Thursday, September 15, 2011

Simplified Procedure Sought for Ensuring Tax-Compliant International Grant Making by Private Foundations

Tax Notes Today reports that Janne Gallagher of the Council on Foundations has requested a meeting with Treasury officials “to discuss equivalency determination information repositories for international grantmaking, the group's proposed amendments to Rev. Proc. 92-94, and final regulations on the redesigned annual exempt organization information return.” 

Rev. Proc. 92-94, 1992-2 C.B. 507, explains the legal background and purpose of the current administrative framework as follows:

Private foundations generally want their grants to foreign grantees to be treated as qualifying distributions for purposes of section 4942 of the Internal Revenue Code rather than as taxable expenditures for purposes of section 4945 of the Code. This treatment is assured if the foreign grantee has a ruling or determination letter classifying it as a public charity within the meaning of section 509 (a) (1), (2), or (3), or a private operating foundation under section 4942 (j) (3) of the Code. If a foreign grantee does not have such a ruling or determination letter, the Foundation Excise Tax Regulations set forth requirements that must be satisfied in order to assure that the grant will be considered a qualifying distribution.

In response to requests from private foundations, this revenue procedure provides a simplified procedure that private foundations (including nonexempt charitable trusts) may follow in making "reasonable judgments" and "good faith determinations" under sections 53.4945-6 (c)-(2) (ii), 53.4942 (a)-3 (a) (6) and 53.4945-5 (a) (5) of the Foundation Excise Tax Regulations. If the requirements of this revenue procedure are met, a grant to a foreign grantee will be treated as a grant to an organization that is described in section 501 (c) (3) or section 4947 (a) (1) of the Internal Revenue Code, and, that is either a public charity within the meaning of section 509 (a) (1), (2), or (3), or a private operating foundation under section 4942 (j) (3) of the Code.

In her letter addressed jointly to an attorney in the Office of Tax Policy and the head of the Tax Exempt and Government Entities Division, Ms. Gallagher writes of the need “to allow grantmakers to rely upon affidavits, documents, and equivalency determinations maintained by ‘equivalency determination information repositories’ (EDIRs).”  Expressing approval of the government’s decision to include an update to Revenue Procedure 92-94 in the most recent fiscal year's priority guidance plan, Ms. Gallagher reports that “I and others involved with the centralized repository project have continued to be approached by numerous grantmakers indicating the strong need for such a repository as a mechanism for simplifying and streamlining international grantmaking.”

The full text of the letter is available at 2011 TNT 178-41.  Tax Notes Today reports that Jean J. Lim, President of the Amgen Foundation, has written a similar letter, the text of which is available at 2011 TNT 178-38.

JRB

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