Nonprofit Update: IRS Changes Rules to Facilitate Foreign Giving

In late September, the Internal Revenue Service proposed new regulations that will reduce barriers to international donations.

Under IRS rules, when making gifts to foreign organizations, private foundations must determine that the organization is equivalent to a U.S. public charity or risk liability for excise taxes on the donation. That requirement remains in place.

The process for obtaining that “equivalency determination,” however, has become easier. From law firm Morgan Lewis:

“Previously, only counsel of the grantor or grantee could provide an equivalency opinion. Now, any ‘qualified tax practitioner’ who is subject to the regulations governing practice before the IRS, known as ‘Circular 230,’ may provide advice for use in making an equivalency determination. These qualified tax practitioners include attorneys, certified public accountants, or enrolled agents.”

For your reference, three takeaways from the new regulation:

1. The change should lower the cost of international gift-giving:

“The notice accompanying the proposed regulations provides that the change is expected to decrease the costs of seeking professional advice with respect to good faith determinations and enable private foundations to engage in international philanthropy in a more cost-efficient way.” (Proskauer)

2. The proposed regulations are already in effect:

“While the IRS has requested comments before adopting these proposed regulations as final, private foundations may begin relying on the proposed regulations immediately.” (Sheppard Mullin)

3. The IRS isn’t done yet:

“The IRS is considering making further amendments to the regulations to no longer permit equivalency determinations based on the affidavit of the foreign grantee, as it believes that affidavits may be a less reliable basis for making an equivalency determination than an opinion from a qualified tax practitioner.” (Morgan Lewis)

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