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Final Regulations Provide Guidance for Private Foundations Making Foreign Grants

9/28/2015 Articles

When making grants to foreign organizations, private foundations must conduct costly and time-consuming expenditure responsibility, unless the foundation makes a good faith determination that the foreign organization is equivalent to a public charity.  On September 23, 2015, the Department of Treasury and the IRS issued final regulations regarding the standards for making such equivalency determinations.

Regulations proposed in 2012 provide that a foundation will ordinarily be considered to have made a “good faith determination” if the determination is based on an affidavit of the grantee organization or written advice from a qualified tax practitioner. 

Under the final regulations, a good faith determination may not be based solely on a grantee affidavit, though a grantee affidavit may be a source of information in making a good faith determination.  For example, the preamble to the regulations provides that “a foundation manager with understanding of U.S. charity tax law may...make a good faith determination that a foreign grantee is a qualifying public charity based on the information in an affidavit supplied by the grantee.” 

Like the proposed regulations, the final regulations provide that a “qualified tax practitioner” is an attorney, certified public accountant, or an enrolled agent.  The final regulations provide that in order to rely on the written advice of a qualified tax practitioner, such advice must be “current.”  Advice is current if, as of the date of distribution, the relevant law and facts on which the advice was based has not changed since the date of the written advice.

The final regulations also provide guidance for foundations wishing to use written advice shared by another foundation. 

The preamble to the regulations indicates that the IRS intends to update Revenue Procedure 92-94, which provides guidance as to how a foundation makes a good faith equivalency determination.