Finance and Public Credit (Secretaria de Hacienda y Credito) or by checking Mexico's Official Gazette (el diario official de la Federacion). IRS Information Letter 2003-0158 (March 17, 2003).
  50. Mexico Treaty, art. 22, para. 2.
  51. Michael W. Durham, “Grantmaking Under the U.S.-Mexico Treaty: Old Frustrations, New Promise,” Legal Dimensions of International Grantmaking (July 2007), available at
  52. Convention with Respect to Taxes on Income, Nov. 20, 1975, United States-Israel, art. 15-A, para. 1 (1975) (Israel Treaty); 1980 Protocol, Israel Treaty, art. X (May 30, 1980).
  53. Israel Treaty, art. 15-A, para. 1.
  54. Tax Convention (and Proposed Protocol) with the State of Israel, Sen. Exec. Report No. 97-29, 97th Cong., 1st Sess. (1981), reprinted at Joint Committee on Taxation, Explanation of Proposed Protocol to the Income Tax Treaty between the United States and Israel (JCS-14-93), Oct. 26, 1993, at p. 48; U.S. Treasury, Technical Explanation of the [Israel Treaty], available at,,id=169560,00.html.
  55. European Court of Justice, C318/07 (Jan. 27, 2009).
  56. See Treas. Regs. Section 20.2055-1(a) (“The deduction is not limited, in the case of estates of citizens or residents of the United States, to transfers to domestic corporations or associations, or to trustees for use within the United States.”)
  57. Rev. Rul. 74-523, 1974-2 C.B. 304. See also Private Letter Ruling 200905015 (Jan. 30, 2009) (allowing estate tax charitable deduction for a U.S. citizen's bequests of cash to a foreign city and art to a museum in that city).
  58. See Treas. Regs. Section 25.2522(a)-1(a) (“The deduction is not limited to gifts for use within the United States, or to gifts to or for the use of domestic corporations, trusts, community chests, funds, or foundations, or fraternal societies, orders, or associations operating under the lodge system.”)
  59. IRC Section 2106(a)(2)(A)(ii)-(iii); Treas. Regs. Section 20.2106-1(a)(2)(i).
  60. IRC Section 2106(a)(2)(D); see also Estate of Silver v. Comm'r, 120 TC 430 (2003).
  61. IRC Section 2522(b)(2)-(3).
  62. Executive Order 13224, “Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism,” (Sept. 23, 2001) at Section 1, available at The Treasury Department lists known or suspected terrorists on the Specially Designated Nationals list, available at
  63. Executive Order 13224, Section 1(d).
  64. Ibid. See also the International Emergency Economic Powers Act (IEEPA), 50 U.S.C. Section 1701 et seq.
  65. 50 U.S.C. Section 1705, as amended by An act to amend the penalty provisions in the International Emergency Economic Powers Act, and for other purposes, PL No. 110-96, 121 Stat. 1011 (2007) at Section 206.
  66. Ibid.
  67. USA Patriot Improvement and Reauthorization Act of 2005, PL 1No. 107-56, 115 Stat. 272 (2001) at Section 810 (“Alternate maximum penalties for terrorism offenses”); see also 18 U.S.C. Section 2339A(a) (providing material support to terrorists); 18 U.S.C. Section 2339B(a) (providing material support or resources to designated foreign terrorist organizations).
  68. An act to implement the International Convention for the Suppression of Terrorist Bombings, to strengthen criminal laws relating to attacks on places of public use, to implement the International Convention of the Suppression of the Financing of Terrorism, to combat terrorism and defend the Nation against terrorist acts, and for other purposes, PL No. 107-197, 116 Stat. 721 (2002) at Section 202; 18 U.S.C. Section 2339C.
  69. H.R. 3199, H. Rep. No. 109-333, at p. 107 (2005) (Conf. Rep.).
  70. USA Patriot Act, No. 109-177, 120 Stat. 243 (2006) at Section 405 (“Money laundering through hawalas”); 18 U.S.C. 1956(a)(1); see 18 U.S.C. 1956(c)(7) for the statutory definition of “specified unlawful activity.”
  71. Treasury Department, “Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-Based Charities,” (Sept. 29, 2006), available at The original guidelines were published in 2002. A second version was published in 2005; the 2006 edition incorporates comments received in response to the 2005 guidelines.
  72. Ibid.
  73. Ibid. at p. 2. For further commentary regarding the latest version of the guidelines, see Paul Carman and Kelley Bender, “International Giving and the Fight Against Terrorism: A Clash of Policies Begets New Rules,” Journal of Taxation (February 2007), at p. 100.

David T. Leibell, far left, is a partner in the Stamford, Conn., office, Mark E. Haranzo is a partner in the New York office, and Phyllis Maloney Johnson is an associate in the New Haven, Conn., office of Wiggin and Dana, LLP