IRS Tutorial Explains the Special Rules for International Activities of U.S. Charities

by Proskauer - Not for Profit/Exempt Organizations

The IRS presents webinars on a variety of subjects.  In August, the IRS presented a webinar conducted by two IRS representatives on the special rules affecting charities that make grants to foreign organizations or engage in activities in foreign countries.

In a fairly comprehensive course, the following significant points were made:

1.    A U.S. charity can do anything in a foreign country that it can do here, provided that the activity is consistent with the charity’s exempt purposes.

2.    For purposes of the rule that a charity may not devote a substantial part of its activities to legislative lobbying:

a.    lobbying includes action by the public in a referendum, ballot initiative, constitutional amendment or similar procedure;

b.    actions by executive, judicial or administrative bodies are not considered legislation;

c.    legislation includes foreign laws; and

d.    in certain countries ruled by authoritarian or theocratic regimes, it is questionable whether the governing body is a legislature or if a legislative process even exists.

3.    A charity is prohibited from directly or indirectly participating in a political campaign of a candidate for a foreign public office, and may not make a contribution to any such campaign.

4.    In a country ruled by a dictatorship, a charity’s criticism of the regime in the course of advocating for democracy, the rule of law or human rights would not ordinarily be regarded as intervention in a political campaign.

5.    The operation of a foreign school must meet the same non-discrimination requirements that are mandatory for domestic schools.

6.    A charity must exercise reasonable care to ensure that its assets are used for charitable purposes.  A charity can demonstrate that it exercised this care by:

a.    maintaining procedures for properly vetting a foreign grantee, such as requiring a written application from the grantee and conducting background checks;

b.    entering into an agreement with the foreign grantee that sets forth the purpose of the grant; and

c.    exercising oversight of the grant to ensure that the grant is used as intended.

7.    Proper documentation may include periodic reports, accounting of expenses, copies of receipts, reports of on site visits by agents of the granting charity and photos and videos showing the charitable program.

8.    The charity should review the reports and take corrective action, where appropriate.

9.    A charity’s exempt status can be revoked if the charity makes grants to foreign organizations and it cannot demonstrate that the grants were actually used for exempt purposes.

10.    If a corporation makes a contribution to a charitable trust, the funds must be used within the United States in order for the contribution to be tax deductible.

11.    Contributors may not earmark funds for the use or benefit of any specific organization or individual.

12.    Contributors may designate their contributions to go to a specific purpose such as earthquake relief.  A charity may also accept non-binding recommendations or advice from donors.

13.    “Friends of” charities must exercise discretion and control over the funds they raise.  The IRS looks at the following positive factors:

a.    whether the charter provides that the board has discretion to allocate funds raised to any charity;

b.    whether the bylaws provide that the board will review all requests for funds, require that the requests specify the proposed use of the funds and require a periodic accounting of funds granted;

c.    whether the bylaws allow the charity to solicit funds for a specific project or purpose approved by the charity, but retain the charity’s right to withdraw approval of the grant and use the funds for other purposes; and

d.    whether the charity makes these policies known to donors upon request, and refuses to accept contributions earmarked so that they must go to the foreign organization.

14.    A donor-advised fund may not make a grant to individuals or make any grant for non-charitable purposes.

15.    A Type III supporting organization may not support an organization that is not organized in the United States.

16.    A charity may distribute funds to foreign organizations that are not charities.  The U.S. charity must be sure that the funds are used for specific projects that further its own exempt purposes.  It must keep records and show it controls the distribution of the funds.  The charity can demonstrate that it exercises such control by implementing the following procedures:

a.    engaging in an independent decision-making process (with no requirement that the charity listen to the donor’s direction) about whether it will provide funds to a foreign organization;

b.    conducting a pre-grant inquiry to be reasonably sure that the grant will be used for exempt purposes;

c.    entering into a written agreement with the recipient regarding the use of the funds; and

d.    obtaining reports that the funds were used for approved exempt purposes.

17.    Charities, in conducting their foreign activities and grantmaking, should be mindful of the sanctions programs of the Treasury Department’s Office of Foreign Asset Control known as OFAC.  OFAC has programs that ban a broad range of programs in or with certain countries.  In some cases a charity may need to obtain a license from OFAC in order to conduct the activity.

18.    OFAC has a program that forbids transactions with specific named individuals and organizations.  A list of names is available on the OFAC website.  Violations of these programs can lead to civil fines and criminal penalties.

19.    The Commerce Department’s Bureau of Industry and Security (BIS) also restricts export of certain equipment and technology to certain countries.  Information in this program is available on the BIS website.

20.    Charities that have foreign investments may have to file certain information returns (besides the 990) such as:

a.    Forms 926 and 5471 relating to foreign corporations;

b.    Forms 3520 and 3520-A relating to foreign trusts and foreign gifts;

c.    Form 8621 relating to passive foreign investment companies and qualified electing funds; and

d.    Form 8865 relating to foreign partnerships.

21.    Under the income tax withholding rules, a charity that makes a payment to a nonresident alien or a foreign organization, such as compensation for services performed in the United States, may need to withhold tax on a portion of the payment and pay it over to the IRS.

22.    If a charity has a financial interest in or signature authority over a foreign financial account, such as a bank account, brokerage account, mutual fund or trust and the aggregate value in the accounts exceeds $10,000 at any time, then the charity may be required to file Form 90-22.1, popularly known as FBAR

23.    Failure to file an FBAR when required to do so may result in civil penalties and criminal penalties.  If a charity failed to file an FBAR for earlier years, it should file the delinquent reports and attach a statement explaining why the reports are late.


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.

© Proskauer - Not for Profit/Exempt Organizations | Attorney Advertising

Written by:

Proskauer - Not for Profit/Exempt Organizations

Proskauer - Not for Profit/Exempt Organizations on:

Readers' Choice 2017
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 using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*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.