Equivalency Determination & Expenditure Responsibility

In-Depth knowledge on Expenditure Responsibility

Legal issues arise when a private foundation makes a grant to an Initial Grantee that is not a 501(c)(3) organization or that re-grants the Foundation's funds to a Secondary Grantee that is not a 501(c)(3) organization. Most of those issues center around IRS expenditure responsibility rules: specifically, which organization—the private foundation or the Initial Grantee—is responsible for adhering to those rules, if any.

For international grants, the Pension Protection Act requires donor-advised funds to comply with certain rules imposed on private foundations. Sponsoring organizations administering international grants from advised funds have adopted various practices to comply with the new requirements. This article discusses these changes, along with a brief description of the new rules.

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NGOsource

NGOsource, a project of the Council on Foundations and TechSoup Global, helps U.S. grantmakers streamline their international giving through easier equivalency determinations.

Council explanation of the Department of Treasury and the IRS issued proposed regulations applicable to private foundations seeking to make grants to foreign organizations using equivalency determinations. The guidance broadens the range of professionals on whose written advice a private foundation may rely when making such grants. Previously, reliance on the written opinion of counsel of the private foundation or grantee was permitted. The proposed regulations expand that class of professionals to attorneys, certified public accountants, or enrolled agents who are subject to certain professional conduct rules of the IRS, thereby removing one key obstacle to the creation of an equivalency determination repository. The regulations were issued in proposed form but private foundations may begin to rely upon them immediately. While the regulations are not explicitly applicable to public charities engaged in international grantmaking, the guidance should pave the way for public charities as well.