By Ted Hart
Due to the complex nature of making charitable donations to organizations outside of the U.S., it can be challenging for people and institutions to ensure that they’re adhering to all requisite laws imposed by the U.S. federal government in addition to local country regulations.
There seems to be a certain misunderstanding in the philanthropic sector around what constitutes an eligible international organization—that is, in what instances can a grantmaking body take a charitable deduction against gifts made to organizations outside of the U.S. More specifically, it is the false assumption that since an organization is listed within another country’s (IRS-equivalent) database of charitable organizations, such as the Australian Business Register, Canada Revenue Agency or UK Charities Commission, it is therefore eligible to receive charitable gifts from U.S. grantmakers without said grantmaker having conducted the requisite vetting (i.e., Equivalency Determination or Expenditure Responsibility). Such a mistake may trigger penalty taxes on the grantmaker and further investigations by the IRS that may damage the reputation of all parties involved.
As noted above, this is an incorrect and potentially dangerous assumption to work under, and all organizations issuing grants—whether directly or through a third party, must ensure that they or their representative are in compliance with all laws, regulations and best practices—especially since reputational risk may be the most important consideration of all.
Another misconception is that by undertaking Equivalency Determination, the grantmaker is under no obligation to perform further safeguards. While the requirements of Equivalency Determination are indeed very strict, there are many additional regulations and best practices that should be followed when making grants to foreign charities, such as:
- Mitigating the risk of criminal or terrorist activity as per the requirements of the PATRIOT Act;
- Preventing bribery, per the requirements of the Foreign Corrupt Practices Act (FCPA);
- Monitoring sanctions programs and licensing requirements set by the Department of Treasury’s Office of Foreign Assets Control (OFAC) and ensuring compliance;
- Knowledge and consideration of in-country laws regarding a local grantee’s ability to accept foreign funding or other applicable local laws.
Expanding your philanthropy internationally requires compliance in all of these areas, and therefore obtaining an Equivalency Determination Certificate on a foreign charity should not be interpreted as a general license to give as it does not completely address these other regulatory and risk-based issues.
Thus, while global companies spend considerable resources, both via internal and outside legal/compliance teams, to ensure that their core business operates in adherence with the myriad of U.S. and local country laws, it is imperative that other corporate undertakings, such as its charitable giving, are also beholden to the same level of review—as the result of erroneous actions, whether intentional or not, can have serious repercussions.
This article was first published by CAF America.
About the author:
Ted Hart brings extensive experience in the fields of internet and global philanthropy. As an internationally recognized speaker and consultant on topics related to nonprofit strategy, Ted is an expert in board and volunteer development practices both online and offline. Before coming to CAF America, Ted served as CEO of Hart Philanthropic Services, an international consultancy providing strategic solutions to major nonprofits and NGOs.