The world is full of worthwhile causes, from humanitarian need to climate change. Organizations around the world are working to address these needs, which may be magnified during periods of instability or conflict. Philanthropists often look for the most effective ways to respond.

International giving requires careful planning. While U.S. tax law generally limits the deductibility of contributions to foreign organizations, there are effective strategies philanthropists can use to support charitable causes outside the U.S. without sacrificing eligibility for a tax deduction. Several of these options are discussed below. 

Background

For individuals, the Internal Revenue Code (IRC) provides a tax deduction to those who contribute to a “charity” and also defines what counts as a charity. To ensure a contribution is eligible for a tax deduction, a philanthropist must comply with the rules. Those who wish to support non-U.S. causes may face additional requirements. Individuals may receive a charitable deduction for funding a charitable vehicle, such as a private foundation or donor-advised fund (DAF). The IRC and its regulations govern the operation of these charitable vehicles, including permissible distributions to charities. 

Give through a U.S. public charity with international programs

Many U.S.-based public charities conduct international work directly or in partnership with organizations abroad. Gifts to these charities – such as the American Red Cross – are fully deductible and provide an easy and effective way to reach international beneficiaries.

Use a U.S. affiliate or "Friends of" organization

Many charitable organizations headquartered outside the U.S. also create a U.S. affiliate. The U.S. affiliate makes fundraising more efficient for the organization, as it provides a seamless structure for U.S. citizens to make charitable gifts while taking advantage of an income tax deduction. If a non-U.S. charity has a U.S. affiliate, a gift to the charity through its U.S. affiliate will qualify for a tax deduction. These organizations are often referred to as “Friends of” organizations. This structure works well for established international charities; however, it may not be available for smaller or emerging organizations.  

Private foundations: Make grants using expenditure responsibility or an equivalency determination

If an international charitable organization does not have a U.S. affiliate, a charitable gift still may be possible, but an additional layer of due diligence may be required. The exact requirements depend on the charitable vehicle that is utilized. Philanthropists who give through private foundations may support efforts outside the U.S. even without a U.S. affiliate, but the foundations must either exercise expenditure responsibility or obtain an equivalency determination. 

• Expenditure responsibility means that the foundation exerts all reasonable efforts and establishes adequate procedures to see that the grant is spent only for the purpose for which it is made. It also requires the foundation to obtain full and complete reports from the grantee organization regarding how the funds are spent, and it requires the foundation to make full and detailed reports on the expenditures to the IRS. While this level of due diligence is not overly complicated, it can create an undesirable level of administrative oversight. As such, it may not make sense for small grants.
• Equivalency determinations are good faith judgements that a foreign organization is the equivalent of a U.S. public charity. Equivalency determinations are typically supported by legal counsel and may be made in-house or obtained from a third-party provider that specializes in evaluating foreign organizations. This option may be preferable for larger or repeat grants.  

DAFs: Make grants using expenditure responsibility or an equivalency determination

Philanthropists who give through DAFs may support efforts outside the U.S. provided the DAF sponsor exercises the same kind of expenditure responsibility described in the previous section or obtains an equivalency determination. One advantage of using a DAF in this way is that the administrative burden is shifted to the DAF sponsor. 

It is important to note that certain DAF providers are willing to provide this additional support, while others will be unwilling to do so. Many of the DAF providers who are willing to provide expenditure responsibility or equivalency determinations will do so for grants exceeding a certain amount – so, again, it may not make sense for small grants. 

In addition, there are DAF sponsors structured primarily for the purpose of shifting the administrative burden to the DAF sponsor, often referred to as “conduit” DAFs.  These sponsors focus on international transactions, often do not hold assets over longer periods like traditional DAF sponsors, and charge an administrative fee for their services. The administrative fee typically is reasonable but may not make sense for small grants. A conduit DAF may also be used by a private foundation that does not wish to execute its own expenditure responsibility or obtain its own equivalency determination or by a philanthropist who uses a DAF sponsor that is unwilling to provide expenditure responsibility or an equivalency determination.