Making grants to institutions outside the United States is challenging and rewarding. We hope this revised publication will be a useful resource that encourages grantmakers of all types to expand their grantmaking beyond our borders.
The target audience for this chapter includes private foundations, community foundations, company foundations, and direct corporate-giving programs. Although this chapter occasionally references the individual donor and the laws that affect that donor, we do not make an effort to provide a comprehensive analysis of the rules for individual giving.
The overriding objective of this chapter is to dissect and explain the various legal and technical requirements necessary to comply with the U.S. law and regulations concerning grants to non-U.S. organizations. Although these rules tend to inhibit foundations and business corporations from involvement in non-U.S. grantmaking, more and more funders each year are moving into the international arena with success. We hope that this chapter will increase the comfort level for grantmaking to non-U.S. institutions.
This chapter is divided into seven parts:
Part One: The Legal Framework for U.S. Charities and International Activity
The Internal Revenue Code (IRC or Code), the Treasury Regulations (Regulations) and subsequent guidance provides the framework for how grantmakers may engage in international grantmaking by defining charitable activity, outlining rules to obtain a charitable deduction or make grants to non-U.S. organizations, and classifying grantmakers and potential grantees. We begin with a review of the basics here.
Part Two: IRS-Recognized Charities with Non-U.S. Activities
Given the added administrative details necessary for making grants to organizations not recognized by the IRS, it is understandably tempting to look for an easier method. The most straightforward way to fund charitable activities outside the United States is to make grants to IRS-recognized charities organized in the United States that have active programs outside this country. Our discussion of non-U.S. grantmaking starts with this approach.
Part Three: Corporate Philanthropy and International Giving
Corporate law allows U.S. for-profit corporations to give anything they want to anyone in any place so long as the gift is consistent with a legitimate purpose of that corporation. Corporate law generally prohibits actions considered ultra vires, or beyond legitimate corporate purposes. However, if the corporation wants to make a charitable gift and obtain a charitable tax deduction, there are significant limitations beyond the question of whether or not the gift serves a corporate purpose.
Part Four: International Grantmaking by Public Charities
Some sectors of American philanthropy—churches, for example—have a long tradition of supporting activities in other countries. More and more public charities, including community foundations, are exploring the possibility of expanding their programs and services across international borders. This section provides guidance to public charities that make grants to non-U.S. organizations.
Part Five: International Grantmaking by Private Foundations
This section is designed primarily for private foundations. The information, however, is also valuable to corporations and public charities. Any private foundation formed by a U.S. corporation (a company foundation) must abide by these rules for any grants to non-U.S. organizations; and while public charities are not bound to these rules, they provide useful guidance and relative safety if they are followed closely.
Part Six: Non-Tax Regulation of International Grantmaking
The majority of this chapter focuses on the tax rules imposed on grants sent outside the United States. This Part Six, however, will examine other areas of the law that may affect international grantmaking.