Planning for contributions by individuals and private foundations
to foreign charities requires careful attention to complex tax rules as well as
nontax laws and best practices aimed at preventing the diversion of
contributions to fund terrorism.
Author:
RICHARD L. FOX, ATTORNEY
RICHARD
L. FOX is an attorney and a partner in the law firm of Dilworth Paxson LLP, in
International
charitable giving by Americans has increased dramatically in recent years and
is evolving as a tax planning area of significant importance. 1
Contributions by individuals and private foundations to or for the benefit of
foreign charities are subject to complex tax rules, often presenting formidable
obstacles in making such contributions. 2
There are a number of alternatives available to effectuate international
charitable giving, however, while ensuring tax deductibility and compliance
with the tax laws. Due consideration must also be given to various sanctions
and best practices adopted in the aftermath of 9/11/01, which are aimed at
preventing the funding of terrorism. Finally, when a contribution is made to a
foreign charity to fund activities to be performed in the
An individual
making a contribution to a charitable organization is entitled to an income tax
deduction under Section
170(a) only if the organization is “created or organized in the United
States or in any possession thereof, or under the laws of the United States,
any State, the District of Columbia, or any possession of the United States.”
3
Thus, contributions by individuals to a charity created or organized under
foreign law are not deductible for income tax purposes. 4
The
legislative history to the Revenue Act of 1938 5
indicates, though, that Congress did not intend to preclude deductibility for a
contribution to a domestic charity that, in turn, uses such funds to further
its charitable purposes in foreign countries. Moreover, the Regulations
explicitly address this situation, specifically providing that a “charitable
deduction by an individual to an organization described in Section
170(c) is deductible even though all, or some portion, of the funds
of the organization may be used in foreign countries for charitable or
educational purposes.” 6
Similarly, Rev.
Rul. 63-252 7
provides that the limitation under Section 170(c) “relates only to the place of
creation of the charitable organization to which contributions may be made and
does not restrict the area in which deductible contributions may be used.”
Deductibility
turning on the laws under which a donee charity is created or organized has
been interpreted quite literally. In Welti, 8
for example, the court held that a contribution was not deductible because it
was made to a church that was organized as a corporation under the laws of Switzerland,
even though the church was for all intents and purposes merely a branch of a
U.S. church organized under the laws of Massachusetts. 9
In Bilingual Montessori School of Paris, 10
contributions to an educational organization incorporated under the laws of
An individual
desiring to further a program conducted abroad by a domestic charity can
earmark a contribution expressly for that program (but not for a specified
foreign charitable organization), so long as that program is subject to the
control of the domestic charity. This is the case because a donor can determine
which of a qualified organization's charitable purposes will receive the
exclusive benefit of a contribution to the organization. 11
If an individual desires to make contributions specifically for the benefit of
a particular foreign charitable organization, however, certain alternatives are
available, as discussed below, to accomplish this on a tax-deductible basis,
even though the intended donee organization is not a domestic charity and a
contribution directly to such organization is not otherwise deductible.
There are a
multitude of
In Rev.
Rul. 63-252 , the IRS addressed alternative factual situations regarding
the deductibility of contributions to
The IRS,
citing Thompson, 12
stated that the inquiry as to the deductibility of a contribution does not stop
once it is determined that an amount has been paid to a qualifying domestic organization.
Rather, if the amount is earmarked for a foreign charity, it is appropriate to
look beyond the fact that the immediate recipient is a qualifying organization
to determine whether the payment constitutes a deductible contribution.
Similarly, if an organization is required for other reasons (such as a specific
provision in its charter) to turn over contributions to a foreign charity, or
if the contributions are otherwise inevitably committed to go to a foreign
charity, the IRS stated that the real donee is the ultimate foreign recipient.
On this ground, the IRS concluded that the contributions to the domestic
charity in examples one and two are not deductible.
Similarly, in
example three of Rev.
Rul. 63-252 , where the domestic organization represents to prospective
contributors that the contributions it receives will be turned over to a foreign
organization, the IRS determined that the contributions are not deductible. In
these examples, the foreign charity was considered the real donee, and the
domestic charity was merely a conduit.
Example three
of this Ruling was subsequently amplified by Rev.
Rul. 66-79 , 13
in which the IRS concluded that contributions to a domestic charity which are
solicited for a specific project of a foreign charitable organization will be
deductible under Section 170, provided that the domestic charity reviews and
approves the project as being in furtherance of its own exempt purposes and has
control and discretion as to the use of the contributions. If a
Donor-advised
funds within community foundations and those sponsored by a multitude of mutual
fund and brokerage companies generally prohibit recommendations of grants to
foreign charities made by donor advisors and, accordingly, any such
recommendations will not be approved. A number of domestic public charities,
however, operate international donor-advised fund programs (such as United Way
International, Charities Aid Foundation
Prior to
approving such recommendations, these organizations (1) conduct their own due
diligence to ensure that the foreign charity recommended by a donor advisor is
a bona fide charity that is in compliance with applicable foreign law governing
charitable organizations, and (2) generally impose reporting obligations with
respect to grants made to a foreign charity. Contributions to these domestic
public charities are not considered earmarked for a foreign charity because any
grant recommended to a foreign charity is subject to the final review and
approval of the domestic public charity operating the donor-advised fund
program, just as is the case with donor-advised funds within community
foundations and those sponsored by mutual fund and brokerage companies. Thus,
contributions to these organizations are deductible, despite the fact that they
ultimately may be directed to foreign charities by the donor advisor.
Individuals
considering making substantial gifts to an international donor-advised fund
should confirm that the administrators of the public charity operating the fund
will, in fact, establish adequate screening processes related to donor
recommendations. Absent such a screening process, grants to foreign charities
pursuant to donor recommendations may be considered as being made by an
individual directly to a foreign charity, in which case no deduction would be
allowable.
No
prohibition exists on a domestic private foundation making grants to foreign
charities, provided that the foundation complies with the applicable Chapter 42
excise tax requirements with respect to foreign grants. An individual wishing
to make significant grants to foreign charities, therefore, may be better
served by creating and funding a domestic private foundation which, in turn,
can engage in grant-making to foreign charities selected by the individual.
Specific rules govern grants by private foundations to foreign charities, which
are discussed below under the heading “Contributions to foreign charities by
private foundations.”
Under Rev.
Rul. 74-229 , 15
a domestic organization that is organized and operated in support of a foreign
charity that otherwise meets the requirements under Section
509(a)(3) can qualify as a supporting organization. Although Rev.
Rul. 74-229 did not address deductibility issues under Section 170, it may
be possible for the supporting organization to meet the “operated, supervised,
or controlled by or in connection with” requirement of Section 509(a)(3)(B),
but still retain control and discretion over the contributions that it
receives.
In this
situation, although the funds will eventually be distributed to the foreign
charity, they presumably should not be considered earmarked as such because the
domestic supporting organization maintains control and discretion over the
funds it receives. Given the highly technical nature of Section 509(a)(3)
supporting organizations 16
and the adverse consequences incident to the denial of deductibility,
practitioners should obtain a private letter ruling confirming that
contributions by an individual to the domestic Section 509(a)(3) supporting
organization formed to support a foreign organization are deductible under
Section 170. 17
Unless a
foreign charity has been determined by the IRS to be a public charity for U.S.
tax purposes (which is unusual because very few foreign charities seek such
classification), a domestic private foundation must comply with very specific
requirements in order to make a grant to a foreign charity without running
afoul of the Chapter 42 requirements applicable to private foundations.
There are
basically two methods to accomplish this. First, a domestic private foundation
can make an “equivalency determination” that the foreign grantee is the
equivalent of a
Equivalency
determination of status of foreign charity. An equivalency
determination requires that the domestic private foundation make a good faith
determination regarding the status of a foreign grantee under
The
alternative to obtaining an affidavit from the foreign charity is to obtain an
opinion of counsel. The information that an attorney must generally review in
order to issue an opinion is largely that required for the foreign grantee
affidavit required by Rev.
Proc. 92-94 , so that obtaining an opinion of counsel may be expensive and
not justified for smaller grants.
Assuming that
a good faith determination is made by the domestic charity (by way of an
affidavit or opinion of counsel), establishing that the foreign grantee is the
equivalent of a public charity under U.S. tax laws, the grant to the foreign
charity is treated as a qualifying distribution and the exercise of expenditure
responsibility is not required. On the other hand, if the foreign grantee is
determined to be the equivalent of a U.S. private foundation because it is not
described in Section 509(a), the domestic private foundation must exercise
expenditure responsibility with respect to the grant as prescribed by Section
4945(h) and the Regulations thereunder, and a qualifying distribution is
generally not available. 21
IRS
information letter: Equivalency determination no longer required, provided
expenditure responsibility is exercised and separate fund is maintained. On 4/18/01, following
a two-year effort by the Council on Foundations (“Council”) to streamline
international grant-making by U.S. private foundations, the IRS issued a
general information letter to the Council concluding that nothing in the
Internal Revenue Code (“IRC”) or the Regulations requires a private foundation
to inquire or evaluate whether it can make a good faith determination that a
foreign charitable grantee organization is the equivalent of an Section
501(c)(3) organization and a public charity under Section 509(a). 22
Under the IRS general information letter, a
While general
information letters are advisory in nature and have no binding effect on the
IRS, they are intended to provide clarification of well-established
interpretations of law. The Council has stated that it believes that all
Specifically,
under the IRS general information letter, a private foundation may treat a
grant to a foreign grantee as a qualifying distribution and not as a taxable
expenditure if the private foundation (1) elects “to treat a foreign grantee as
not being described in IRC
§501(c)(3) ” and (2) exercises expenditure responsibility with respect to
the grant as prescribed under Section 4945(h) and the accompanying Regulations.
This includes the requirement that the grantee organization must agree to
continuously maintain the grant funds in a separate fund dedicated to one or
more purposes described in Section
170(c)(2)(B) . 25
A private
foundation's ability to use the equivalency-determination rules of the
Regulations is not affected by the IRS information letter. A private foundation
may, therefore, still use either the affidavit or opinion-of-counsel approach
to determine that a foreign charity is the equivalent of a Section 501(c)(3)
organization and a public charity, in which case no expenditure responsibility
would be required and the grant funds would not need to be held by the foreign
charity in a separate fund.
Besides
complying with applicable provisions of the IRC, individuals and private
foundations should be aware of the potential for criminal prosecution, civil
penalties, and the freezing of their assets for making charitable contributions
to foreign or domestic charities that engage in or support terrorism. Although
the Treasury Department has previously issued “best practice” voluntary
guidelines for
In addition,
while the IRS has recently announced its intention to clarify and expand
existing guidance with respect to international grant-making by
Executive
Order 13224 and the Patriot Act. Just days after the terrorist attacks
of 9/11/01, President Bush issued Executive Order 13224, “Blocking Property and
Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or
Support Terrorism” (the “Executive Order”). One month later, the USA PATRIOT
Act, “Uniting and Strengthening America by Providing Appropriate Tools Required
to Intercept and Obstruct Terrorism” 27
(the “Patriot Act”), was signed into law.
The Executive
Order provides a means to disrupt the financial support network for terrorists
and terrorist organizations by authorizing the
Once an
entity or individual is designated under the Executive Order, the Office of
Foreign Assets Control (“OFAC”) of the Treasury Department takes appropriate
action to block the assets of the individual or entity in the
Prior to the
Patriot Act, Title 18 of the United States Code already included criminal
sanctions for persons who provided materials or financial support for terrorism
and for “foreign terrorist organizations” (“FTOs”) in particular. The Patriot
Act supplemented those provisions by amending Title 18 to expand the scope of
criminal prosecution for providing support to terrorist organizations and
increasing penalties for noncompliance. Under these supplemented provisions,
substantial civil penalties or prison terms up to 15 years, or both, are
imposed for providing material support or resources, knowing or intending
that they will be used for terrorism or by an FTO. 33
“Material support or resources” for this purpose is broadly defined and clearly
would include grants used by a recipient to engage in terrorist acts or if the
recipient is an FTO. 34
In June 2002,
Title 18 was once again supplemented by criminalizing the “financing of
terrorism,” whereby substantial civil penalties or prison terms of up to 20
years, or both, are imposed if a person willfully provides or collects funds
with the intention that such funds be used to carry out acts of terrorism or to
support an FTO. 35
The OFAC's list of “Specially Designated Nationals and Blocked Persons”
includes organizations that have been designated as FTOs.
Treasury
Department's anti-terrorism `best practices.' In November 2002, the
Treasury Department issued “Anti-Terrorist Financing Guidelines: Voluntary Best
Practices for U.S.-Based Charities," which were developed in response to
concerns of members in the Arab-American and American Muslim communities about
the decline in charitable giving in their communities in the aftermath of the
Treasury Department's “blocking action” against three U.S. public charities
found to support terrorist organizations. 36
These guidelines are entirely voluntary but, according to the press release
announcing the issuance of the guidelines, if a U.S.-based charity follows
these guidelines, “there will be a corresponding reduction in the likelihood of
a blocking order against any such charity or donors who contribute to such
charity in good faith, absent knowledge or intent to provide financing or
support to terrorist organizations.” 37
In addition
to containing certain standard suggestions for organizational transparency, the
guidelines provide for U.S. organizations to perform significant due diligence
and collect an abundance of information prior to distributing funds to foreign
organizations, including the following: 38
1. The
charity should collect certain “basic” information about a foreign recipient.
39
2. The
charity should conduct basic vetting of potential foreign recipient
organizations:
a. The
charity should be able to demonstrate that it conducted a reasonable search of
public information to determine whether the foreign recipient is or has been
implicated in any questionable activity.
b. The
charity should be able to demonstrate that it has verified that the foreign
recipient organization does not appear on any list of the U.S. Government, the
United Nations, or the European Union identifying it as having links to
terrorism or money laundering. 40
c. The charity
should obtain the full name in English, in the language of origin, and any
acronym or other names used, as well as the nationality, citizenship, current
country of residence, place and date of birth for key staff at the foreign
recipient organization's principal place of business (such as board members)
and for senior employees at other locations. The charity should then run the
names through public databases and compare them to the lists noted above.
d. The
charity should require the foreign recipient organizations to certify that they
do not employ or deal with any entities or individuals on the list noted above,
or with any entities or individuals known to the foreign recipient organization
to support terrorism.
3. The
charity should review the financial operations of the foreign recipient
organization:
a. The
charity should determine the identity of the financial institutions with which
the foreign organization maintains accounts.
b. The
charity should require periodic reports from the foreign recipient organization
on its operational activities and use of the disbursed funds.
c. The
charity should require the foreign recipient organization to undertake
reasonable steps to ensure that funds provided by the charity are not
ultimately distributed to terrorist organizations. Periodically, the foreign
recipient should apprise the charity of the steps it has taken to meet this
goal.
d. The
charity should perform routine, on-sight audits of the foreign recipient
organizations whenever possible, consistent with the size of the disbursement
and the cost of the audit.
The voluntary
guidelines have been soundly criticized for failing to take into account
existing laws requiring oversight of foreign grants and the experience of
After
considering comments made by U.S. charities in response to the voluntary
guidelines and requests that the guidelines be withdrawn and reissued in a
revised form (including producing a regularly updated and consolidated list of
clearly identifiable blocked organizations and individuals), the Treasury
Department invited a group of charitable organizations to engage in discussions
regarding the guidelines on 4/28/04. After the meeting, representatives of more
than 25 charities worked to develop a more usable alternative to the
guidelines. The new alternatives were released in final form in March 2005 in a
document entitled “Principles of International Charity,” 42
with the hope that they will replace the Treasury Department's voluntary
guidelines.
IRS
Announcement 2003-29. Following the Treasury Department's release
of its voluntary guidelines, the IRS, in Ann. 2003-29, 43
requested public comments on how it might clarify or expand existing guidance
under Section 501(c)(3) with respect to international grant-making and other
international activities. According to the Announcement, the IRS is
particularly interested in comments on how new guidance “might reduce the
possibility of diversion of assets for non-charitable purposes while preserving
the important role of charitable organizations world-wide.”
Unlike the
Treasury Department's voluntary guidelines, which focus on law enforcement
issues relating to the funding of terrorism (such as compliance with the
Patriot Act and Executive Order 13224), the focus of the IRS is on ensuring
compliance with Section 501(c)(3). The IRS has received an abundance of
comments in response to Ann. 2003-29 and is currently in the process of
determining whether new guidance is, in fact, required in this area, and
whether changes to Forms 990 and 990-PF are required to better reflect foreign
grant-making. At this point, the IRS has not issued any further guidance in
this area.
Contributions
to foreign charitable organizations generally have little risk of being
diverted to support terrorism since, in most cases, they will be made to
well-known and reputable foreign charities. It is important, though, for
1. Ensure
that the proposed foreign charitable donee is not on the OFAC list of
“Specially Designated Nationals and Blocked Persons.” 44
One useful source where an organization's name can be checked against this list
is the Excluded Parties List System (“EPLS”), which can be found at
www.epls.gov. 45
If an organization makes numerous foreign grants, the use of software programs
to run automated checks should be considered, including those checking multiple
terrorist lists, such as those of the Justice Department, the United Nations,
and the European Union. 46
2. Conduct
due diligence to ensure that the proposed foreign donee is a bona fide
charitable organization. This should include obtaining organizational
documents, financial statements and tax returns, information about the
organization's charitable programs, history, board of trustees and key
employees, and the identity and qualifications of the individuals administering
the grant. 47
Knowing the foreign grantee organization is probably the best way to avoid the
diversion of funds from their intended charitable purposes, more so than
checking any list purportedly containing the name of terrorists or their
supporters.
3. Based on
(1) the information obtained about the foreign grantee, (2) the U.S.
grant-maker's own prior experience with the proposed grantee, and (3) other
relevant information (such as the country where the proposed grantee is located
and whether that country has its own anti-terrorism protections), assess the
risk of diversion of the grant to support terrorism and take appropriate steps
to minimize any perceived risk. Steps to minimize risk could include obtaining
references from third-party reliable sources and information regarding the organization's
internal controls and oversight procedures, disbursing funds on a periodic
short-term basis and requiring reports on previously expended funds,
restricting the use of the grant to specific charitable purposes, and using a
reliable third party located in the same country as the proposed foreign donee
to assist with the administration and monitoring of the grant.
Another
alternative to consider is to obtain a pre-grant certification from a potential
donee organization that it does not support or fund terrorism and that it takes
appropriate steps to ensure that grant funds are not ultimately distributed to
terrorist organizations. The mere presence of a risk of diversion of funds
should not necessarily be a reason not to make a grant, provided that—in
response to such a risk—the organization exercises reasonable care and adequate
precautions to minimize the risk. Where the organization is not willing or able
to minimize the risk of the diversion of the grant funds, however, the grant
should not be made.
4. Fully
document the due diligence and all steps taken with respect to the proposed
foreign grantee, the assessment of the risk that the grant will be diverted for
terrorism, and steps taken to minimize any perceived risk.
5. Rather
than making grants directly to foreign charities, consider making the grant to
a bona fide and well-established U.S.-based international donor-advised fund or
U.S. “friends” organization that will conduct its own due diligence prior to
making a grant to a foreign organization. 48
Withholding
generally required if foreign grantee will conduct activities in the U. S. Unless an exemption
applies, as discussed below, a grant by a U.S. person, including a U.S.-based
private foundation, to a foreign charity is subject to a 30% U.S. withholding
tax if the grant will result in activities being performed in the U.S. 49
Consequently, if it can be established that the activities to be conducted as a
result of the grant will be performed entirely outside the U.S., no
withholding is required and no special forms or procedures are necessary. For
example, if the written grant agreement with a foreign charity specifically
states that the grant must be used entirely to conduct activities outside the
If only some
activities will be conducted in the
Available
exemptions from withholding tax requirements. Even if a grant to a
foreign charity will be used to fund U.S.-based activities, there is no U.S.
tax withholding obligation where (1) the grant is not subject to U.S. tax under
a U.S. tax treaty provision, or (2) the foreign charity is described in Section
501(c)(3) . To avoid withholding requirements based on a
International
charitable giving by
International charitable giving by U.S. private and
community foundations, which includes grants to overseas recipients and funding
for U.S.-based international programs, reached $3 billion for the fourth year
in a row in 2003, according to “International Grantmaking III: An Update on
U.S. Foundation Trends,” a report prepared and published by Foundation Center,
with the support and collaboration of the Council on Foundations.
See, e.g., Crimm, “Global Philanthropy Depends on Tax
Laws,” The Chronicle of Philanthropy (4/3/03).
Section 170(c)(2)(A) . In planning for contributions to support foreign
charities,
Deductibility for estate and gift tax purposes is more
liberal than for income tax purposes, as a full estate and gift tax deduction
is allowed for bequests and gifts to any corporation organized and operated for
charitable purposes. See Sections
2055(a)(2) and 2522(a)(2)
.
See H. Rep't No. 1860, Revenue Act of 1938, 75th
Cong., 3d Sess.
Reg. 1.170A-8(a)(1) (emphasis added).
1963-2 CB 101.
1 TC
905 (1943).
See, however, Rev.
Rul. 63-252, 1963-2 CB 101 , allowing a deduction where the foreign
charitable organization “is merely an administrative arm of the domestic
organization.”
75
TC 480 (1980).
See Winn, Jr., 44
AFTR 2d 79-5076 , 595 F2d 1060 , 79-1 USTC ¶9392 (CA-5, 1979).
2
TC 441 (1943).
1966-1 CB 48.
See Rev. Proc. 82-89, 1982-2
CB 759 (contributors may generally rely on a listing in Publication 78
until the IRS announces a revocation or change in exempt classification).
1974-1 CB 142.
The Regulations governing these organizations are
extremely lengthy and complex, to the point that one judge characterized these
Regulations as “fantastically intricate and detailed,” Windsor Foundation, 40
AFTR 2d 77-6004 , 77-2 USTC ¶9709 (DC Va.,
1977).
Most “friends” organizations are classified as public
charities under Section
509(a)(1) by virtue of receiving broad-based public support. Qualification
under Section 509(a)(3) is more problematic, but should be considered where
only little or no public support is anticipated.
In addition, a
Regs. 53.4942(a)-3(a)(6) and 53.4945-5(a)(5)
.
1992-2 CB 507.
Regs. 53.4945-5(a) and 53.4945-5(b)
.
For the full text of this letter, see:
http://www.cof.org/government/irsletter.pdf.
See, e.g., Ltr.
Rul. 200321023 .
For further discussion of anti-terrorism measurers in
the context of international grant-making, see Crimm, “High Alert: The
Government's War on the Financing of Terrorism and Its Implications for Donors,
Domestic Charitable Organizations, and Global Philanthropy,” 45 Wm. & Mary
L. Rev. 1341 (Mar. 2004); “Handbook on Counter-Terrorism Measures: What U.S.
Nonprofits and Grant-makers Need to Know” (2004), produced by Independent
Sector, InterAction and the Council on Foundations under the auspices of Day,
Berry & Howard Foundation. See also Gallagher, “Grantmaking in an Age of
Terrorism: Some Thoughts About Compliance Strategies,” International Dateline.
A multitude of information on foreign grant-making is provided by the Council
on Foundations at www.usig.org.
Pub. L. No. 107-56 (2001).
See
Specifically, the Executive Order provides authority
for the designation and blocking of assets of the following “designated
persons”: (1) foreign persons specifically identified in the annex to the
Executive Order; (2) foreign persons determined by the Secretary of State, in
consultation with the Secretary of the Treasury and the Attorney General, to
have committed, or to pose a significant risk of committing, acts of terrorism
that threaten the security of U.S. nationals or the national security, foreign
policy, or economy of the U.S.; (3) any persons (U.S. and foreign) determined
by the Secretary of the Treasury, in consultation with the Secretary of State
and the Attorney General, to be owned or controlled by, or to act for or on
behalf of, designated persons; and (4) any persons (U.S. and foreign)
determined by the Secretary of the Treasury, in consultation with the Secretary
of State and the Attorney General, who (i) assist in, sponsor, or provide
financial, material, or technological support for, or financial or other services
to or in support of, acts of terrorism or designated persons, or (ii) are
otherwise associated with designated persons. In addition, the Executive Order
prohibits certain activities that were previously considered charitable, in
that it prohibits the provision of humanitarian relief assistance to
organizations deemed to be associated with terrorism, such as a hospital that
provides services to persons associated with terrorism.
The listing of designated persons by the Treasury
Department is maintained by the Office of Foreign Assets Control, which can be
found at: www.ustreas.gov/offices/enforcement/ofac/sdn/t11sdn.pdf.
These organizations are the Benevolence International
Foundation, Inc., the Holy Land Foundation for Relief and Development, and the
Global Relief Foundation, Inc. The fourth public charity was Al-Haramain
Islamic Foundation.
Although Section
501(p) automatically suspends the Section 501(c)(3) status of a
18 U.S.C. §§ 2239A(a) and
2239B(a) .
See 11/7/02 press release issued by the Office of
Public Affairs, at: http://www.treas.gov/press/releases/po3607.htm.
Press Release PO-3607.
The guidelines are divided into four separate areas:
(1) governance, (2) disclosure/transparency in governance and finances, (3)
financial practice/accountability, and (4) anti-terrorist financing procedures.
This basic information about the foreign recipient
includes (1) its name in English, in the language of origin, and any acronym or
other names used to identify the foreign recipient; (2) the jurisdiction in
which the foreign recipient maintains a physical presence; (3) the jurisdiction
in which the foreign recipient organization is incorporated or formed; (4) the
address and phone number of any place of business of the foreign recipient
organization; (5) the principal purpose of the foreign recipient organization;
(6) the names and addresses of organizations to which the recipient
organization currently provides or proposes to provide funding, services, or
material support; (7) the names and addresses of any subcontracting
organizations used by the foreign recipient; (8) copies of public filings or
releases made by the foreign recipient; and (9) the foreign recipient's
existing sources of income.
The guidelines indicate that the following lists
should be consulted: the OFAC's listing of SDNLs, the U.S. Government's
Terrorist Exclusion List maintained by the Justice Department, the list
promulgated by the United Nations pursuant to U.N. Security Council Resolutions
1267 and 1390, the list promulgated by the European Union pursuant to EU
Regulations 2580, and any other official list available to the grant-making
charity.
See, e.g., “Safe and Sound?,” The Chronicle of
Philanthropy (8/7/03); “Comments on U.S. Department of the Treasury
Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S.-Based
Charities,” Council on Foundations (6/23/03).
The report, which was drafted by the “Treasury
Guidelines Working Group,” as coordinated by the Council on Foundations, sets
forth eight fundamental principles that “underlie the diversity of due
diligence procedures that effectively minimize the risk of diversion of
charitable assets.”
2003-1 CB 928.
This list can be found at www.ofacsearch.com. In
addition to checking the organization, it would be prudent for the president,
executive director, and person administering the grant to be checked against
the list.
This list identifies parties excluded throughout the
U.S. Government from receiving federal contracts or certain subcontracts as
well as certain types of federal financial assistance and benefits. This list
includes “Specially Designated Nationals and Blocked Persons” appearing on the
OFAC list. Although the OFAC list is now fully integrated in the EPLS database,
it is also available at the OFAC website. In addition, consideration should be
given to whether any
For example, MicroEdge (www.microedge) has developed a
data export link to multiple commercial compliance services allowing
grant-makers to run automated checks of organizations that may appear on a
variety of terrorist lists.
Under the pre-grant inquiry requirements where
expenditure responsibility is applicable, this information necessarily has to
be obtained. See Reg.
53.4945-5(b)(2) .
For example, an article in the NonProfit Times, “Nonprofits
Fear False Accusations of Terror Grants” (5/1/03), indicates that the
international donor-advised fund, Charities Aid Foundation
The IRC provisions imposing tax withholding
obligations are Section
1441 (nonresident aliens), Section
1442 (foreign corporations), and Section
1443 (foreign tax-exempt organizations). Regulations under Section 1441,
effective for payments made on or after 1/1/01, apply to all three Code
sections, which generally require the withholding of