IRS Issues Proposed Regulations To Make International Grant-Making By Private Foundations Easier


On September 24, 2012, the IRS issued Proposed Regulations §§ 53.4942(a)-3 and 53.4945-5 in order to reduce barriers to international grant-making made by private foundations. Secretary of State Hilary Clinton announced the guidance during an address at the Clinton Global Initiative. In particular, the new guidance modernizes the process of evaluating whether a foreign non-governmental organization is equivalent to a U.S. public charity for purposes of charitable giving.


To avoid excise taxes, private foundations must, among other things, make a minimum level of “qualifying distributions” and must avoid making “taxable expenditures”. In general, under the current regulations grants for charitable purposes to certain foreign organizations (that do not already have a determination letter from the IRS) may be treated as qualifying distributions as well as grants that are other than taxable expenditures if the private foundation makes a good faith determination that the foreign organization is the equivalent to a U.S. public charity or an exempt operating foundation. Such determination should be based on an affidavit of the grantee or an opinion of counsel of either the grantor or grantee. The affidavit or opinion must set forth sufficient facts concerning the operations and support of the grantee demonstrating that the grantee would be likely to qualify as a public charity.

The Proposed Regulations

The proposed regulations broaden the range of professionals on whose written advice a private foundation may rely when making “a good faith determination” that the foreign organization is the equivalent to a U.S. public charity or an exempt operating foundation. Under the new rules, in addition to being able to rely on an affidavit of the grantee or an opinion of counsel of either the grantor or grantee, a private foundation’s good faith determination may also be made based on the written advice of a “qualified tax practitioner” who is subject to the requirements of Circular 230. This includes attorneys, certified public accountants (CPAs) or enrolled agents. It would not include foreign counsel unless such counsel was subject to the requirements of Circular 230 (e.g. the foreign practitioner was also licensed in the U.S.).

Effective Date

While the IRS has requested comments before adopting these proposed regulations as final, private foundations may begin relying on the proposed regulations immediately.

Other Considerations

The IRS is requesting comments on the foregoing, and is also considering the following:

  • Should there be a limit to the timeframe during which a private foundation may be permitted to rely upon a qualified tax practitioner’s written advice?
  • Should the current regulations be amended to remove the ability of a private foundation to base a good faith determination on an affidavit of a foreign grantee?


For further information, please contact David Ulich at (310) 228-2274 or Danica Dodds at (310) 228-2274.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sheppard Mullin Richter & Hampton LLP | Attorney Advertising

Written by:


Sheppard Mullin Richter & Hampton LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.