Treasury and IRS Rule Changes Reduce Barriers to Global Grantmaking

The U.S. Department of the Treasury and the IRS have recommended a significant change in the process for determining whether a foreign nongovernmental organization (NGO) meets U.S. standards for charitable giving.

In "Reliance Standards for Making Good Faith Determinations," a document published today in theFederal Register, Treasury and the IRS have proposed regulations that lessen the administrative and financial burdens for U.S. grantmakers to engage in international philanthropy. Secretary of State Hillary Clinton announced the guidance in an address at the Clinton Global Initiative, during which she unveiled the Global Philanthropy Working Group.

The process of evaluating whether a non-U.S. NGO is equivalent to a U.S. public charity has been subject to rules that have not changed for 20 years. Under current regulations, an equivalency determination is considered made in good faith if it is based on either (1) an affidavit of a foreign organization or (2) an opinion of counsel of the grantor or grantee. Today’s guidance broadens the range of professionals on whose written advice a private foundation may rely when making such grants. Secretary Clinton noted in her remarks this morning that the change clears the way for the establishment of organizations that can serve as repositories for equivalency determinations, though the proposed regulations do not specifically address this matter. The Council and TechSoup Global have been working together to create such a repository, called NGOsource.

"Secretary Clinton’s announcement this morning elevates the understanding of the role philanthropy plays in addressing pressing global issues," said Vikki N. Spruill, president and CEO of the Council on Foundations. "At a time when challenges continue to mount and needs know no borders, this is a critical and positive step in enabling philanthropy to give as much as it can, where it is needed most, wherever that may be. The Council is proud to have represented our members’ needs and taken the lead on bringing about this important regulatory action."

"Secretary Clinton’s announcement and the IRS guidance support a shared cross-sector vision of ways to reduce redundancy and lower costs and are a welcome signal from the government to grantmakers and their grantees," said Rebecca Masisak, co-CEO of TechSoup Global.

"The IRS guidance is an encouraging building block for the development of an equivalency determination repository that will enable private foundations to identify and grant to overseas NGOs with greater confidence and ease," noted Sheila Warren, director of NGOsource for TechSoup Global and an attorney with expertise on tax-exempt law. She added that NGOsource is expected to launch as soon as possible.

Kelly Shipp Simone, deputy general counsel of the Council on Foundations, said, "While this guidance is key to reducing the burdens of private foundations in making international grants, we expect it will also serve as a guide to public charities seeking to make similar grants. The net result will be to reduce the burden on potential grantees as well."

Treasury and the IRS have requested comments before adopting these proposed regulations as final. Information about the proposal and instructions for submitting comments can be found at https://www.federalregister.gov/articles/2012/09/24/2012-23553/reliance-standards-for-making-good-faith-determinations. However, private foundations may begin to rely on the proposed regulations immediately.

To receive announcements about regulatory decisions affecting international grantmaking and about NGOsource, sign up online at www.ngosource.org/subscribe or send an e-mail to newsletter@ngosource.org.