Under the domestic organization requirement, to qualify as a donee organization eligible to receive tax-deductible contributions from an individual, the recipient charitable organization must be created under the laws of the U.S. (or those of any state, the District of Columbia, or any possession of the U.S.), except as otherwise provided in an international tax treaty. However, contributions may be used in a foreign country for charitable purposes.
Tax Deductions to Foreign Charities
Interest in international charitable giving has increased to the point that it has become a significant tax planning issue for many financial advisors, estate planners and accountants. The easiest way for most individuals to make contributions to foreign charities is to donate to domestic charities or donor-directed funds involved with international efforts or program.
Deducting Charitable Contributions to foreign charities
The inquiry about the deductibility of a contribution doesn’t stop with the determination that an amount has been paid to a qualified donee organization. If the amount is earmarked for use by a non-U.S. organization, then, to determine whether the domestic organization requirement has been met, it’s necessary to look beyond the fact that the immediate recipient is a qualified donee. Thus, specifically, if you make your contributions to a domestic organization which in turn makes grants to foreign charitable groups, they will be deductible if they are subject to the domestic organization’s control and aren’t earmarked in any way for use abroad. For example, if the domestic organization is required (perhaps by a specific provision in its charter) to turn particular contributions it receives over to a foreign organization, then IRS would consider the ultimate foreign recipient to be the real donee and the contribution would not be deductible. Otherwise, the “organized in U.S.” rule would be nullified.
Giving to Foreign Charities
Over the years, many foreign charitable groups have created, or established ties with, a U.S. charity in a relationship approved by IRS as meeting the above requirements though the domestic organization turns over contributions to a particular foreign organization.
What Foreign Charities Qualify for IRS Tax Deductions?
Such an organization specifically targets its support for a charitable organization located in a foreign country, and is often called a “friends of” organization, the term often included as part of its legal name to reveal the close affinity. Generally, they exercise the requisite “discretion and control,” even if the domestic organization serves as a grant-making organization and doesn’t conduct a variety of charitable activities abroad.
How to make tax deductible contributions for foreign charities
Another option you might consider is arranging with an appropriate U.S. charity to accept your contribution and then, perhaps because it desires to further the foreign organization’s work, turn over part or all of the amount to the foreign organization. Of course, you must ascertain that IRS requirements have been met. Be aware that when a domestic organization solicits grants for foreign groups, it must: • review and approve the grants as being in furtherance of its own purposes; and • maintain full control of the donated funds and discretion as to their use. Incidentally, if you are using an intermediary organization that is classified as a private foundation, the determination that the foreign organization is a qualified organization must be based on the grantee’s affidavit or on counsel’s opinion. IRS has provided a form for the grantee’s affidavit.